What happens if you don’t pay your mortgage payment? One of the scariest things that many homeowners have to face is the possibility of foreclosure. When you are faced with the prospect of being unable to pay your mortgage, and the possibility of losing your home, it can be very demoralizing. But there are programs that can help you (more on this in a moment).
And perhaps more importantly, you won’t lose your home immediately when you miss one mortgage payment. There is a process that follows whenever you can’t make your mortgage payment, which I’ll explain in detail below:
The First Consequences of Not Paying Your Mortgage
The process a lender has to follow when foreclosing on your home differs by state. Some states require that the lender foreclose through the court system, while others don’t require the same level of legal requirement. Here is a general timeline of what happens when you can’t pay your mortgage — although you should check with your state for individual specifics and possible variations:
Missed mortgage payment: Most lenders require you to make your payment by the first of the month, but have a grace period that lasts until the 15th. Once you are past the 15th of the month, a fee might be assessed and your payment considered delinquent.
Credit score hit: You’ll probably receive a notice and/or a phone call as early as the 16th day of the month. However, it’s not until you are 30 days late that many lenders decide to report you to the credit bureaus. Once reported on a missed/late mortgage payment, your credit score takes a hit. It can be as much as 100 points.
Demand/breach letter: Your mortgage is considered in default once it reaches 30 days late. You will probably receive some sort of demand/breach letter about your mortgage when it is somewhere between 45 and 60 days late. This letter informs you that foreclosure could be coming if you don’t pay.
The Next Stages of the Foreclosure Process
Then, after 30 days, there are more serious consequences:
You’re on notice: Sometime around day 60 (or a little after), your credit score will likely take another hit, and you’ll be put on notice. You’ll receive a letter stating how much you owe on your mortgage, including penalties, to bring it up to date. If you don’t pay up, foreclosure could be next.
Foreclosure process starts: The biggest first hit to your credit actually comes when you are 30 days late on your mortgage payment. However, reaching the 90-day mark can bring your score down another 20 to 30 points (or more). This is also the point at which your lender usually begins foreclosure proceedings.
Depending on the state you live in, it can take anywhere between another 90 days and as much as three or four years to complete the foreclosure process. When your home is foreclosed on, the bank owns the property, and can try to sell — and usually does try to sell it — at auction. You can stop the foreclosure process by bringing your payments up to date. A lender might also decide to let you complete a short sale in order to avoid foreclosure, if that seems a better financial options for the lender.
How to Avoid Foreclosure in the First Place
If you can’t pay your mortgage, it’s better to approach the lender up front, rather than wait until things get messy. Just ignoring the problem won’t make it go away. Instead, call your lender when you know you are having problems. You might be eligible for a refinance or a loan modification that can make your payments more manageable.
The federal government has two programs that are intended to help homeowners who may be struggling with making their mortgage payments. These were both set up in the aftermath of the 2008 housing market crash and global financial crisis (and both have been extended until 2015). The first, known as HAMP, assists homeowners who have missed payments and are in danger of foreclosure to get a refinance that will help them make their monthly payments. The second, known as HARP, does the same thing for homeowners who have not yet missed any payments but are concerned about not being able to make mortgage payments in the future.
Another possibility you should know about is that the lender might be willing to agree to forbearance or deferment if your situation is temporary. Working with your lender when you can’t pay a debt is your best first option.
All in all, the sooner you address the issue, the sooner you can work on a solution. Hopefully this post helps you understand what happens if you don’t pay your mortgage payment. If your are struggling with this right now, we wish you the best and we’re here to answer any questions you post in the comments. (And remember, ReadyForZero can help you organize and pay off your debt!)
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