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What are the consequences of defaulting on a hard money mortgage?

Failing to meet your hard money mortgage loan obligations can have a significant financial impact on you.

last updated Sunday, July 13, 2025
#Down payment Loss #Asset Loss



by John Burson    
Consequences of defaulting on hard money mortgage

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Compared to traditional mortgages, hard money mortgages fall into ‘high-risk’ loans. Often, the security offered is distressed land, such as a parcel in a short sale or foreclosure position. The hard money mortgage is also offered with a lower LTV (loan-to-value) ratio when compared to conventional mortgages, which can go up to 90 percent of the home’s value. Failing to meet your hard money mortgage loan obligations can have a significant financial impact on you.

Asset Loss

Defaulting on a loan when you have a hard money mortgage increases your risk of losing collateral assets. Every default notice follows several delinquency notices, providing an opportunity to respond. The only problem is that conventional lenders are more understanding than hard money lenders. Hard money comes from high-risk financiers who lend money to individuals with bad credit. This often leads them to become more aggressive toward defaulters, as they have little interest in allowing you to restore the loan.

Down Payment Loss

In a hard money loan situation, you give up a down payment of between 30 and 40 percent. Thus, lenders act fast because they have less risk and will often immediately sell your property in foreclosure. In such cases, lenders can easily request between 60 and 70 percent of the home’s value to recover their investment. On the contrary, a bank will often sell your property for at least 80 percent of its value, plus any expenses incurred in the process of selling it; hard money lenders capitalize on your default.

Bad Credit

People who go to hard money lenders often have bad credit, as they have previously suffered from bankruptcy or foreclosure. If you are such a borrower, a second default means you destroy your chances of accessing any loan or mortgage from traditional institutions and hard money lenders in the future, including minor credit card and automobile loans. In such situations, you may have to operate on a ‘cash only’ basis, forcing you to rely on your savings for huge purchases, which limits your ability to build equity.

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