When it comes to managing money, arrears is a term you might hear but not fully understand. Simply put, arrears refer to payments that are overdue or unpaid. In everyday life, this could mean forgetting to pay a bill on time or missing a loan instalment.
What Is Arrears in Real Estate?
In real estate, arrears mean payments that are overdue or unpaid related to your property. These payments may be for your mortgage, property taxes, rent, or even fees such as homeowners’ association (HOA) dues.
When payments are in arrears, it means you have missed the due date and now owe money that’s past due. This is more serious than just a late payment—it often triggers additional fees or legal actions.
Everyday Contexts for Arrears in Real Estate
Here are the main areas where arrears commonly happen:
- Mortgage payments: When homeowners miss one or more monthly loan payments.
- Property taxes: When property tax payments are not made by the deadline.
- Rent payments: When tenants fall behind on their rent.
- Utilities or HOA fees: Sometimes, unpaid fees for utilities or community charges can also be in arrears.
Arrears vs. Other Payment Terms
It’s helpful to understand how arrears differ from other payment terms:
Term Meaning Example
Advance Payment made before the due date , Paying rent at the start of the month
Current Payment made on time , Mortgage paid by due date
Delinquent: Payment is late but not yet in serious default. One or two payments missed
Arrears Payments are overdue and unpaid. Several months’ mortgage is unpaid
So, arrears indicate a more serious payment issue than just a late or delinquent payment.
Types of Arrears in Real Estate
Understanding the different types of arrears helps you identify potential areas of concern.
Mortgage Payment Arrears
This occurs when a house design fails to make monthly mortgage payments. Because mortgages often last 15 to 30 years, even missing one payment can create a domino effect that can lead to significant consequences.
Property Tax Arrears
Property taxes are due annually or semi-annually, depending on your location. If you don’t pay on time, the local government places a lien on your property.
Rent Arrears
Tenants who don’t pay rent on time fall into rent arrears. This can occur over a period of one month or accumulate over time.
Utilities or HOA Fees Arrears
Sometimes, homeowners fall behind on utility bills or HOA fees. Although these might seem minor, unpaid fees can accumulate quickly.
Causes of House Payment Arrears
Why do people fall into arrears on house payments? The reasons are often a mix of personal and external factors.
Financial Hardship
Losing a job, facing unexpected medical bills, or an economic downturn can suddenly reduce your income, making it hard to keep up with payments.
Poor Budgeting or Lack of Planning
Sometimes, people fail to track their expenses properly or underestimate the costs of house features, which can result in missed payments.
Legal Consequences
- Foreclosure: For mortgage arrears, lenders can start the foreclosure process.
- Eviction: Failure to pay rent can result in eviction notices.
- Tax Liens: Governments can place liens or even auction your property for unpaid taxes.
Credit Score Impact
Late or missed payments are reported to credit bureaus, which can lower your credit score. This makes future borrowing more difficult and expensive.
Increased Financial Burden
Late fees, penalty interest, and legal fees can quickly add up, resulting in a significantly higher total amount owed.
Emotional Stress
The pressure of arrears can cause anxiety, impact relationships, and reduce your overall quality of life.
How Arrears Are Calculated and Reported
Calculating Arrears
Arrears include:
- Principal: The original amount owed.
- Interest: Late payment interest charges.
- Fees: Late fees, penalties, or legal costs may apply.
For example, if you owe $1,000 in mortgage principal plus $50 in late fees, your arrears total is $1,050.
Reporting Arrears
- Lenders report mortgage arrears to credit bureaus.
- Tax authorities may publicly record unpaid taxes.
- Landlords can report rent arrears to tenant screening services.
Duration Thresholds
Many lenders or authorities have specific timeframes before taking action:
Time Overdue: Typical Action Taken
30-day Reminder notice sent
60 days Late fees applied
90 days+ Legal action or foreclosure begins
Practical Budgeting Tips
- Track your income and expenses monthly.
- Set aside money for taxes and insurance.
- Prioritise housing payments first.
Communication Strategies
Always contact your lender, landlord, or tax office early if you anticipate trouble paying. Many are willing to help with payment plans.
Refinancing and Payment Plans
Mortgage refinancing can lower monthly payments. Alternatively, lenders may offer hardship plans to spread out arrears.
Government Assistance Programs
There are programs available to help with mortgage payments, taxes, or rent during difficult times. Research what’s available locally.
Using Escrow Accounts
Escrow accounts hold money monthly for property taxes and insurance, preventing surprise large bills.
What to Do If You Find Yourself in Arrears
If you realise you’re behind on payments, act quickly:
- Contact your lender, landlord, or tax office as soon as possible.
- Negotiate repayment plans or loan modifications.
- Seek help from financial counsellors or real estate problem attorneys.
- Beware of scams promising quick fixes—always verify credentials!
Arrears and Real Estate Transactions
Impact on Buying or Selling Property
Arrears can complicate property sales. Sellers must clear arrears before closing to avoid liens transferring to buyers.
Due Diligence and Title Searches
Buyers and agents conduct title searches to verify the absence of unpaid arrears or liens that could impact ownership.
