Missing mortgage payments can be a slippery slope for home owners because most of us have a fixed salary. There isn’t an easy way for us to make additional income to pay back the late payments, which tend to start piling up, $2,000 behind the first month, $4,000 behind the second month, $6,000 behind the third month… The solution for some is to take a second job, dip into savings, or borrow money from a relative.
Unfortunately, there are life events that make holding the property impossible such as medical illness or a death, job loss, adjusted rate mortgages, divorce, or because the home is upside down.
Banks will foreclose on the property if you stop making payments. The bank forecloses to get the money they borrowed back. The banks lose a lot of money foreclosing, and so they would prefer to avoid it if possible. When foreclosing a bank incurs utilities costs, insurance, repairs, property taxes, they may have to do an eviction to get possession back (I wouldn’t be thrilled about just handing them over the keys), and they won’t receive any interest while this is going on. When they finally are able to sell they usually take a pretty big hit on the final sales price AND have to pay a sales commission.
What it comes down to is that banks are in the lending money business, and not the owning homes business. When they take the title of a home through foreclosure they don’t look at it as an asset, they put it in the liabilities column on their profit and loss statement. Their goal is to sell the house as quickly as possible and recover as much of their loan as they can.
How quickly can a bank forclose? 140 Days from 1st missed payment. 110 days after Notice of default. 20 Days after Notice of Trustee Sale.
Day 1 – Miss mortgage payment
Day 30 – File NOD
Lender records Notice of Default. During this time the lender will try and contact you and talk about your options. The length of time that it takes for the lender to record the Notice of default varies- I have heard of people not making a payment for six months and not getting a NOD. Legally, the bank can record a NOD just 30 days after the missed payment. In reality the banks are so inundated with defaults and have so many bad mortgages that they don’t want to start the foreclosure process immediately. I know that as a home owner you want an exact date for when the Notice of Default will be filed, but I don’t know what the bank will do it’s up to them to decide. I can tell you 30 days is the legal minimum amount of time required before they can issue a NOD. Once a NOD is recorded the clock starts officially ticking.
Day 120 – File NOTS
After filing the Notice of default the bank must wait a minimuim of 90 days before they can record a Notice of Trustee Sale. When you recieve notice of a trustee sale the heat is really on. Certain processes like getting a loan mod, or completing a short sale can take a few months, if you wait until the notice of trusteee sale is filed, there is a good chance you won’t have enough time to pursue any alternative rather than foreclosure. If you are in this situation, contact the bank immediately, the sooner you can talk with them the better- you will want to arrange an extension or a delay on the trustee sale to give yourself more time. The quickest date that the bank can schedule a Trustee sale date from the filing of the Notice of Trustee Sale is 20 days.
Day 140 – Foreclosure
The day of the trustee sale the property goes up for public auction at the courthouse steps and is sold to the highest bidder- either the lender or an investor will buy it at the sale, and the property is foreclosed on.
A lot of homeowners become paralyzed when facing foreclosure- this is understandable. It is so stressful!!!!!! It is important to not be overwhelmed because there are many potential alternatives to foreclosure, and getting foreclosed on is almost always your worst option.
Stay in Your Home
A loan modification is a great solution if you are making income but can’t afford your current payment. The government has mandated banks to create loan modification programs. A loan modification may reduce your interest rate, extend the term of the loan to 40 years, or reduce the principal balance. Find out more about loan modifications at the government’s website: Making Home Affordable http://www.makinghomeaffordable.gov/pages/default.aspx
A refinance is a good option if you have equity in your home and you are making income but can’t afford your current payment. The disadvantage with refinancing is that you will have to qualify for the new loan as well as pay the loan origination fees. However if you do qualify for a refinance, the new loan will have a lower interest rate which means lower monthly payments.
A forbearance is a good option if you have a short term hardship that prevents you from making your mortgage payments for a few months, after which, you will be able to resume normal payments. A forbearance basically puts your loan on “hold” for a few months.
Reinstatement or Repayment
If you can afford to come up with the cash to bring the mortgage current, including all past due payments plus penalties, the lender will reinstate the loan. Lenders offer repayment plans that allows the borrower to make larger than normal monthly payments on a schedule until the borrower is caught up instead of paying it at once in a lump sum.
Rent the Property
If you have somewhere else to go and the rental income from renting the property will cover the expenses, then one way to hold the property is to rent it out and wait for the market to get better.
Bankruptcy temporarily stops foreclosure with an “automatic stay”. In Chapter 13, a 3-5 year payment plan is worked out to pay back debts. If you dot not stick to the new payment plan you will still lose your home. Chapter 7 liquidates all of your assets to pay debts. It also will not stop foreclosure, but the stay can buy you time, and the bankruptcy might wipe some other unsecured debts which might allow you to afford your home again. Speak with a bankruptcy attorney.
Servicemembers Civil Relief Act (SCRA)
SCRA is for military personnel that have been activated for duty, and are having difficulty making their mortgage payments at home while they are away.
Leave Your Home
Short sale means to sell your home even though it is underwater. In a short sale, the lender accepts a sale price that is less than the loan amount and does not seek a deficiency judgment against you.
Deed in Lieu of Foreclosure
An alternative short sale, instead of selling the property, you hand over the property to the bank first before they do a foreclosure.
Which Option is Best?
It depends on your situation. Consult with a realtor, attorney, credit advisor, and accountant to figure out which option will be best.