Consequences of Defaulting on USDA Backed Loans

The United States Department of Agriculture’s Rural Development department has formulated a way to assist borrowers who belong to the low-to-moderate gross income generating bracket help get their dream home. The Rural Development division has partnered with several approved lenders to provide 100% financing assistance to borrowers. The USDA aims to make owning homes possible, even for those who might not normally qualify for a loan. Although USDA-backed loans have significant advantages, there are still some consequences that you need to consider. When you’re taking out a mortgage secured by the United States Department of Agriculture, you’re committing yourself to repay the mortgage promptly, even if you lose the property to foreclosure.

Personal Liability

Once the property has been put up for foreclosure, the mortgage provider will then submit a form to the USDA claiming for the unpaid balance and the due fees. The USDA will then reimburse the lender of any outstanding charges but will use all the available options included in the Debt Collection Improvement Act of 1996 to at least recover any money that was lost. Since the federal government handles the USDA, different collection methods may be used to collect any remaining balance. The Treasure Offset Program will then be used to seize any tax returns from the borrower.

Right to Collect

The United States Department of Agriculture doesn’t need any permission from the court of law to initiate collection actions on any unpaid loan balance. Since the USDA is still considered as a government agency, it has absolute rights to collect any outstanding balance even in certain states where federal laws limit a mortgage provider’s ability to exercise collection actions.

Recovering the Unpaid Mortgage

The USDA can then seize any government benefits which includes tax refunds and social security before the foreclosure has been completed. According to some experts, the Treasury Department may be able to acquire at least 15 percent of the homeowner’s social security payments and even his or her take-home pay. An additional 28% may be tacked to cover any unpaid balance.

Preventing any Collection Actions

You may be able to avoid any collection actions even after the foreclosure on any USDA- backed loan by presenting any documentation or proof against the lender, negotiating any repayments, or even filing for bankruptcy. If you have a USDA Rural Development Direct Mortgage, there are alternative options available for you to assist you with avoiding foreclosure. When homeowners who are in the low-income bracket experience any financial hardship, the Rural Development Loan program will support them by providing them with various options. These options may include increased interest subsidies, a moratorium on loan payments, a repayment agreement, and they may even all you to refinance the current mortgage.