Missing mortgage payments: What happens, and how many can I miss before foreclosure?

A mortgage involves a contract between a borrower and a lender in which the lender agrees to provide money upfront while the borrower agrees to repay the debt over time and with interest. The mortgage secures (backs) the debt. As such, a borrower with late or missed payments can face penalties ranging from late fees to the loss of the home, which is collateral for the loan.

What happens if I miss a mortgage payment?

If you miss one mortgage  payment, your lender will likely contact you, but it’s unlikely your home will be foreclosed upon immediately. You may receive a formal letter alerting you to the possible actions the lender may take. Do not disregard this notice — it’s a serious matter.

Although late payments are undesirable, they are often with little, if any, consequences. Many lenders have a 15-day grace period that allows borrowers to make payments after the due date without penalty (If the payment is made after the due date — officially “late” — the lender is typically entitled to a late fee, generally a percentage listed in your mortgage contract. If your monthly mortgage payment is $1,400, for example, a 5 percent late fee amounts to $70.

If you believe you’ll miss a mortgage payment or already have, contact your lender or servicer as soon as possible. Your lender may offer you a forbearance or loan modification to help you through the hardship. If you are late making your payment but otherwise have a good payment history, you can ask your lender if they’ll waive the late fee. (It is unlikely they will waive the interest accrued on the loan, though.)

How many mortgage payments can I miss before foreclosure?

Usually, foreclosure proceedings begin after 120 days (four consecutive missed mortgage payments) of delinquency on your mortgage, but this isn’t always the case. The housing market in which you live, your municipality and your lender may all impact the foreclosure timeline.

Timelines on foreclosures usually vary per state and lender, and the process of foreclosure takes time. For example, if you fail to contact your lender after you miss a payment, you may receive a notice of default, the earliest stage of the foreclosure process. Do not ignore it.  Read it carefully and if you plan on making the payments follow the instructions exactly. Failure to follow instructions may negate the benefits of making your payment.

After 90 days, your lender will usually send a formal  “Demand Letter” or “Notice to Accelerate,” stating you have 30 days to pay your mortgage and bring it up to date. However, getting these letters and notices doesn’t necessarily mean foreclosure is a done deal. Delinquencies can often be rectified even when three or more payments have been missed because most lenders do not want to foreclose on a home.  Avoiding foreclosure benefits both the borrower and the lender, so there’s good reason for both parties to try and work out a resolution.

The foreclosure timeline

There are usually five stages in a foreclosure timeline, but often you can stop the process at any stage, by working with your lender to pay back your loan balance before your home actually goes into foreclosure. Here’s the typical rundown:

Missed Payment: You miss your mortgage payment and cannot pay after the 15-day grace period passes. You incur late fees and might receive a call or letter from your lender about the missed payment.

Notice of Default: Your lender will typically file an official Notice of Default after three months of missed payments and a lis pendens. You will receive a copy via certified mail and in some states, you’ll find it tacked to your front door. This notice, filed with your local recorder’s office, will specify the amount you owe to bring your mortgage current. Unfortunately, receiving al Notice of Default may impact your credit.  It may take a couple of months for the credit agencies to pick it up, but they eventually will.

Preforeclosure: The preforeclosure stage occurs between receiving your default notice and an auction to sell your foreclosed home. If you pay what is owed during this stage, plus interest, penalties, legal fees and bank fees, your mortgage will be considered current. The window on time during this phase will depend on the state you live in.

Notice of Sale: The next stage is when your lender files a “Notice of Sale” and sets a date and time for an auction on your home. Depending on where you live, the information about the sale may be published in local newspapers and public buildings like a courthouse or even posted on your property or the door of your home. The cost of the advertising, and possibly the auctioneers fee, will be added to the balance due on the mortgage. In some cases (depending on where you reside), you may be able to reclaim your home (called the “right of redemption”) if you can pay all the fees and back payments by the auction date or, in some cases, after it occurs.

Eviction: This is the final (and may be the hardest) part of the foreclosure process. You and your family will be under mandate to vacate your home at this stage. The buyer may allow you to take a few days to remove your belongings and find other housing. If you refuse an eviction, law enforcement officials may be called to forcibly remove you and anyone living in the home.  The sheriff or the marshal will come to your home with the order, remove you and put you and all you own out on the street.  If the property is sold at auction and or there is an eviction order you may be able to work out a “cash for keys” deal with the buyer or lender.  They don’t want the house damaged or pay for the legal authorities, so they will pay you a modest amount to leave.

Factors the impact the foreclosure timeline

A few factors will impact the foreclosure timeline, including your lender, the laws and regulations surrounding foreclosure in your state, and even, in some cases, the housing market.

Foreclosure differs by lender

Lenders may vary on what they consider a mortgage going into default. In most cases, a lender will not send a homeowner a “Notice of Default” until the loan hasn’t been paid in 90 days or three missed mortgage payments.

However, some lenders will wait longer; others may send a default notice sooner because 90 days is only a common practice, not a legal one. Always check the terms of your mortgage loan to understand what may constitute a default. Most states require “Plain English”loan documents: Make sure you get them, read them and understand them.

Foreclosure differs by location

Foreclosing on a home varies depending on the state you reside in. These differences between states can be as simple as whether or not a notice of default should be mailed or posted to your property, how the notice of sale is posted and shared, the periods of redemption when you can settle your debts and stop the foreclosure, and how and when your home is auctioned.

The two main types of foreclosure are judicial and non-judicial (also called power of sale).

Judicial

If you live in one of the 21 states, including New York, Nebraska, Ohio, Vermont and Virginia, with judicial foreclosure, the lender will file a lawsuit, the owner has 30 days to pay their debts, and if they don’t, the foreclosure process moves forward. It can take longer for a foreclosure to occur when it happens via this route because the foreclosure must move through state supreme or housing court. If the courts are backed up, the process can take much longer, which may give you time to figure out a way to pay your debts or work out a solution with your lender.   Use the time wisely. Your ability to negotiate evaporates once the lender gets a foreclosure order.

Non-judicial

In non-judicial states, including California and Texas, when the borrower goes into default, the lender can put the house up for auction without filing any legal paperwork. This process may likely be faster than a judicial foreclosure because it doesn’t involve housing court. If a lender wants to foreclose on your home in a non-judicial state, it may happen sooner than the 120-day timeline, which is considered guidance, but is not a law.

Foreclosure and housing markets

Housing markets may influence whether a lender decides how fast to start foreclosure proceedings. In a strong market in which the lender will have no problem disposing of the property, or a municipality where the laws and the court docket favor the lender, they may move much quicker. In contrast, in a weak market or a hostile legal environment they may be more relaxed. Lenders really don’t want to have to seize and then sell your home. They’d rather work things out with you, all things considered.

If you live in a judicial state with a backlog of foreclosures, it may take longer, offering you (potentially) more time to work things out with your lender or repay your debts.

How do missed mortgage payments impact my credit score?

Your lender can report missed payments to the credit reporting agencies, which can hurt your credit score. How many points you lose varies, but generally, the higher your score, the larger the reduction.

Note that if a mortgage payment is late by a few days past the grace period, it won’t result in a negative mark on your credit report. The reason is that to be reported, the payment must be at least 30 days overdue.

Bottom Line on missed mortgage payments and foreclosure

The ideal strategy is to make full and timely mortgage payments to avoid late fees or, potentially, foreclosure. If you find that late or missed payments are likely, call your loan servicer as soon as possible to explain your situation.