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When you default on a loan or sell a house for less than the borrowed amount, several consequences can occur:

Loan Default

1. Late Fees: Lenders typically charge late fees as soon as a payment becomes overdue[1].
2. Credit Score Impact: Missed payments are reported to credit bureaus, negatively affecting your credit score[1].
3. Notices and Escalation: Lenders usually issue notices after 30, 60, and 90 days of missed payments[1].
4. Default Declaration: If payments remain overdue beyond three months, the lender may declare you in default[1].
5. Legal Action: The lender can take legal action to recover the outstanding amount[1].
6. Foreclosure: In severe cases, the lender may initiate foreclosure proceedings on your property[1].

Selling a House for Less Than Owed

When selling a house for less than the mortgage balance (known as an "underwater" or "upside-down" mortgage), you have several options:

1. Short Sale: The lender agrees to accept less than the full payoff amount[4].
   • Requires lender approval
   • May result in forgiveness of the remaining debt
   • Potential tax consequences on forgiven debt[4]
2. Pay the Difference: You can sell the house and pay the lender the shortfall amount out of pocket[4].
3. Deed in Lieu of Foreclosure: You transfer the property title to the lender to satisfy the debt[4].