Behind on Your Mortgage Payments?

If you are a homeowner and in a difficult financial situation, or financial hardship suffered from a job loss, and you fall behind making your monthly mortgage payments. Contact your mortgage servicer as early as you can. Most lenders are willing to work with customers it believes are acting in good faith. You can avoid the foreclosure process.

The longer you wait to call, the fewer options you will have. After you've missed 90 days of monthly payments, your loan is in default. Most loan servicers won't accept a partial payment. They will start foreclosure proceedings on your mortgage loan, unless you can come up with the money to cover all your missed payments, plus any late fees.

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.

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.

Forbearance: Your mortgage payments are reduced or suspended for a period of time you and your servicer agree to. At the end of that forbearance period, you resume making your regular payments as well as 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, 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 Modification: You 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, or 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 borrowers can show that they've reduced other expenses, your loan servicer may be more likely to negotiate with you.

Selling Your Home: Depending 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. Also, you can discuss a short sale with your home loan lender and agree to the lender selling your home to avoid foreclosure.

Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy another home, get life insurance, or 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 mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.