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The very first thing you must do is call your mortgage lender. Mortgage lenders are NOT in business to foreclose on property. They want to work with you and help you find a way to keep your home. The longer you wait, the more difficult this will be. If you are three months behind in your mortgage payments and the lender has not heard from you, the company will feel justified in pursuing foreclosure. It will assume that you do not intend to pay. DO NOT AVOID YOUR MORTGAGE LENDER. Take action right away to save your home and your credit record.
If your lender does not have an office in your area, check your loan papers for a toll-free long-distance telephone number. If there is no toll-free number, check to see if the company will accept a collect call from you (their borrower). If a collect call will not be accepted, go ahead and pay for the call yourself - this call is important.
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What Your Lender Can Do To Help
There are many different ways in which your lender might be able to help you. Generally each case is considered on an individual basis.
DEBT COUNSELING - Most often, the first way the lender will help is to look at all your outstanding debt to see if any of it can be restructured or consolidated. Mortgage payments usually are the last payment a person will let slide, so when you start having trouble making your mortgage payments, it is likely that you are experiencing difficulty with your other payments as well. Your lender can help you make a spending plan and structure a repayment plan.
REWORK (RECAST) THE MORTGAGE - If you have some equity in your home, it may be possible to rework your loan to lower the monthly payments for an extended period of time. The past-due amount could be added into the new loan.
GRACE PERIOD - If you are working with the lender, you will be given extra time, in most cases, to get your problem under control. Otherwise, if the lender has not heard from you, the company will usually begin foreclosure when you are three months behind in your payments.
SELL THE HOME - If your problem is so serious that it can not be resolved in a reasonable amount of time, it may be necessary for you to sell the home and find one that is more financially manageable. It may be possible to sell the home and pay off both the mortgage balance and your delinquent debt, and thus avoid foreclosure. Work closely with your lender to allow a reasonable time to sell the home. A poor real estate market will limit this option.
CHARITABLE ORGANIZATIONS and/or PUBLIC ASSISTANCE - Some charitable organizations and public assistance groups may be able to help you make a payment or two so that you can catch up.
SIGN THE HOME OVER TO THE LENDER (DEED in LIEU of FORECLOSURE) - This would be considered a voluntary foreclosure and could damage your credit record the same as an involuntary foreclosure. However, you can avoid the public notice of a foreclosure sale. The lender will work with a real estate agent to complete the sale. You lose your home, but will not be held liable if the home sells below the debt amount.
BANKRUPTCY - This is the last resort, if your home cannot be sold. It may save your home, but it will severely damage your credit record for at least seven years and you will lose control of your finances. Foreclosure proceedings are usually stopped until bankruptcy is resolved.
Questions You Will Need to Answer
What caused you to fall behind in your payments?
Be ready to explain the situation that led to your problem, such as losing a job, a medical expense, large utility bills, etc. It is important to be truthful.
What are your current resources?
Write down your current monthly income, including all dependable sources such as salary or wage; disability, retirement, or welfare benefits; and savings and investments.
What are your other debts and expenses?
List your expenses for essentials and other current financial obligations. Do not list things you would like to have but can do without. It is better to give up a second car, boat, or credit cards than to lose your home. Be realistic in your thinking. Include expenses for food, utilities, loan or credit payments, insurance, child support, and/or alimony (that you pay).
What are your plans?
Try to think of some ideas of how you could manage your problem or crisis now. Also, think about a plan to solve the problem in the long run. Your attitude, outlook, and plan will influence how far the lender will go to help you. Even if you feel that your situation is hopeless, DO NOT GIVE UP. Tell your lender about your problem right away. There may be ways to obtain financial assistance. If not, then it is still possible to reduce your losses and prevent foreclosure proceedings - even if you need to give up your home. Foreclosure can ruin your credit record for years, so you should check into every other possibility.
Definitions
Delinquent
The homeowner is delinquent when the monthly payment is one day late. When the payment has been missed completely and the succeeding payment is due, the mortgage moves into default.
Default
Any breach of the mortgage contract can constitute default (e.g. failure to maintain the property, pay real estate taxes, or carry adequate insurance). Commonly, default occurs when then homeowner fails to make the monthly payments. It is important to read and understand your mortgage contract as to how it defines default.
Forbearance
This is the period of time during which foreclosure proceedings are stalled while possible solutions are being fulfilled (e.g. sale of home, bankruptcy).
Foreclosure
The process by which the lender takes back and sells the property. There are three types of foreclosure: Judicial provides protection by due process in court and is regulated by state rules. It is used in most mortgages.
Out-of-Court or Power of Sale is used in deed of trust situations and is less regulated thus providing fewer protections (e.g. no presale hearing before a judge). Deeds of trust are common in Virginia.
Uniform Commercial Code is used for foreclosure on condominium and cooperative units with special rules applying.
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