There are many reasons home owners may fall behind in their mortgage payments, including unemployment, extended illness or disability, or even just bad financial judgment. There are risks to falling behind on mortgage payments. Risks, including damaging credit scores, the inability to obtain future credit, or more seriously, the risk of foreclosure. There are several options for mortgage help available to those who have fallen behind in their mortgage payments to keep them from falling into foreclosure.
Signs that indicate risk for foreclosure
How can a home owner tell he might be at risk of foreclosure? There are several warning signs.
- Payments are harder to make: There may not have been any missed payments yet. However, other important bills must be skipped just to come up with the money for the monthly mortgage payment. It is becoming increasing difficult, due to unforeseen circumstances, to come up with the money every month to make the monthly mortgage notes.
- A payment is missed: After struggling for some amount of time to make monthly mortgage payments, the time comes when the home owner missed his first monthly payment. The lender will contact the borrower to try to assess the payment situation.
- Two of more payments are missed: After two or more payments are missed, the situation changes from urgent to critical. Foreclosure becomes a very real possibility. A home owner should never make the mistake of thinking that foreclosure cannot happen to them. A notice of foreclosure will be issued after a number of payments have been missed. How many payments depends upon the lender and what their foreclosure policies are.
What happens during a foreclosure
If a satisfactory payment solution cannot be found and the delinquent mortgage payments are not made, the home will go into foreclosure proceedings. Foreclosure timelines and proceedings vary from state to state. The first step the lender must take to undergo foreclosure is to file a notice of default in court. After the notice of default has been filed, a sale of the property will be scheduled, sometimes called a “trustee” or “sheriff’s” sale. A public notice is made that the property will be sold, and the home owner is also served with the copy of the judgment. The homeowner has until the date of the sale to make arrangements with the lender or pay the total amount owed, including attorney’s fees. One optimistic note – before final foreclosure proceedings occur, the lender will normally contact the borrower several times to try to negotiate a payment plan. Lenders would rather avoid foreclosure, as this is a costly proceeding for them as well.
Mortgage counseling
Sometimes, those struggling with mortgage notes just need a place to go for advice to help them find a workable solution in making mortgage payments. There are professional mortgage counselors whose job is to provide borrowers with resources and advice to help them avoid foreclosure. The U.S. Department of Housing and Urban Development offers foreclosure avoidance counselor resources for home owners who are trying to find a workable solution to stay in their homes. Counseling services provided to home owners through the HUD program are free to those who cannot afford to pay for the services. These counselors are trained to assess the situation and offer the best solutions available to help home owners stay in their homes and avoid foreclosure.
Forbearance
One option available to help borrower’s stay in their homes is forbearance. Forbearance works by reducing mortgage payments or suspending them for an agreed-upon period of time, allowing the home owner to “catch up” on delinquent payments. After the forbearance period is over, the borrower then either makes a lump-sum payment to bring his account current or has the overdue balance added on to his existing payments until the delinquent amount is brought current. Forbearance could be a great option for those suffering a temporary reduction in income, such as temporary disability or unemployment.
Loan modification programs
A loan modification will completely change the terms of the original mortgage loan. A loan modification plan may offer a lower interest rate than the terms of the original loan or the term of the note may be longer. The missed payments may be added to the end of the loan term, giving the borrower a “fresh start” and offer him a better opportunity to remain current on the payments. The home owner must show that he will be able to make the new monthly mortgage notes before being approved for a loan modification program.
Short Sale Option
A short sale gives the home owner the option of selling the home for an amount “short” of what is actually owed on the home. The lender may agree to a short sale to avoid the expense of court costs in a foreclosure proceeding. The lender has the final approval on the terms of the sale. Any offer of purchase must be approved by the lender. The lender may or may not agree to pay the closing costs. The short sale option gives the home owner a chance to get out from under a home he cannot make payments on and the ability to start over financially.
Bankruptcy
Bankruptcy should only be considered after all other options for resolution of debts have been considered. Bankruptcy has far-reaching effects and should not be entered into lightly. A bankruptcy can stay on a credit report for up to ten years. Under a Chapter 13 bankruptcy, a home owner may still negotiate a repayment plan and be allowed to stay in a home that might otherwise be subject to foreclosure.
The worst thing a homeowner can do when falling behind in mortgage payments is to do nothing. The first step is to talk to the lender and see what options may be available. Mortgage help is attainable to those who are struggling to keep up with their mortgage payments; but to receive help, one must ask for it.
