Being unable to pay important bills like your mortgage payment is stressful. However, it can benefit you to face the challenge of missed mortgage payments head-on. Lenders prefer to hear from you and figure out a plan together, rather than having a borrower simply stop paying a mortgage and allow it to go into foreclosure. Because lenders want to see you back on track and ready to finish paying off the money you’ve borrowed long-term, they often have a strong motivation to figure out a path forward with you.
If you’re already in foreclosure, this may feel like too little, too late, but you still can make wise moves amid a foreclosure. Find out more about options for avoiding a foreclosure, as well as next steps, if your foreclosure is imminent.
- Stopping a foreclosure involves getting back on track with mortgage payments and making a plan to pay the lender any missing payments over time.
- Lenders don’t always make money on loans that end in foreclosures, but rather are often mitigating their losses. So it’s worthwhile for them to work with you on a plan.
- Lenders can offer options such as forbearance and loan modifications when unexpected financial hardship changes your ability to pay, either temporarily or longer term.
- Selling your home or having a short sale may be options if you are already at the point of foreclosure.
What Is Foreclosure?
Foreclosure is the process by which a bank determines that your mortgage is behind in payments to a sufficient degree that it wants to take possession of your home and sell it, to recoup its losses. The process is sometimes handled through the courts; other times, it’s not—instead going through what’s known as a nonjudicial foreclosure.
In either case, the lender’s goal is to sell the property through a legally allowed process, such as a sheriff’s sale, and use the funds gained to pay off your remaining balance on the loan. If the price paid is higher than your debt, the balance may be owed to you.
How Does the Foreclosure Process Work?
Foreclosure becomes possible when your loan is in default, usually after one or more mortgage payments have been missed. At this point, the lender begins to see your property as a potential foreclosure, but it can’t legally begin the process yet.
The time before a foreclosure can be initiated—from first missed payment until legal foreclosure—is at least 120 days. You should use this time proactively to figure out how to stop the foreclosure, if possible.
Ideally, contact your lender about the situation before you miss even one payment—you’ll have more options available at that point. Even if you’re two or more payments behind, contacting the lender may help you avoid an actual foreclosure by giving you time to get caught back up or creating a payment plan.
If the 120 days have passed, the foreclosure process can look different, depending on where you live, but many states at that point still have ways to stop a sale or even cancel it if you can pay back what you owe in sufficient time. This time frame is known as the redemption period.
How To Avoid a Notice of Default
If you’ve not received a notice of default, that doesn’t mean your lender is ignoring missed payments. However, there remain ways at this point to avoid foreclosure and get back on track with your mortgage. Follow these steps to make payments as best you can, and communicate clearly with your lender.
Make Your Monthly Payments
If you’ve missed payments but are now in a position to pull together the cash to make the upcoming payments, pay those. One of the ways you can demonstrate that a missing payment was a one-time problem rather than an extended issue is by continuing to pay.
If, for instance, you missed a payment due to an unexpected expense one month, when you no longer have that expense, make sure you’re paying at least your current monthly payment. If you can access savings, help from friends or family, or additional work, it’s wise to start saving up for the next monthly payment immediately after paying this month’s, because that consistent payment track record is important as you move forward.
Communicate With Your Lender When You’re in Trouble
When you know that your payment will be delayed or absent one month, get in touch with your lender right away. Explaining the issue is far better than letting the lender think you’ve forgotten to pay, disappeared, or are dodging their inquiries. This is the moment to ask for a clear plan for repaying any missing payments, one that you believe you can realistically stick to.
If you have the ability to show why you weren’t able to make this payment and why it won’t happen again, this can help your case in requesting a reasonable payment plan to follow.
Meet With a HUD-Approved Housing Counselor
Housing counselors who are approved by the U.S. Department of Housing and Urban Development (HUD) are useful resources when you face challenges making your home’s mortgage payments. They may know of options that are available in your circumstances, or can act as knowledgeable advocates for you with your lender. Find one through HUD’s website.
Discuss Options for Forbearance or Loan Modification
Realistically, some financial obstacles create longer-term issues than just one missing payment. If you have a situation that means you might skip two or more payments, it is still best to talk to your lender—it doesn't want the difficulties associated with repossessing your house. Your lender can review your situation and discuss options for either forbearance or loan modification.
In a loan modification, you might have longer to pay down your mortgage’s total balance in exchange for a more affordable monthly payment. With forbearance, you would get time, usually a few months, in which you’re allowed to pay nothing, with all the missed payments due at the end of the forbearance.
Sometimes, just getting rid of the pressure to pay every month is enough to assess your whole financial picture and marshal the resources you have to keep your home.
There are companies that promise to help you out of foreclosure for a fee, but many of these could be a foreclosure rescue scam. Focus on speaking with a HUD-approved housing counselor or your lender/loan servicer first to understand your options.
How To Avoid a Foreclosure After You Receive Notice
Once you’ve received notice of default from your lender, there are still some options available to move forward, although there may be serious impacts on your credit score, credit history, and overall debt in the future.
Sell Your Home
If you can list and sell your home fast enough, you can sometimes avoid a foreclosure by simply selling your home for more than the amount you owe on the home. This is less likely to be possible if your home is considered underwater, meaning you owe more on the mortgage than the house is worth on the market.
While this option is usually best to discuss with your lender before notice arrives, it is often an option even after you receive notice of default, and can be a way to end the proceedings and pay the lender what you owe.
Consider a Short Sale
A short sale is a way for all parties involved to sell a home and resolve the outstanding debt. You would request that your lender accept less than the total amount owed on the mortgage due to the home being sold for less than the remaining mortgage balance.
Not all lenders will agree to a short sale, but if you follow this process, it can be less bad for your financial situation than foreclosure.
Your particular case might be a good candidate for Chapter 13 bankruptcy, and a bankruptcy attorney can help you decide how this would help you, if at all.
This form of bankruptcy consolidates your debt into a particular payment plan, and after the period decided upon by the court, you no longer owe the debts. Foreclosure proceedings are halted by a filing of particular kinds of bankruptcy, which can help you stay in your home while you sort out how to move forward financially. However, bankruptcy has a very severe impact on your credit moving forward, as it remains on your credit report for up to 10 years.
The Bottom Line
Missing payments on one’s mortgage can be overwhelming, but remembering that your lender wants you to get back on track can help you see it as a partner in avoiding foreclosure.
Realistically, some circumstances are too challenging to avoid a foreclosure, but most situations still benefit from clear communication with your lender as soon as you see signs of problems paying your mortgage. You’ll have more access to options like forbearance, a loan modification, or time to sell the home if you start the conversation early.
Frequently Asked Questions (FAQs)
When is it too late to stop a foreclosure?
After your loan is 120 days past due, it may be too late to stop foreclosure, but the sooner you speak with your lender and discuss options in your circumstances, the more likely you are to avoid foreclosure even if they technically are legally able to pursue that option.
Why should I avoid foreclosure?
Foreclosure damages your credit history and score for the seven years that it remains on your report, making lenders less likely to see you as qualified to receive future credit like a new mortgage or other credit-based financial products. Foreclosure also results in your needing to find somewhere else to live.
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