If you fail to make your mortgage payments, your bank or mortgage lender may issue an NOD, or Notice of Default. This is essentially a notice that you were late in making your mortgage payment and that legal action may be taken. If you continue to miss payments, the bank or mortgage lender may repossess your home.
This legal proceeding is known as a “foreclosure,” and will result in the loss of your home, foreclosure fees, additional legal fees, and possibly a deficiency judgment if your outstanding liens exceed the current value of your home.
The foreclosure process usually goes something like this:
You lose your job, fall ill, or simply fall behind on your mortgage payments after your adjustable-rate mortgage resets. Unfortunately, these aren’t typically valid reasons to miss your mortgage payment(s). When you originally applied for your mortgage, you probably verified asset reserves to prove to the bank that you could afford to pay the loan for a certain period of time, even if you failed to receive additional income.
Once you miss your first payment, the bank or lender will hit you with a 30-day late. At this point your credit will take a huge hit (how long does a foreclosure stay on your credit), and a representative from the bank or lender may call you, or send you a notice in the mail regarding your failure to pay on time. The bank or lender may also discuss a forbearance plan with you to resolve the missed payment to get you back on track. This is basically a special payment plan the bank sets up with the borrower to either lower payments or suspend payments to get you back on track.
The bank or lender may also discuss refinancing the loan to make your payments more affordable. But you’ll have to prove to them that you’ll be able to handle the new financing terms.
But if you fail to talk with your bank or lender, and continue to avoid paying your mortgage, you will be hit with a 60-day late, then a 90-day late. At this point your credit will be all but ruined, and any chances for refinancing or seeking a forbearance plan will most likely be lost.
Once you hit the 90-day late mark, the bank or lender will likely hit you with a Notice of Default. The NOD essentially states that you have 30 days to make the payment current, appear in court, or face the risk of a foreclosure. If 30 days go by and you fail to appear in court or make your payments current, the court can schedule an auction to sell your home within 7 days.
If the auction ends without a buyer, the bank or lender will gain ownership and likely perform maintenance on the property, clear up any title issues, then put it on the market.
After paying legal fees, foreclosure fees, late fees, and losing your home, you’ll be hit with a huge ding on your credit report. A foreclosure will drop your credit score dramatically and prevent you from borrowing from A-paper banks for many years to come.
This is just one scenario for how late mortgage payments can end in foreclosure. Luckily there are a number of ways you can stop loan foreclosure. They include:
As I mentioned above, a refinance granted by your bank or lender may ease payments and get you back on track. But you will need to qualify and exhibit the ability to make the payments. Your bank or lender may also be able to save you from foreclosure by putting you on an interest-only home loan or a shorter-term ARM to lower the monthly mortgage costs.
A forbearance plan is a payment plan set up by your bank or lender to ease or even suspend payments until you are current again. The bank or lender may work with you to avoid foreclosure with a special program that can get you back in the black, and out of the red.
A partial claim allows the mortgagee to advance funds to the mortgagor in the form of a promissory note. So long as you are not delinquent over 12 months, the HUD may grant you a partial claim, which will make your mortgage payments current. It is essentially a second mortgage behind your existing lien that collects no interest, and is not due until you pay off your first mortgage or sell your home.
A pre-foreclosure sale, such as a short sale, will help you avoid a foreclosure, but unfortunately at the cost of selling your home, likely for much less than it’s worth.
One final option is a deed in lieu of foreclosure, which allows you to sell your home back to the lender or bank that financed the mortgage. It is a great way to avoid foreclosure proceedings, but again results in the loss of your home. This must be voluntary, and both parties must act in good faith. The bank or lender must buy the property for at least fair market value, but will usually not proceed if that value exceeds the existing liens.
Contact a local HUD approved counselor for help in foreclosure matters. Click for a list of HUD Approved Housing Counseling Agencies.
One final thing to note is that despite all the available, regulated, and honest means available for saving your home from foreclosure, many foreclosure scams are also prevalent. These scam artists will do their best to contact you during pre-foreclosure to rip you off using a variety of tactics including bait and switch schemes, equity skimming, fake bailouts, and overpriced help. So always do your due diligence when seeking foreclosure help.
Read more: How long after foreclosure can I purchase a home?