What are consequences of defaulting on hard money mortgage?

Failing to meet your hard money mortgage loan obligations can affect you financially.

last updated Friday, April 11, 2025
#Hard Money Mortgage #Down payment Loss

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by John Burson

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Compared to traditional mortgages, hard money mortgages fall into ‘high-risk’ loans. Often, the security offered is usually distressed land, such as a parcel in a short sale position or foreclosure. 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 affect you financially.

Asset Loss

Defaulting on a loan when you have a hard money mortgage increases your risk of losing collateral assets. Every default notice comes after several delinquency notices, with the 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 risk their money to give individuals with bad credit loans. 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, the lenders can easily ask for between 60 and 70 percent of the home’s value to recover their money. On the contrary, a bank will often sell your property for at least 80 percent of its value, plus any expenses spent trying to sell 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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