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Behind on Your Mortgage Payments?

As a first-time homebuyer or homeowner, you may suffer financial hardship from a job loss. It’s bad enough that you’re behind on credit card and electric bills. You might also be facing foreclosure because you fell behind in making your monthly mortgage payments.

If you’ve missed mortgage payments, contact your mortgage servicer as early as you can. Most lenders are willing to work with customers acting in good faith. This way, you can avoid the foreclosure process even when you’re in delinquency beyond the due date grace period.

The longer you wait to call, the fewer options and more late charges you will have. Suppose your payment is due on the first of the month, and it's already 30 days past due. Most loan servicers won't accept a partial payment as a way to bring your account current. They will start foreclosure proceedings on your mortgage loan.

This happens unless you can come up with the money to cover all your missed payments, plus any late fees. After you've missed 90 days of monthly payments, your mortgage company will report you to the credit bureaus. Your FICO or credit score with Equifax, Experian, and Transunion will suffer adverse effects.

Recovering from Late Mortgage Payments: How It Works

If you have late payments, consider discussing the following foreclosure prevention options with your loan servicer:

Reinstatement: You pay the mortgage lender the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary. Your loan documents and terms will remain in full force and effect.

Repayment Plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you've missed only a small number of payments.

ForbearanceYour mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that forbearance period, you either:

  • Resume making your regular payments, as well as interest, taxes, and insurance
  • Make a lump sum payment or additional partial payments for a number of months to bring the loan current

Forbearance may be an option if your income is reduced temporarily. For example, suppose you are on disability leave from a job, and you expect to go back to your full-time position shortly. Forbearance isn't going to help you if you're in a home you can't afford.

Loan ModificationYou and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications can include:

  • Lowering the interest rate
  • Extending the term of the loan
  • Adding missed payments to the loan balance

A loan modification may be necessary if you are facing a long-term reduction in your income.

Before you ask for mortgage forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if as a borrower you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.

Refinancing: If mortgage rates are lower today compared to what you locked in before, you may be able to refinance. Your bank will want to see a good credit history and payment history that preceded your recent default.

Selling or Walking Away From Your HomeDepending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full. You can discuss a short sale with your home loan lender, wherein you quickly sell your home on the market in exchange for debt forgiveness.

With a short sale, your lender might even agree to let you sell your home for less than it’s worth to clear your debt. In the alternative, you can also agree to the lender taking your home to avoid foreclosure, through a process known as deed in lieu of foreclosure.

How a Housing Counselor Can Help

The U.S. Department of Housing and Urban Development (HUD) has counseling resources. The Federal Housing Administration (FHA), which is part of HUD, insures mortgages. HUD’s counselors may be able to find you an FHA-approved lender. FHA-insured loans might net you a better deal with a more affordable loan. A housing counselor can provide you with resources to save your house and obtain funding. At some point, you may find yourself paying a much more affordable monthly mortgage payment.

Bankruptcy as an Ultimate Option

Personal bankruptcy is considered the debt management option of last resort. This is because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years. It can make it difficult to:

  • Obtain credit
  • Buy another home
  • Get life insurance
  • Sometimes, even get a job

Still, it is a legal procedure that can offer a fresh start for people who can't satisfy their debts.

If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a car or a mortgaged house, that you might otherwise lose.

In Chapter 13, the court approves a repayment plan. The plan allows you to use your future income toward payment of your debts. It will be in effect during a three-to-five-year period, allowing you to avoid the surrender of your home. After you have made all the payments under the plan, you receive a discharge of certain debts.

How an Attorney Can Help

If you’re in pre-foreclosure and you’ve received a notice of default from your bank, don’t lose hope. A real estate attorney can advise you on federal and state laws that govern foreclosure. They may be able to help you negotiate a rescue plan with your bank.

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Contact a real estate attorney to help you navigate mortgages or home equity loans.

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