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Steve Bucci, the Debt AdviserMissed mortgage payment? Catch up, pronto

Dear Debt Adviser,
How can I catch up on a mortgage payment? I have fallen behind and have no options, such as extension, refinance, deferral, debt consolidation loan, etc., available to me. Also, apparently, I am not allowed to pay partial payments to catch up the payment. I have a job with available overtime, so I know I can make a little extra money this way, but I am also behind with other bills. Any advice? Thanks so much.
-- Robyn

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Dear Robyn,
You and millions of other Americans are dealing with mortgage problems, and it is no surprise that costly mistakes are being made. Mortgage debt is a different animal from what most of us are used to. I urge all my readers, especially those who are caught with negative amortizing mortgages, payment-option adjustable-rate mortages, interest-only loans or what are called "exotic mortgages," to read on and take some notes before this animal bites you.

Simply put, if you default, the lender can take your home and sell it to get its money and expenses back. Unlike credit card debt, which is unsecured, a default can start an expensive and relentless foreclosure process. I know of one loan that went into foreclosure when the borrower missed the payment grace period by a week! Most lenders allow 90 days before they pull the plug and "accelerate" your loan -- meaning they demand payment of the outstanding loan balance. Also, most people don't know that once they are late with one payment, any grace period goes away and all payments are due on the agreed-upon date, not 15 days later.

Pay, pay, pay that mortgage
So, what to do when you're late? Pay the mortgage, pay the mortgage, pay the mortgage. As soon as you can. Don't pass Go. Don't collect $200. You need to get current with your mortgage before things get worse. I suggest you contact your lender. Most lenders do not want to be in the property management business and will work with you to avoid foreclosure.

Ask for a repayment plan that would allow you to make current mortgage payments while paying a portion of the missed payment each month for a specified period. You might also qualify for forbearance, in which your lender would suspend payment for a temporary loss of income due to illness or injury or other such reason for missing the payment.

I am not usually a fan of skipping other bills to pay off your mortgage, but assuming you can afford your mortgage and just need to catch up, you may have to temporarily hold off on other payments. Pay what you owe to get your mortgage current, and be sure to let your other creditors know that you have had a financial hardship and will be missing or making a short payment, but will get current as quickly as possible.

Look hard at your budget
The fact that you are behind on other bills as well as your mortgage leads me to believe that you may need to rethink staying in your home. Be honest about your financial situation, and if you cannot afford the home, ask the lender for forbearance in order to sell your home. This would only work if what the house would sell for is more than enough to pay off your mortgage, including the late payment and any fees or penalties.

Another option if you cannot afford to stay in your home is to ask the lender to accept a deed in lieu of foreclosure, which means you surrender your home to the bank and avoid foreclosure proceedings and costs. However, if your home does not sell for enough to cover the balance of your mortgage loan, you will be responsible for the difference.

A final option would be to contact an attorney to ask about filing a Chapter 13 bankruptcy to stop all collections, foreclosure or other procedures from moving forward and spread your mortgage arrears over a longer period. I would not recommend doing this unless every other avenue has been explored first.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies." Visit MMI for additional debt advice or to ask a question of the Debt Adviser, go to the "Ask the Experts" page and select "debt" as the topic.'s corrections policy-- Posted: Nov. 10, 2006
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