What Happens If I Pay My Mortgage Late?

If you’re having trouble and can’t pay your mortgage, contact your lender at once. InCharge Debt Solutions and a variety of government-sponsored programs are available to assist you in keeping your home — and your good credit score.

Paying your mortgage late can be the first tremor in an avalanche of financial woes, which include damaging your credit score and even losing your house.

The foreclosure process is structured by law to protect both homeowners and lenders. It follows strict steps from the first missed payment and gives you the chance to dig yourself out if you take the necessary steps.

If no attempt is made to catch up, the foreclosure process generally begins 90 days after a missed payment. A foreclosure will stay on your credit report for seven years, damaging your credit score and your ability to get other loans or credit. It will be difficult to get lenders to approve a mortgage loan if your credit report includes a foreclosure.

Upon completing this section of the course, you will know the steps to take to safeguard your mortgage, including resources and assistance to avoid foreclosure.

How Many Mortgage Payments Can I Miss Before Foreclosure?

Foreclosure proceedings can begin anywhere from 30 days after a missed payment to 120 days, depending on where you live and what foreclosure process is being used. In 15 states (Alabama, Connecticut, Hawaii, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, North Carolina, Rhode Island, Tennessee, Texas, Virginia, West Virginia, and Washington, D.C.), the timeline is 60 days or less. In Illinois and Vermont, the foreclosure time is 210 days. Most states are in the range of 90 (three missed payments) to 120 days (four missed payments).

The contract that you signed when you bought your house will spell out how many payments you can miss before foreclosure, and what the consequences are of missing payments.

No matter what state you live in, if you are going to miss one or more mortgage payments, don’t roll the dice trying to figure things out. The longer you wait to make arrangements with your lender to turn things around, the more difficult and expensive it will be.

The good news is that you get plenty of warning from your lender, the federal government, and even your state government before it gets to the point that you will lose your house. Lenders don’t want to initiate a foreclosure any more than you want to be foreclosed on. It’s a time-consuming and expensive process for a lender, so they want to help you avoid it.

Timeline of Missed Mortgage Payments

What happens if you miss a mortgage payment depends on what you do about it. If you’re late on one, you’ll have to pay a late fee. If you eventually make the payment, and continue to pay on time after that, the biggest problem you’ll have is a negative mark on your credit report. If that missed payment is the first of many, the financial consequences will build, and you may eventually lose your house unless you contact your lender and discuss options.

One Missed Mortgage Payment (30 Days Overdue)

Most lenders charge a late fee 10-15 days after a missed payment. A missed mortgage payment is reported to the credit bureaus once it’s 30 days late, which means you’re officially in default. This means a negative hit to your credit score. Your lender may contact you to remind you about a late payment at any time, but they are required by law to contact you if it is 36 days late. Don’t ignore their call.

Two Missed Mortgage Payments (45-60 Days Overdue)

Two missed payments will set off alarm bells with your lender. You’ll get either a phone call or letter in the mail — or both — asking that you contact them ASAP. You’ll also be charged another late fee. In 15 states and Washington, D.C., the pre-foreclosure process may begin. Mortgage lenders are required after a payment is 45 days late to send a notice of delinquency, which may be in your statement or a separate notice. It must include:

• The date you became delinquent
• The past six months of account history
• The amount needed to make your account current
• Risks and costs (such as foreclosure) if you don’t bring it current
• Information about foreclosure avoidance options or loss mitigation programs that you’ve agreed to (if applicable)
• Information about housing counseling
• Whether the servicer has started the foreclosure process

No matter where you live, the missed payments will be reported to the credit bureaus, further damaging your credit score, and representing a big red flag to future creditors.

You will likely also get information in the mail from the U.S. Department of Housing and Urban Development, and possibly your state, offering resources for hardship help.

It’s worth repeating that you should not ignore your lender. Don’t ignore the resources, either. You may still be able to get back on track by making one payment, but if you can’t, the problem will only get worse.

Three Missed Mortgage Payments (90 Days Overdue)

Once you’ve missed three payments, in most states, you’ll get a demand letter, sometimes called a notice to accelerate, from your lender. If you live in a state that starts the process earlier, you will have gotten this after 60 days. In other states, it may come later. In all cases, this is the kickoff to foreclosure. The letter will tell you that you have 30 days to make your mortgage current, and how much you have to pay to do that. This figure won’t only be missed payments, but also include late fees. The letter can be scary, and it should be a wake-up call if you have yet to contact your lender. If you ignore it, and don’t begin to take steps to resolve the issue, foreclosure proceedings will begin immediately after 30 days.

This will also be reported to the credit bureaus; 90 days past due is a red flag to many creditors, and it will continue to tank your credit score.

Four Missed Mortgage Payments (120 Days Overdue)

Once you are four payments behind on your mortgage, foreclosure is imminent. The demand letter gave you 30 days to pay or make arrangements with your lender. Once that 30 days passes, foreclosure begins.

The financial hits will also continue to pile up. Not only will you have added late fees, but the lender’s attorney fees will be added to what you owe.

At this point, your credit report will show a string of red boxes where those payments were supposed to appear, which will make it difficult to get credit, loans, and even rent an apartment or get a good quote on an insurance premium.

The Foreclosure Timeline

Foreclosures follow a timeline that’s set by law, but, as we already noted, how it plays out and how long it takes is different in every state.

It’s a good idea if you are behind with your mortgage to learn about your state’s foreclosure laws and process. Google your state’s name and “foreclosure,” or visit ForeclosureLaw.org, which has up-to-date information on each state’s laws.

In general, the steps of a foreclosure are:

• Pre-foreclosure: This begins after you receive a default notice. If you pay what you owe (including all late payment fees, legal and bank fees, and interest) or make other arrangements with your lender, you can bring your mortgage up to date and end the foreclosure process.
• Notice of Sale: If you don’t make your mortgage current, your lender will file a notice of sale, which sets the date for the home to be sold or auctioned. The fees related to the sale will be added to what you owe. In some states the time between when you receive the demand letter, and the date of the sale can be two months or less. In most cases, you can still make arrangements with your lender to bring your mortgage up to date before the sale date.
• Eviction: This is the legal notice that you must vacate the property, so that it can be sold by the bank. If you ignore it, you may be removed by law enforcement.
• Redemption Period: Some states will allow you to reclaim your home even after it’s been sold as a foreclosure in some cases. You will have to pay the outstanding mortgage balance and all costs incurred during the foreclosure process.

Who Should You Contact If You Know a Mortgage Payment Will Be Late?

If you can’t make a mortgage payment, contact your lender immediately. If the issue continues beyond just one late payment, it’s even more important to contact your lender. If your lender contacts you first, don’t ignore their request to talk. The only way to avoid foreclosure is to cooperate. Remember, your lender can’t help you if you don’t explain that you have a problem. What many homeowners forget is that the lender actually owns their house. The mortgage is a loan you ultimately pay to own it outright. If you are not paying the mortgage, you are violating the terms of the contract, and they will take the house back.

Life circumstances can make it hard to make mortgage payments, but sometimes late payments are simply the result of poor budgeting or organization. Always be aware of when your mortgage payment is due. Check your loan statement to confirm the due date and when late fees will kick in, and what the fee will be. If your lender offers it (most do), sign up for payments to be automatically taken from your account, and be sure the money is in your account on the due date.

Some things, though, are beyond your control. A divorce, pay cut, job loss, medical bills, or other major event might make it impossible to meet your mortgage obligations.

If you can’t pay, your statement has information on how to contact the lender. This information will likely be a telephone number, as well as your lender’s website, which will have detailed information on hardship procedures. Many lenders have an online form to fill out if you are experiencing financial hardship.

Be sure before you call or fill out the form that you can clearly explain why you can’t pay and how long your financial problem may last. Have a plan, if possible, for when you think you’ll be able to make a complete or partial payment. If you don’t know when you’ll be able to catch up, that’s all right. They’ll help talk you through your options.

Some lenders still also offer the option to contact them by mail, but most prefer a telephone call. If you want to contact them by mail, be sure that option is available and offer the same information that you would in a phone call.

Whatever the method preferred by your lender is, be sure to follow it, so your problem will be addressed and not overlooked.

Contact your lender as soon as you realize you will not be able to pay your mortgage. The problem will only get worse the more you delay.

You may also be contacted by HUD or your state housing authority with information about housing counseling and other resources. We’ll talk more about this shortly, but don’t toss it away, review it carefully. It may be what saves your house.

How Can Your Lender Help?

Mortgage lenders don’t want you to lose your home. They lose money on a foreclosure, and it also costs them time and resources, so they will look for ways to help.

There are several ways a lender may assist you if you can’t pay your mortgage. Some alternatives to foreclosure are:

Pre-Foreclosure Sale: If the market value of your home is less than what you owe on your mortgage loan, you may be able to list your home for sale, and then negotiate with your lender to discount your loan so the sale of your home will discharge your debt. This is called a “short sale” and can help if your house loses value because of changes in the local real estate market. Talk to a tax accountant so you’ll know if there will be income tax liabilities from a short sale. Be aware that you may have to pay additional income tax on the difference between your mortgage balance and the sale price of your home.

Traditional Sale: In a booming housing market, the value of a house may have risen so much that the borrower can sell it traditionally and pay off their mortgage. If you have a lot of equity in your home, this is an option to discuss with your lender.

Forbearance: If a temporary financial setback causes you to miss your mortgage payments, you and your lender may be able to work out a repayment plan that lets you catch up on missed payments and avoid foreclosure. You’ll have to show proof of your financial crisis and a realistic spending plan to get up to date on mortgage payments.

Mortgage Modification: If your income drops substantially, don’t wait until you go into default before asking your lender for help. They may agree to modify your loan to lower your interest rate, extend the duration of your loan, or add delinquent amounts to the principal. You’ll pay more over time, but you’ll lower your monthly payments to an amount you can handle.

Partial Claim: Your lender may help you qualify for an interest-free loan from HUD. This loan could allow you to make your mortgage current. Requirements are:

• You’re delinquent for more than four months, but less than a year
• You’re not yet in foreclosure
• You can begin to make full payments again

Deed in Lieu of Foreclosure: If all else fails, you may be able to give your home back to your lender. You’ll lose the home, but do less damage to your credit score.

Signs of Financial Difficulty That May Lead to Foreclosure

There are several signs to indicate you may be on the road to financial failure. If any of these warning signs apply to you, re-evaluate your spending and saving patterns. Simple financial adjustments may help you get back on track paying your mortgage and avoiding foreclosure. You’ll find more help in Chapter 3, Establish a Spending Plan and Set Aside Reserves.

You may be headed toward financial difficulties if you:

• Are living paycheck to paycheck
• Are unsure or unaware of the total amount of debt you owe
• Have paid late fees and/or over limit fees at least twice in the past year
• Have debt payments (other than your mortgage) that are more than 20% of your pre-tax income
• Have received telephone calls from creditors about overdue bills more than once during the past six months
• Are struggling to pay more than the minimum payment on your credit card accounts
• Would be unable to meet your financial obligations for three months following a decrease in income or a costly emergency purchase
• Have money problems that cause distress or conflict at work or at home
• Are at or near your credit limits
• Have borrowed from one credit card or taken a cash advance to help pay off another credit card at least once in the past year

If fewer than five of these signs apply to you, your debt may be within manageable limits. When paying off your non-mortgage debt, be sure to make more than the minimum monthly payment so that more money can be applied toward the principal of your debt.

If more than five of these signs apply to you, take immediate steps to reduce your debt before you end up facing foreclosure.

First, add up all your bills to determine how much you owe. Then set up a budget to track your monthly income and expenses. Identify as many ways as possible to decrease your expenses and increase your income. Consider contacting your creditors to explain your situation. They may be able to lower your interest rates, suspend fees, or offer you other short-term relief.

Assistance if You Are Facing Foreclosure

A foreclosure is something you definitely want to avoid. It legally allows your lender to take back your home and resell it. If the resale value is lower than the amount you owe on your mortgage, you could end up owing the difference. This is called a deficiency judgment.

A foreclosure can have long-term, damaging effects on your credit history, because it stays on your credit report for seven years.

In many cases, your lender is required to offer you housing counseling resources before they foreclose. Beyond that, there are many public and private organizations that are eager to help you get through a financial crisis and help you to hold on to your home investment.

You can find help by taking the following steps:

• Call an InCharge Debt Solutions housing counselor at 877-251-1882 for help, or visit incharge.org for assistance.
• If you have trouble making your payments on a VA loan, you can visit the U.S. Department of Veterans Affairs at benefits.va.gov for information.
• Visit the U.S Department of Housing and Urban Development website at http://www.hud.gov/ for programs that may be available to you.

If you’re in a bad financial situation, no one can guarantee that you will avoid foreclosure, but you can avoid making your situation worse by:

• Including your lender in all negotiations
• Informing your lender of any attempt to sell your home
• Making sure your lender will release you from all liability for your debt before you accept any offer to assume (take over payments) your loan
• Being wary of people who offer help in exchange for money

If you get an offer that sounds good, but you want to be sure it’s legitimate, talk to your lender before you sign anything. Make sure that your lender will agree to release you from liability for your mortgage debt. Whatever you do, don’t abandon your home. You could lose eligibility for HUD and VA mortgage assistance programs.

Be on the lookout for foreclosure scams. Avoid paying so-called “buyers” or “specialists” who claim they can help you escape foreclosure. At best, they charge money to do things you could do yourself. At worst, they could be scam artists intent on squeezing a few bucks from you. A few of the most common scams—and their disastrous results—are described in the following table.

Typical Foreclosure Scams

Summary

If financial difficulties threaten, seek help before foreclosure happens to you. Talk to your lender about working out possible payment alternatives. Your lender is the front line to helping you, and talking to them will help you avoid foreclosure scams.

Your statement, whether you access it online, get an email or it is mailed to you, will have a number to call for problems and questions. There may also be an address to send a letter to.

Do not delay in seeking help. Your lender can begin foreclosure in 90 days, and in some states even earlier, after you miss a payment. A foreclosure will appear on your credit report for up to seven years. Most lenders will not approve a mortgage loan if your credit report includes a foreclosure.

For further resources, check out these articles:

Help When You Can’t Pay Your Bills

Find a Housing Counselor