It's difficult to be unable to pay for essential expenses like your mortgage. To tackle the problem of missed mortgage payments head-on, nevertheless, can be advantageous. Lenders would rather work with you to come up with a solution than have a borrower simply cease making payments on a mortgage and allow it to go into foreclosure. Lenders frequently have a strong incentive to work out a solution with you because they want to see you get back on track and prepared to finish repaying the money you've borrowed over the long run. This might seem like too little, too late if you're already in foreclosure, but you can still make smart decisions when facing foreclosure. Find out more about your alternatives if a foreclosure is looming, as well as what to do next.
Main points
- Resuming regular mortgage payments and creating a strategy to make up for any late payments to the lender over time are both necessary steps to halt a foreclosure.
- On loans that result in foreclosure, lenders don't always make money; more frequently, they reduce their losses. Thus, it makes sense for them to collaborate with you on a plan.
- When unforeseen financial hardship affects your ability to pay, either temporarily or over a longer period of time, your lender may offer options including forbearance and loan modifications.
- If you are already facing foreclosure, your options may include selling your house or pursuing a short sale.
Foreclosure: What Is It?
The process of foreclosure is where a bank decides that your mortgage is so far behind on payments that it needs to seize and sell your house to make up for its losses. Sometimes the procedure is handled by the courts, other times it isn't—instead it goes through what is referred to as a nonjudicial foreclosure. In either situation, the lender's objective is to sell the property via a legally recognized procedure, such as a sheriff's sale, and utilize the proceeds to settle the outstanding loan sum. The remaining amount may be owed to you if the purchase price is higher than your debt.How Does the Process of Foreclosure Work?
When your loan is in default, usually after one or more missed mortgage payments, foreclosure becomes a possibility. The lender has now started to consider your property as a potential foreclosure, but it is not yet legally permitted to start the procedure. There must be at least 120 days between the initial late payment and the start of a foreclosure before one may be legally started. If there is a way to prevent the foreclosure, you should take advantage of this time to do so. Prior to missing even one payment, it is ideal to speak with your lender; you will then have more options. Contacting the lender even if you're two or more payments behind may help you prevent a real foreclosure by allowing you time to catch up or setting up a payment plan. Depending on where you reside, the foreclosure process may look different after the 120 days have passed, but many jurisdictions still offer options to halt sales or even reverse foreclosures if you can make your debt payments on time. The redemption period encompasses this time span.Getting Rid of a Notice of Default
Missed payments are still being taken into account by your lender even if you haven't received a notice of default. At this point, there are still options to stop a foreclosure and resume your mortgage payments. To make payments as efficiently as possible, follow these instructions and be open with your lender.Pay your bills on time
If you've fallen behind on payments but can now gather the funds to make the next ones, make those. By making subsequent payments, you can show that a missed payment was an isolated incident rather than a recurring one. Make sure you are making at least your current monthly payment if you, for example, missed a payment one month because of an unforeseen expense. It's a good idea to start saving for the next month's payment as soon as you pay for this one, if you have access to funds, assistance from friends and family, or an additional job, as that consistent payment history will be crucial as you move forward.When you're having trouble, contact your lender
Contact your lender as soon as you realize that your payment will be missed or delayed by one month. Explaining the situation is much preferable to letting the lender believe you have forgotten to pay, vanished, or are avoiding their questions. This is the time to request a detailed repayment plan that you think you can reasonably follow for any overdue installments. Your case for requesting a fair payment plan to follow can be strengthened if you are able to demonstrate why you were unable to make this payment and why it won't happen again.Meet with a Housing Counselor Approved by HUD
When you have trouble paying your mortgage payments, housing counselors who have been authorized by the U.S. Department of Housing and Urban Development (HUD) might be a helpful resource. They could be skilled advocates for you with your lender, or they might be aware of choices that are feasible in your situation. 5. Utilize the HUD website to locate one.Discuss the possibilities for a loan modification or forbearance
Realistically, some financial difficulties lead to problems that last longer than a single missed payment. It is still recommended to chat to your lender if you think you could miss two or more payments because they don't want the hassles of having to retake your home. Your lender can evaluate your position and go over your alternatives for loan modification or forbearance. In exchange for a more manageable monthly payment, a loan modification may give you extra time to pay off the whole sum of your mortgage. With forbearance, you would have a period of time—typically a few months—during which you might avoid making any payments, with all missed payments being due at the conclusion of the forbearance. Sometimes it's enough to simply release yourself from the monthly payment burden to evaluate your overall financial situation and gather the resources you need to maintain your house. For a price, there are businesses that offer to save your home from foreclosure, but many of these could be frauds. Prior to exploring your choices, concentrate on communicating with a HUD-approved housing counselor or your lender or loan servicer.How to Prevent a Foreclosure After Receiving Notice
After receiving a notice of default from your lender, you still have a few options, albeit doing so could have a negative effect on your future credit rating, credit history, and overall debt.Selling Your House
You may be able to prevent a foreclosure by selling your property for more than what you owe on it if you can list and sell it quickly enough. If your house is underwater, which means you owe more on the mortgage than the property is now valued on the market, this is less likely to be viable. It is generally preferable to consider this option with your lender before a notice is sent, but it is frequently a choice even after you receive a notice of default and may be a means to put an end to the situation and make the lender whole.Think about a short sale.
All parties can sell a home and pay off the outstanding debt through a short sale. You would ask your lender to take less than the full amount of the mortgage because the house was sold for less money than was still owed on it. Short sales are not always permitted by lenders, but if you follow the steps, they may not be as detrimental to your finances as foreclosure.Think about bankruptcy.
A bankruptcy lawyer can assist you in determining whether or not Chapter 13 bankruptcy is a good option for your specific situation. With this type of bankruptcy, your debt is consolidated into a specific payment plan, and after the time frame established by the court, you are no longer responsible for the debt. A specific type of bankruptcy can stop foreclosure proceedings, allowing you to keep your house while you figure out your financial future. However, since bankruptcy stays on your credit report for up to 10 years, it has a highly negative influence on your credit going forward.The conclusion
It might be intimidating to fall behind on mortgage payments, but keeping in mind that your lender wants you to get your finances in order will help you see it as a partner in preventing foreclosure. Realistically, there are some instances that are too difficult to avoid a foreclosure, but in the majority of cases, it is still advantageous to be open with your lender as soon as you start experiencing difficulties with your mortgage payments. If you start the dialogue early, you'll have more access to choices like forbearance, a loan modification, or time to sell the house.Questions and Answers (FAQs)
How late can you intervene in a foreclosure?
Even though it may be too late to halt foreclosure after your loan is 120 days past due, the sooner you talk to your lender and explore your alternatives, the more likely it is that you will be able to avoid it, even if it is technically lawful for them to do so.Why do I need to prevent foreclosure?
After a foreclosure, lenders are less likely to view you as qualified to acquire future credit, such as a new mortgage or other credit-based financial products, since it harms your credit history and score for the seven years that it is reported on your report. You also have to find a new place to reside after a foreclosure.