Consequences of Defaulting on Hard Money Loans

If you’re wondering what the consequences are of defaulting on a hard money loan, read this article. It contains information on the consequences of bankruptcy, confession of judgment clauses, interest rates, and the loan origination fee. Despite the fact that hard money lenders require a 40 percent down payment, they can still take up to 60 percent of the loan. If you don’t pay the loan, they will sell the property for 60 percent of the total cost. The hard money lender won’t give you much breathing space and will take advantage of your murky financial situation to gain the maximum amount of money.


One of the most common consequences of defaulting on a hard money loan is having your property foreclosed on. Hard money lenders typically require forty percent down payment, and they must recoup sixty percent of the loan amount in order to collect their full amount. If you fail to repay the loan on time, the lender may take the property off the market, or sell it to cover the unpaid balance and associated fines. The consequence of defaulting on a hard money loan is that your credit will suffer for several years. Even a second default can disqualify you from any mortgage or other minor loan in the future.

Confession of judgment clauses

Most commercial lenders use confession of judgment clauses in lending agreements. These clauses are meant to reduce risk and increase the probability of repayment by borrowers. Using a confession of judgment will essentially allow lenders to freeze or collect on a debt without having to go through a lengthy legal process. In addition, the lender will have a much better chance of collecting on the loan than a borrower who doesn’t repay the loan.

Interest rates

While interest rates have decreased across the board since the COVID-19 pandemic began, interest rates on hard money loans have increased. These loans carry higher rates than subprime mortgages, ranging between 12 and twenty percent annually. Lenders also charge points to mitigate their risks, which can range from two to ten percent of the principal amount. Most lenders collect points in the initial loan process, and interest is paid on a monthly basis.

Loan origination fee

The Consequences of Defaulting On Hard Money Loans are just as bad as defaulting on a standard mortgage. You risk losing your property, investment, and even your good credit if you default on a hard money loan. Make sure that you understand all of the consequences before you sign the loan agreement. In addition to your financial standing, you should consider the cash flow from your property before signing a hard money loan.

Loan term

The first thing to remember is that hard money lenders do not lose money. In some cases, they may take steps to recover assets, but the loan itself is generally for a short period. Defaulting on a hard money loan can have a variety of consequences. Listed below are some of the consequences of defaulting on a hard money loan. If you default on a hard money loan, the lender has the right to pursue asset recovery and repayment.