What Happens If A Borrower Defaults?
Assuming the lender or investor holds considerable protective equity, the following would likely occur:
- Borrower liquidates property to pay off loan
- Borrower refinances loan with another Hard Money lender
- Borrower brings in equity partner to cure or payoff loan
Sometimes lenders have no choice but to foreclose on the property to best preserve invested capital. Once liquidation of the property is complete, remaining proceeds are distributed in the following order:
- Reimbursement of foreclosure related fees/expenses
- Return of original capital investment to investor
- Payment of accrued interest to investor