As more people take out mortgages that stretch their budgets to a breaking point, we’ll keep seeing these affordability problems turn into mortgages that are in danger of delinquency. According to CoreLogic, 2.8% of mortgages were 30 days or more past due in March 2024, up 0.2% from the year prior, and 0.3% were actively in foreclosure.
These are small numbers, to be sure, but if you’re one of the people who has gotten behind on your mortgage payments, the impact of that small number can be colossal.
Some folks fell behind during the pandemic, and have never managed to really get caught back up. Some have suffered setbacks, illnesses, and tragedies that have turned into massive financial stumbling blocks.
But as a former Realtor, I’m here to tell you that it’s going to be OK and that you can resolve this without losing your home.
What happens when you miss a payment
Some people are really afraid that once they miss that first payment, that’s it, they’re done for. That’s not really how it works, and although the process is very different depending on what state you are in, the first part is always the same.
When you miss your first payment, the bank will reach out to you to find out when you will be making that payment. Don’t ignore its calls. Your bank is trying to help, believe it or not.
When you’ve missed the second payment, it’ll get a lot more aggressive about trying to contact you because your bank doesn’t actually want to foreclose on your house. It costs banks a lot of money to foreclose and the lender has no guarantee that it will be able to sell your home for enough money to cover your remaining mortgage.
Once you’ve missed the third payment and are 90 days past due, that’s when the foreclosure process starts. You’ll start seeing notices appear in the mail, and people may show up at your door. This is functionally your last chance to save your home (you can still redeem yourself after this point, but the bank won’t help you, so it’s going to be tough to accomplish if you don’t have the cash to make your payment).
But you don’t have to go through all of this — there are solutions.
Here’s how you can avoid foreclosure and stay in your home
Your options to avoid foreclosure will largely depend on your mortgage lender, how many payments behind you are, and sometimes how long you’ve had your mortgage, but in general, you have a few options.
If you want to keep your home and stay in it, call your lender as soon as you miss a payment and realize you can’t catch it up. Don’t wait. Time is of the essence if you need help managing your payments.
You will generally have a few options, including the following.
Mortgage forbearance
You can request a mortgage forbearance when you’re experiencing a significant financial hardship, especially if all the earners in the household are unemployed or a serious medical crisis occurs. Your lender may let you skip some payments, or at least pay a lot less, for a few months until you get back on your feet. You’ll need to have a permanent solution to those missed payments, though, so be considering that while you’re working through your current cash flow issue.
Loan modification
Loan modification might be a lender offering a discounted rate for a short period to help reduce the strain on your budget, or allowing you to pay the missed payments at the end of your current note (this happened a lot during COVID-19). Your options will depend on your loan type and servicer.
Partial claim second mortgage
A partial claim second mortgage is an option we didn’t really see when I was an agent leading up to the Great Recession, and one I’m glad is available now. A partial claim second mortgage is a type of loan modification for HUD programs (like FHA mortgages) that allows your lender to take a claim against your mortgage insurance, while leaving your mortgage rate intact. It’ll use those funds to create a second mortgage with zero interest that may be able to be deferred so that no payment is due. Note: if you plan to stay in your home indefinitely, budget to pay against that second mortgage or you’ll just have moved your trouble down the road.
Recovering from a near-miss with foreclosure
If you call your lender and you get help right away, you’ll see that all will be well, even if you have to keep making phone calls and keep filing papers for a while. Your lender really doesn’t want to take your house, I promise you.
But those missed payments are going to hurt you, and it’s not a small hurt. Your credit score will suffer the further behind you get, and you’ll have a record of non-payments for a long time. I know because I’ve been through a foreclosure. It was the Great Recession, my house was significantly underwater, and we had no other way out because my income dropped by 90% overnight.
The good news for you, of course, is that you will have saved your home, and over time, your credit will recover. Your home’s value will also climb while your credit recovers, giving you even more options to deal with a modified loan or a partial claim second mortgage down the road.
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