A mortgage is a type of security interest that attaches to a piece property that is paid with borrowed money. This security interest acts as a type of collateral for the repayment of a loan that a person borrowed from a bank or other financial institution, in order to pay for the property.
An example of this would be when a person wants to buy a house, and they do not have enough money to purchase it outright. A bank or other lender will provide the money to purchase the home or property, and a mortgage is then placed on the property. The purpose of this is that if the borrower defaults on their loan, the lender will have the right to take possession of that property.
A mortgage transaction is composed of two important documents: the promissory note, and the mortgage or “deed of trust.” A promissory note is a type of legal contract. Generally speaking, the terms of the promissory note state that one party promises to repay a specific amount of money to the lending party within a given time frame. The promissory note is what holds the borrower responsible for repaying the loan, even if the borrower sells the property at a later date.
A mortgage or deed of trust document acts as a lien on the property. What this means is that if the borrower does not repay the loan, the lender may force them to repay it by selling the property in question. The mortgage document is what guarantees that a financial institution will get their money back, even if it is not the actual borrower making the repayments.
“Mortgage litigation” is a term used to describe a lawsuit involving disputes over mortgage repayment. The borrower is given the chance to explain why they believe their lender is being unreasonable, or why they cannot make their payments. The lender has the opportunity to do the same. The goal of mortgage litigation is generally to resolve repayment disputes between the two parties.
How Long Can You Not Pay Your Mortgage Before Foreclosure?
How long a borrower can go without paying their mortgage before foreclosure is not straightforward. The borrower will need to carefully review the terms of their mortgage agreement in order to determine if there is any sort of grace period for missing payments.
Once a borrower fails to repay their mortgage, the lender has the right to begin the foreclosure process. This refers to the process in which a lender takes possession of a home because the borrower has defaulted on their mortgage payments. Once the foreclosure process is complete, the lender most commonly sells the property at a public auction and uses the proceeds in order to recover their losses. If the sale of the property does not amount to as much as the lender is owed, the borrower may be required to make up the difference. This is referred to as a deficiency judgment, due to the fact that the money recovered from the auction or sale of the property was insufficient to cover the amount of the loan.
Generally speaking, foreclosure begins after three months of nonpayment, and after the borrower has been notified of their default. It is important to note that proper notification differs in almost every state, therefore it is important to make sure that you were properly notified. The notice sent to the borrower will commonly claim that the borrower has become delinquent in their payments, and as such the lender has the legal right to repossess the home.
However, even after a lender starts the foreclosure process, the borrower may be given a grace period in which to repay the missed payment. Once again, the length of the grace period will depend on the laws of the borrower’s locality, unless otherwise specified in the mortgage agreement.
If the borrower does not pay their mortgage by the end of the specified grace period, the lender may report them to the credit bureau. Doing so could bring down the borrower’s credit score, and it will appear on their credit history.
Do I Have Other Options If I Can’t Pay My Mortgage?
If you as a borrower cannot make your mortgage payments, you should first attempt to work with your lender in order to create a revised payment plan. Lenders do not necessarily want to foreclose on properties because most foreclosures result in the lender losing money, or just breaking even.
What this means is that lenders will not receive the interest that they would have received had the borrower continued to make their payments. Because of this, foreclosure will likely be a lender’s last resort. Lenders may allow payments to be made in installments on top of the borrower’s regularly scheduled payments.
Additionally, borrowers should be fully aware of their rights and duties as prescribed by the mortgage contract they agreed to. Some of the most common examples of foreclosure avoidance include:
- Short Refinancing: Short refinancing allows part of the borrower’s debt to be eliminated and the remaining loan to be refinanced;
- A Short Sale: A short sale occurs when the borrower sells their property for an amount lower than what is still owed. The proceeds of the sale go to the lender, and the rest of the debt may be forgiven;
- Loan Modification: Loan modification may occur if the lender is willing to modify the terms of the loan in order to be paid something, rather than be paid nothing;
- Forbearance: Forbearance can temporarily stall the foreclosure process and gives the borrower more time to eventually pay the amount owed; and
- Negotiation: Often the lenders will not want to pursue a foreclosure, as the foreclosure process is costly, and the full amount of the loan may not be recovered. Instead, lenders may work with the borrower to restructure their original loan, as mentioned above, or modify the mortgage agreement so that the borrower can afford to make timely payments.
Other remedies may include garnishment of wages in order to make up for the missed payments. Wage garnishment occurs when a creditor obtains a court order to garnish the wages of a debtor for the repayment of a debt. In cases involving large amounts of debt, the court will apply wage garnishment laws to force workers to repay some of their debt. This is done so that they do not further increase what is already owed, which could force themselves into bankruptcy.
The court orders the defendant’s employer to take a portion from their employee’s paycheck. They must then send the garnishment to the court, or to an intermediary agency which processes debt payments. Once wage garnishment has been ordered, the court will send a notice to the employer to begin garnishing the wages. Generally speaking, it is the employer’s responsibility to calculate the amount to be paid. This amount is usually taken out weekly.
Do I Need a Real Estate Attorney for Help with a Mortgage?
If you are facing foreclosure or are unsure that you can make your monthly mortgage payments, you should hire a skilled and knowledgeable attorney for mortgage problems. A local mortgage lawyer would be best suited for representing you in your mortgage issues, due to the fact that they will have greater awareness of how your state’s specific laws regarding mortgages will influence your legal options.
An experienced and local mortgage attorney can speak with your lender on your behalf in order to negotiate a repayment agreement, or a settlement amount. Should your mortgage issues result in litigation or foreclosure, a mortgage attorney will be able to represent you in court, while protecting your legal rights as a borrower. Finally, if you have not yet signed a mortgage agreement, an attorney can review the document to ensure you understand what you are agreeing to.