Red and white “Foreclosure, Home for Sale” sign in front of a stone, wood house that is for sale and … [+]
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With unemployment rates skyrocketing, many people are looking for ways that they can save money each month. When money is tight, it may be tempting to skip making your mortgage payment.
However, missing payments can have unintended consequences. With that in mind, here’s a look at what happens when you stop paying your mortgage each month.
What happens when you miss payments?
The short answer to this question is: foreclosure.
A mortgage is essentially an agreement to pay the lender back for loaning you the money that you used to buy the home. By signing the mortgage documents at closing, you agreed to pay the lender back by giving them a certain amount of money each month for a set number of years.
When you skip making your your mortgage payment, you’re violating the terms of that agreement and your lender has the right to recourse. In this case, that means that they have the right to foreclose on your home in order to try and recoup their investment.
It’s worth noting that some lenders have suspended foreclosure proceedings in light of Coronavirus. However, those pauses are only temporary. If you stop paying your mortgage, foreclosure is still a distinct possibility.
How long does the foreclosure process take?
That said, your lender won’t come after your house if you’re only a few days late making your payments. The reality is that foreclosure is a very lengthy and time-consuming process. Your lender will try other methods to collect payment before they start foreclosure proceedings.
With that in mind, the foreclosure process typically looks like this:
The grace period
Usually, your mortgage isn’t officially considered late until 15 days after the date your first missed payment was due. Lenders refer to this period as grace period.
Correspondence begins
Once the grace period passes, if you still haven’t made a payment, your lender will try to reach out to you by mail. They’ll send you a letter stating how much you owe and a date by which it needs to be paid. At this point your payment may also have a late fee attached.
Pre-foreclosure
Typically, after around three months of missed payments, foreclosure proceedings will officially begin. Your lender will file what’s known as a “notice of default” at your county recorder’s office.
This period can last anywhere from 30-120 days, depending on who is in charge of servicing your loan. During this period, you’ll still be given the opportunity to work with your lender to resolve your debts. Usually, this happens either by agreeing on a repayment schedule or by doing a short sale.
Foreclosure
If your debts have not been settled by the end of the pre-foreclosure period, the lender will move forward with foreclosing on the home. If this happens, you’ll be evicted and your home will be sold either through traditional methods or at auction.
What to do if you need help making payments
The good news is that if you need help paying your mortgage right now, there is help available. Lenders understand that many people are going through tough times right now and they want to help.
That said, the first thing you should do if you think you’re going to have trouble making payments is to call your lender. Typically, there are four main options that that may be offered you:
- Refinancing: Where a lender offers you a new loan – with a new interest rates and terms – to cover the missed payments, plus what you owe on the home. This doesn’t affect your credit negatively and could help lower your monthly payments.
- Repayment Plan: Where you and your lender work out a plan that works in your budget, so you’ll restart making payments. Over a specified period of time, you’ll work to continue making payments and also make up the late fees.
- Forbearance: A forbearance is when the mortgage company agrees to temporarily suspend your mortgage payments for a specified period of time. These deferred payments will be tacked on to the end of your loan.
- Loan Modification: In this case, the mortgage company will change the terms of your existing loan – amount due, interest rate, length – to make your monthly payment more manageable.