The Order of Events When You Stop Making Mortgage Payments
Find out what you can expect to happen once you stop paying your mortgage.
If you have have fallen behind on their mortgage payments, your lender is going to start taking steps to recoup their loss and prevent further losses. This article will give you and overview of the consequences, in order, you can expect.
Late Charges and Other Fees
The terms of most mortgages require a payment by a certain day of the month and include a grace period for the payment. If you fail to make a mortgage payment before the expiration of the grace period, your lender will assess a late fee. The amount of the late fee is set out in the promissory note you signed when you took out your mortgage. (Typically, the late fee is 5% of the overdue payment of principal and interest.)
In addition, if your lender initiates the foreclosure process, the terms of your mortgage likely allow your lender to pass on certain expenses to you. These expenses include attorney's fees and inspection charges, among others, related to initiating and carrying out the foreclosure.
Impact on Credit
One of the most obvious consequences of falling behind on your mortgage payments is the negative impact on your credit score. When a mortgage payment is 30 days or more late, the mortgage company will report that delinquency, or late payment, to the credit bureaus. The more payments you miss and the longer you remain delinquent, the greater the impact on your credit score. In addition to decreasing your ability to obtain credit in the future, including the ability to qualify for another home loan, a low credit score may also affect your ability to obtain employment or insurance coverage.
Most mortgage agreements include an acceleration clause that gives the lender the right to call the entire mortgage debt due and payable immediately upon the borrower's default. If you miss too many mortgage payments, your lender will accelerate the loan as a precursor to foreclosing.
Under federal mortgage servicing rules, lenders cannot start the foreclosure process by making the first notice or filing until you are more than 120 days delinquent. The foreclosure will be either judicial (through the state courts) or nonjudicial (where the foreclosure happens outside of the state court system), depending on state law and your circumstances. A foreclosure will remain on your credit report for seven years and may prevent you from buying another home for years.
Depending on the laws of your state, your lender may have the right to seek a deficiency judgment against you after foreclosure. If your lender is successful in obtaining a deficiency judgment and you refuse to or can't pay, your lender could garnish your wages, freeze your bank accounts, or place a lien on your other property. To learn more about deficiency judgments and to find out whether deficiency judgments are allowed in your state, read our articles on Deficiency Judgments and State Anti-Deficiency Laws.
Stress and Emotional Turmoil
Falling behind on mortgage payments can be a great source of stress and emotional turmoil. Many homeowners who fall behind on mortgage payments can't sleep, fall into depression, have strained personal relationships, and find that their performance at work is negatively impacted.
One of the biggest mistakes you can make when you run into problems paying your mortgage is to put your head in the sand and make believe there is no problem. Once you realize that your financial troubles have escalated to the point that you are going to miss a mortgage payment, you should begin exploring your options immediately. Contact your lender to find out what foreclosure alternatives (like a short sale, deed-in-lieu, or loan modification) are available to you. Contact a HUD-approved housing counselor for free help. Finally, you may want to consult with an experienced foreclosure attorney for advice tailored to your specific situation.