Few people who sign a mortgage intend to walk away from it. Still, unforeseen circumstances — huge medical bills, lost jobs, divorce or eroding property values — can overwhelm even the best-intentioned borrower.
Missing a house payment by a few days won’t put you in danger of foreclosure. But if you still haven’t paid by the end of the grace period, if your mortgage lender has sent you past-due notices, or if you’re multiple mortgage payments behind, you need to act quickly to get your mortgage back in good standing.
The fact is, a simple twist of fate can leave you facing a homeowner’s worst nightmare: foreclosure.
Foreclosure rules vary by state, but the most important tip is to be proactive, because procrastination will not make your mortgage problem go away.
The foreclosure spiral begins when your loan payment becomes 16 days overdue. At that point, your mortgage servicer will try to contact you to work out a repayment schedule to bring your loan current.
If your first payment becomes 30 days delinquent and the next month’s payment is not in the mail, collection attempts begin in earnest.
Within 36 days after you miss a mortgage payment, your mortgage servicer should have contacted you directly. It’s important to be proactive about responding to calls or opening any mail from your lender or mortgage company.
Within 45 days, the mortgage servicer will notify you in writing about your delinquent status, and will inform you about your options for avoiding foreclosure.
If your payments fall 120 days behind, the servicer will likely initiate formal foreclosure proceedings. Once that happens, state rules differ on how long you’ll have before the actual foreclosure.
The coronavirus pandemic puts foreclosures on hold
During 2020, foreclosure rates fell to record lows. That’s partly because many states put a halt to foreclosure proceedings. What’s more, the federal Coronavirus Aid, Relief and Economic Security Act allows homeowners to miss payments for up to a year with no penalties.
Generous forbearance programs — which give borrowers a break from payments — have staved off foreclosures. How the relief works:
- You have to ask. Borrowers must request forbearance. Don’t stop making payments without checking in with your lender or servicer.
- Qualifying is relatively easy. Lenders aren’t demanding proof of hardship.
- There’s no penalty. Missed payments during forbearance won’t hurt your credit score, and you won’t accrue late charges.
- You still owe the money. Forbearance pauses payments by extending the length of your loan. After the grace period ends, you’ll resume making regular payments but the term of your loan will be extended to include the payments you missed.
Housing economists expect foreclosures to resume during 2021. But, because homes have soared in value, most homeowners will be able to sell before losing their homes.
Ask your lender: What are your options for avoiding foreclosure?
Lenders want their money repaid in a timely way and the interest that comes with it; they don’t want your house. If you seem to be a good risk, the lender will offer to help keep your mortgage afloat. But be forewarned: If you seem like a bad risk, the lender may cut its losses by taking steps to foreclose and evict you as quickly as possible.
The key is to communicate with the lender before your debt gets the better of you. The sooner your lender knows of your problem, the more help it can provide.
Federal law requires mortgage servicers to help delinquent borrowers and work with them to get back in good standing. Tell your bank or lender that you want to learn about options for “loss mitigation,” the technical term for avoiding foreclosure.
Also, look for a letter from your lender describing options for avoiding foreclosure, along with instructions and applications for any programs that might apply to you.
Your mortgage servicer should also provide a contact person, who should be available by phone to answer your questions and provide accurate information about your options for avoiding foreclosure. By law, this person should be assigned to you within 45 days after your loan becomes delinquent, according to the Consumer Financial Protection Bureau.
If you feel you aren’t getting proper assistance from your mortgage servicer, file a complaint online with the CFPB, or call (855) 411-CFPB.
Ways to avoid foreclosure
Here are some options your lender may offer to avoid foreclosure. You may want to seek legal advice before going any of these routes:
Mortgage repayment plan: If you suffer a short-term financial setback (i.e. expensive car repairs, a medical emergency), your lender may provide some breathing room by agreeing to let you pay off your missed payment in two installments over the next two months.
Loan modification: Mortgage servicers can adjust the terms of your loan — most often by lengthening the amortization schedule, lowering the interest rate or rolling the delinquent amount into the loan and re-amortizing the new balance — to help you bring the loan current.
Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure is when you turn over your home to a lender voluntarily to avoid foreclosure proceedings. In some instances, going this route could help you avoid paying the remaining loan balance on your mortgage but that depends on your lender’s rules and the state you live in. Before you get a deed-in-lieu of foreclosure, ask your lender if they will waive any deficiency, which is the difference between your home’s value and what you still owe on the mortgage.
Short sale: A short sale happens when the lender allows you to sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining debt. A real estate agent with experience in short sales may be able to help you find a buyer and guide you through the lengthy process of obtaining the necessary bank approvals.
Short refinance: The lender forgives some of your debt and refinances the rest into a new loan. This type of refi was more common in the aftermath of the mortgage crisis and may not be available for most homeowners now.
Refinance with a “hard money” loan: You won’t like the high rates and fees of a hard money loan — one from a private lender, often an individual — but it may buy you time to sell your home and avoid foreclosure.
Get free expert help: Speak to a HUD-approved housing counselor
If you aren’t getting anywhere with your mortgage company, you can obtain free advice and support from a housing counselor sponsored by the U.S. Department of Housing and Urban Development (HUD). An expert from a housing counseling agency can guide you as you try to work with your mortgage company to avoid foreclosure.
Beware of foreclosure rescue scams
Unfortunately, scammers masquerading as legitimate housing counselors often try to take advantage of homeowners who are vulnerable. As you work through your mortgage issue, keep a skeptical eye out for fake programs and scams.
Warning signs of a scam include organizations that require advance payment or that guarantee to fix your foreclosure problems.
In particular, beware of offers to help you get a loan modification through the federal HAMP Program, a federal loan modification program that expired at the end of 2017. In the past, fraudsters have told homeowners that they were approved for the program as a way to trick them into sending money.
Also watch out for phone calls or mail solicitations that appear to be from your mortgage company, but direct you to send payments to an unfamiliar address that doesn’t match the one on your mortgage statement.
If you’re having difficulty making your house payments, your best bet is to reach out to your lender and a HUD-approved housing counselor as soon as possible. This will improve your chances for a happy resolution that helps you avoid the financial and emotional pain of foreclosure.