What Happens If a Borrower Stops Paying?

Every lender should understand the worst case before funding a loan. This article explains what happens if a borrower stops paying on a private loan secured by Costa Rica real estate: the first steps, the options short of court, how a registered mortgage is enforced, and what security cannot do for you.

A late payment is not yet a default

On GAP’s standard loans, borrowers pay interest to the lender directly each month. When a payment is late, the first job is to find out why. A transfer problem or a short cash gap is very different from a borrower who cannot pay. Your loan documents set out any late charges and what counts as a default, so read them before the first missed payment, not after. Late fees on mortgage payments explains what a late payment can tell you.

GAP arranges loans through closing. It does not collect payments for lenders, but it can help with communication when a borrower or a lender reports a problem.

Options when a borrower stops paying

• A catch-up plan agreed in writing between lender and borrower.
• A sale by the borrower, with the loan repaid from the proceeds at closing.
• A refinance with another lender that pays the loan off.

Any change to the terms should be documented by your attorney. Informal promises are hard to rely on later.

How a registered mortgage is enforced

When talking does not work, the mortgage matters. Under Law 8624, the Judicial Collection Law, a properly registered mortgage is an enforcement title over the mortgaged property (article 8), and the law sets out the court process for enforcing it, including auction.

Enforcement is handled by the lender’s attorney. It takes time and legal cost, so treat it as the last resort, not the plan. How long it takes depends on the case and the court, and no timeline can be promised. What happens in a foreclosure in Costa Rica covers the practical side.

Why first lien and loan-to-value matter

On GAP’s standard loans the lender is always in first-lien position, so the lender’s claim on the property ranks ahead of later liens. A conservative loan-to-value, with around 30% or less preferred and 50% at most, leaves room for price changes, legal costs and time if the property has to be sold.

What security does not do

• A first lien does not make the lender the owner of the property automatically.
• It does not guarantee that interest arrives on time or that every dollar is recovered.
• It does not remove legal costs or delays.

Some lenders use a guarantee trust instead of a mortgage, and the two work differently when a borrower defaults. Mortgage or guarantee trust compares them.

Reduce the risk before you lend

Most of a lender’s protection is decided before the money moves: a clear title, a realistic value, a sensible loan-to-value and a believable repayment plan. Our guides to how private loans are secured and the real risks of private lending go further.

Frequently Asked Questions

Does GAP cover missed payments?

No. Borrowers pay lenders directly, and GAP does not guarantee payments. GAP can help with communication if a problem is reported.

Will I own the property if a borrower stops paying?

Not automatically. A registered mortgage can be enforced through the court process, which includes auction.

How long does enforcement take?

There is no fixed timeline. It depends on the case, the court and the steps the parties take.

Do I need to live in Costa Rica to lend through GAP?

No. Lenders of any nationality can lend through GAP, and residency is not required.

This article is general information only and is not legal, financial or tax advice. Legal references are summaries of Costa Rican law as published in SCIJ; confirm how they apply to your loan with a Costa Rican attorney. Private lending carries risk, and no return is guaranteed.

See lending opportunities with GAP Investments → · WhatsApp us at +506 4001 6413 to get started, call 855-562-6427 from the US or Canada, or email info@gap.cr