Missed Mortgage Payments

Many American homeowners live paycheck to paycheck. They struggle every month to make their mortgage payments by the due date. When hit with a sudden financial crisis like income loss, many homeowners don’t have enough savings to make their mortgage payments. This is precisely the situation that many homeowners have faced since the outbreak of the coronavirus pandemic. Many homeowners have missed several payments because they lost their income. 

Failing to make payments puts you at risk of losing your home. But we have good news. Help is available to you if you can’t pay for your mortgage. But, it is important to explore these options as soon as mortgage payments are missed. Quickly taking advantage of one of these options could help you to save your home. 

What Happens After A Missed Mortgage Payment?

Your home loan will list the day that your monthly mortgage payment is due. Typically, borrowers are required to make their payment by the 1st day of each month. While the payment is due on the 1st of the month, the lender typically grants a 15-day grace period. This means that you have 15 days from the due date to make the mortgage payment without a late fee. Many lenders use mortgage servicers that manage the loans for them. A loan servicer keeps track of the payments that are made by borrowers, as well as their overdue balances. 

If the loan servicer doesn’t receive a payment after the 15-day grace period ends, the payment will be late. The mortgage servicer will send the borrower a letter stating that they missed a payment and that the payment is now delinquent. The missed payment needs to be made up. Late payments incur late fees. The late payment won’t be reported on your credit report until the payment is 30 days late or more. 

What Happens After Multiple Missed Mortgage Payments? 

If you miss several mortgage payments, you will be in default under the terms of the mortgage. After a second mortgage payment is missed, the mortgage servicer will send a letter to you. The letter will tell you that they are in default. You will be given 30 days to make up all outstanding payments. If you fail to catch up on all the missed payments, the lender might have the right to accelerate the full amount due under the terms of the home loan. Once the lender accelerates the full amount due under the mortgage, they can begin foreclosure proceedings.  

Several missed payments could negatively affect your credit score. The mortgage servicer will notify the credit bureaus about your missed payments. After payments are missed, lenders will charge borrowers late fees, interest, and other fees related to the missed mortgage payments. These fees could include maintenance expenses or property inspections. These charges build up rapidly. Mortgage lenders have the right to begin foreclosure proceedings after one missed payment. But they generally don’t take such drastic action until a mortgage is several payments behind.

Foreclosure After Missed Mortgage Payments

A foreclosure occurs when a lender seeks to sell a borrower’s home if the borrower has defaulted in making their mortgage payments. The lender will use the money received from the sale of the home to pay off the outstanding balance due under the mortgage. 

The foreclosure process varies by state. Some require a judicial foreclosure process, others allow for a non-judicial one. In judicial foreclosure states, a lender can’t sell your home if you have defaulted on your mortgage payments until after they file - and win - a lawsuit. Before they can sell your home, they need to get a judgment from the court.

By contrast, other states don’t require a formal lawsuit to sell your home if you default on your mortgage. A lender can sell your home if the mortgage document allows them to do so, even without filing a formal lawsuit. The home can be sold at auction at a foreclosure sale. Generally, the foreclosure process won’t begin until at least 4 payments are overdue (120 days past due). 

Federal Government Help With Foreclosure

Due to the coronavirus pandemic, the federal government has placed a moratorium or a hold on the foreclosure of homes that have mortgages insured by the Federal Housing Authority (FHA) or backed by Fannie Mae or Freddie Mac until June 30, 2021. 

Additionally, the United States Department of Housing and Urban Development (HUD) offers housing counselors services to help those who are facing foreclosure. If you would like to talk to a housing counselor, visit the HUD website.

Bankruptcy After Foreclosure

Sometimes, a home is sold at a foreclosure sale for less than the outstanding mortgage balance. If this happens, a court may hold a borrower responsible for paying the lender the amount that wasn’t satisfied by the sale proceeds. This is known as a deficiency judgment. Filing for bankruptcy might serve as an opportunity to stop the lender from recovering a deficiency balance. In addition, a bankruptcy filing could discharge or wipe out any deficiency judgment due to the lender. 

What To Do If You Can’t Pay Your Mortgage

There are options for people who fall behind on their mortgage payments. Are you having difficulty making your mortgage payments? If so, it is a good idea to contact your mortgage servicer right away. Discussing your options can help to prevent a foreclosure, even if the foreclosure process has already begun. 

If your mortgage is federally backed by FHA, Fannie Mae, or Freddie Mac, coronavirus relief regulations prohibit lenders from foreclosing on homes until after June 30, 2021. Some of the options available to help you save your home include forbearance agreements, loan modifications, refinancing, and short sales. Contact the loss mitigation department of your mortgage company to discuss these options. 

Forbearance Agreements

A forbearance agreement is an arrangement between a lender and a borrower. The lender agrees to pause the borrower’s obligation to pay the monthly mortgage. Or the lender reduces the payment for an agreed period of time. During this time, the lender agrees to give up its right to start a foreclosure proceeding. The time period is usually between 3 and 6 months. 

At the end of the forbearance period, the borrower will have to catch up and pay the missed mortgage payments. Some lenders require borrowers to make a lump sum payment to make up those payments. Others may allow a borrower to enter into a repayment plan. The borrower can then pay the outstanding mortgage payments in installments.  

The CARES Act requires many loan servicers to provide forbearance to borrowers who are experiencing Covid-related financial hardship. This mandate applies to mortgage agreements backed by HUD/FHA, VA, USDA, Fannie Mae, and Freddie Mac. The Biden Administration has also extended certain homeowner protections under the CARES Act. 

The deadline for borrowers who wish to request forbearance has been extended until June 30, 2021. Borrowers who entered into forbearance on or before June 30, 2020, may request up to six months of mortgage payment forbearance. This means they can request up to 6 months of additional “pause” in paying their mortgage payments.

Loan Modification

A loan modification may allow you to add missed mortgage payments to the total amount that you owe on the mortgage. The terms of the home loan will be changed. The duration of the loan will be extended and the interest rate might be lowered. This option is usually ideal for homeowners who can’t make up their missed payments right away.  

Refinancing Your Mortgage

A refinance is available to borrowers who haven’t yet fallen behind on their mortgage payments. A new loan replaces the old loan documents. It usually lowers the interest rate and changes the term or duration of the loan. 

Short Sale

Borrowers facing foreclosure may consider selling their homes to pay off the outstanding mortgage balance. Sometimes, the market value of the home is less than the outstanding balance. The market value of the home will be determined by analyzing comparable sales of real estate in the borrower’s area. The homeowner needs to get the lender’s approval to sell the home for less than the outstanding mortgage balance in a short sale situation. 

Bankruptcy May Prevent A Foreclosure

Filing for bankruptcy may be an alternative for a homeowner seeking to prevent a foreclosure sale. In most instances, a bankruptcy filing can stop a foreclosure sale. At the time a bankruptcy petition is filed, an automatic stay is imposed. This stay stops most collection efforts and foreclosure actions. A Chapter 13 bankruptcy may help a homeowner save their home. It allows them to pay back the missed mortgage payments through a plan over 3 to 5 years. The homeowner will also be required to pay the regular monthly mortgage payments that become due after the bankruptcy filing. Loan modifications may also be available in a Chapter 13 case. 

A Chapter 7 bankruptcy can delay a foreclosure sale but won’t help you pay back missed mortgage payments. This opportunity probably isn’t the best alternative if you want to save your home. 

Missed Mortgage Payments Affect Your Credit

Multiple late and missed mortgage payments will harm your credit score by lowering it. Late payments will remain on your credit report for up to 7 years. A foreclosure will also show up on your credit report. It will remain on the credit report for 7 years from the date of the first mortgage delinquency. The mortgage company will report missed payments to the three credit bureaus: Experian, Equifax, or TransUnion. It is really important to check your credit report to make sure that the information reported is correct. You are entitled to one free credit report annually from every bureau. During the pandemic, you can order a free credit report from every bureau weekly up until April 2022.

A low credit score may affect your personal finances. A credit score tells lenders how likely you are to pay back a loan based upon your payment history. A low credit score may affect your ability to get a student loan or a credit card. The FICO credit score is commonly used by lenders in determining the risk of lending you money. Credit scores usually range between 300-850. The higher the score, the lower the risk of a default on a loan.

Let’s Summarize...

Many Americans suffered an income loss due to the coronavirus outbreak. This left them without the means to make their mortgage payments. If you are also struggling to pay your mortgage, there is help available that can help save your home. But you need to act quickly. Missed mortgage payments grow to include late fees and costs. 

The best way to tackle this problem is to find out if the lender will work with you. Contacting the loss mitigation department of your loan servicer is a good start. Refinancing, a loan modification, a forbearance agreement, or a short sale can help avoid a foreclosure sale. Filing for bankruptcy can also help you make up your missed mortgage payments and stay in your home.