Definition of "Arrears"

Yolanda Burgess real estate agent
Yolanda Burgess, Real Estate Agent Platinum Partners Realty

Arrears is a legal and financial term used to describe payments in regards to their due dates. While the term is more often used to refer to a contractual obligation or liability that was not paid by its due date, arrears are also payments that are made at the end of a period after the service is provided. These are also known as ordinary annuities or annuities in arrears. However, when payments are missed in situations where the contract requires them by a due date, the account is in arrears.

What does Arrears Mean?

Many different industries, both in the legal and financial world, can describe the payments they are owed as arrears or arrearage in some instances. The term itself can have different meanings based on the context and industry in which it is used. We already mentioned that arrears could be payments that are late or expenses that are to be paid after the service is provided.

When discussing accounts in arrears, we most commonly refer to accounts for mortgages or loans, and in this case, arrears means that your contractual payment is late. Home loans, car loans, utility bills, and child support payments can all put your account in arrears if the payments are overdue. That means that every time you miss payments, your account can be in arrears.

What does Arrears Mean in Real Estate?

As noted above, unpaid mortgage payments can put your account in arrears. If you miss a mortgage payment that is due on September 15th, then the account is in arrears for the amount due. Continuing with your monthly payments as the schedule requires you to, monthly, without paying the amount owed on September 15th means you will still be in arrears for that amount until you pay it. If you don’t pay the total amount required to cover the amount due, you will still have the remaining amount in arrears.

The situation described above might or might not lead to negative repercussions, but this depends entirely on how the term is used. For example, if you sign a contract where the payment is required in advance of the service (rents, leases, internet service, etc.), those are payments in advance or annuities due. If these types of payments are not paid by their due date, the account falls into arrears. This is a situation where penalties can be applied. However, when payments are contractually required after the service is provided, also known as payments in arrears or ordinary annuities (property taxes, employee salaries, etc.), they fall into arrears if they are not paid by their due date. Simply put, if your account falls into arrears, meaning you are late on your payments, penalties can be applied.


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