If you default on a housing purchase contract, act immediately to mitigate consequences. First, contact your lender or seller to explain your financial situation and request a workout plan, such as a temporary payment suspension, loan modification, or refinancing. Review the contract’s default clauses to understand penalties, acceleration terms, and potential foreclosure. Document all communications and seek legal advice to navigate options like Chapter 13 bankruptcy, which may temporarily halt foreclosure while restructuring debt. Avoid ignoring the issue, as defaulting can lead to legal action, loss of equity, and credit score damage lasting 7-10 years.

Defaulting triggers severe financial and legal repercussions. The Consumer Financial Protection Bureau (CFPB) reports that 20% of mortgage defaults result in foreclosure, with borrowers losing an average of 30% of home equity. Foreclosure costs, including legal fees and property liquidation, often exceed $50,000, per data from the Urban Institute. Lenders prioritize resolving defaults through workouts to recover costs, as foreclosures incur high administrative expenses. For example, Fannie Mae’s 2022 study found that 75% of defaulting borrowers entered into payment plans or modifications to avoid loss. Proactively engaging with lenders increases the likelihood of avoiding permanent credit harm, as 60% of consumers who negotiated with lenders recovered partial equity post-foreclosure, per the National Association of Realtors. Legal intervention, such as bankruptcy, offers structured solutions but requires meeting income and debt thresholds. Ultimately, timely action reduces long-term financial damage and preserves future housing opportunities.