Falling behind on mortgage payments can result in some very undesirable consequences. Consequences can range from late payment penalties to legal actions that include the start of foreclosure proceedings. These consequences can depend on several factors, such as the amount that is due, the length of time since the last payment, and the financial history of the debtor and their credit rating.
For the borrower, the consequences of late mortgage payments can include:
- First Late Payment Fee: If a payment is over 15 days late, a late fee is usually imposed, generally an amount equal to 4 or 5 percent of the monthly mortgage payment;
- Notice to Credit Agencies: If the payment is 30 days late, the lender may report the non-payment to the credit reporting agencies, which can affect the debtor’s credit rating. When the payment is 36 days late, federal law requires that the lender send the debtor a Notice of Default, which informs the borrower of the possible consequences and how to address the problem;
- Contact from Lender: When the payment is 45 days late, the lender is required by federal law to assign a staff member to the case who contacts the debtor to discuss the situation;
- Second Late Fee: If a monthly payment still has not been made when 60 days have passed, it means that the debtor has missed two payments, so a second late fee will be imposed. The debtor will definitely be contacted by the lender to discuss options;
- Demand Letter: After 90 days, the debtor has missed 3 monthly payments. They will receive a Demand Letter from the lender, which tells the debtor that they must bring payments up to date or face foreclosure;
- Foreclosure: If payment is still late after 120 days, or about 4 months, the lender will refer you to their lawyer to schedule a foreclosure sale.
State law regarding foreclosure varies by state and may affect the details of how foreclosure can proceed in the state in which a property is located.
What Options Do I Have if I’m Behind on Mortgage Payments?
In many cases, lenders are willing to reach some sort of compromise with the borrower. For example, they may allow them some time to gather their resources and get up-to-date on their payments.
There may be some foreclosure alternatives available to the lender, such as:
- Loan Modification: This is where the lender adjusts the monthly payments in order to help the borrower keep up with payments. This might keep payments on a monthly basis, but may not resolve the problem of past payments that remain due;
- Reinstatement: To reinstate the loan, the borrower simply pays all the missed payments in full. This might be a good option if only one or two payments were missed. Certainly, if a debtor can repay missed payments in full and avoid foreclosure, they should do that;
- Repayment Plans: Here the lender increases their monthly mortgage payments for a period of time, so they make up for missed payments. Of course, this assumes that the borrower is in a position to make increased monthly mortgage payments for a period of time;
- Forbearance: Under federal law and the law of some states, certain debts can be subject to forbearance. This is where the monthly payments are paused for a while, to allow the person to repair their finances. Interest rates may still accumulate during the suspension period, and the rate may be higher than the original rate on the loan.
- With a forbearance, the lender may suspend the monthly mortgage payments altogether for a period of time. The lender may add the months to the end of the life of the loan. Or, the debtor may have to make higher monthly payments for a period of time after the forbearance period ends;
- Bankruptcy: As a last resort, bankruptcy can delay foreclosure for a period of time. In a Chapter 13 bankruptcy, it is possible for the debtor to bring the mortgage payments up to date and remain in the house.
Lastly, if the person is facing foreclosure, they may still have some foreclosure alternatives available. One of these is the deed-in-lieu of foreclosure transfer. In a deed-in-lieu of foreclosure transaction, the mortgage borrower conveys all interest in a real property to the lender. The lender agrees to accept the transfer of the property as satisfaction of the mortgage loan, and both sides walk away. The lender plans to sell the house and accept the proceeds of the sale as full payment of the mortgage loan, so it is something that lenders will not consider if the value of the house is below the balance owed on the mortgage loan.
The advantage to the debtor is that a deed-in-lieu of foreclosure is less damaging to their credit rating than foreclosure is. There are several advantages to the lender. In some states, there are technicalities to a deed-in-lieu of foreclosure transaction that make them less attractive to mortgage lenders, so it may not be an option.
How Can a Lawyer Help in This Situation?
Many borrowers who are behind on their mortgage payments may think that working with a lawyer is an unnecessary expense in a time when they are already pressed financially. However, a lawyer can help a person avoid spending more money than necessary or losing their home because they do not understand how mortgage debt works. Thus, working with a lawyer can help a person avoid costly mistakes and protect their interests.
For example, many people might feel pressured when speaking with mortgage lenders, especially if they are not knowledgeable about mortgages. Having a lawyer present during negotiations can help prevent a borrower from becoming the victim of coercion, abuse, or fraud, which have become more prevalent in the past decade.
Also, an attorney can help a person understand all of the options available to a person given their particular financial situation. The person’s situation may involve more problems than just their mortgage. A lawyer can help the person address the whole situation and not just the mortgage. A lawyer may be able to devise a plan that involves filing for bankruptcy as a more global solution.
Another important issue in foreclosure is whether sale of the house will produce enough to pay off the mortgage loan in full. Generally, if sale of the house does not produce enough money to satisfy the loan in full, the lender can pursue the debtor for any amount that remains owing on the mortgage. This is an outcome that the debtor wants to avoid. So having a lawyer make sure that a deed-in-lieu of foreclosure will take care of the entire mortgage loan debt would be critical.
Should I Hire a Lawyer if I’m Behind on Mortgage Payments?
If you have fallen behind on mortgage payments, it is best to address the situation early on and not allow it to become worse. It may be in your best interests to consult an experienced mortgage lawyer for help with mortgage issues. Your situation may involve more debt than just your mortgage and a lawyer may know of options for addressing it of which you are not aware. You could be doing yourself a big favor to consult an experienced mortgage lawyer.
If you need to make court appearances, of course, an attorney can provide you with expert representation and legal advice during court proceedings. A mortgage lender has lots of experts and professional advice. You need some professional representation on your side watching out for your interests as well.