What to Do When Your Mortgage Payment is Overdue

DATE: Oct, 10   COMMENTS: 0   AUTHOR: Allan Azarola

Mortgage rates might be more affordable now, however for one reason or another you may be late with your installments. If this happens, you need to try to catch up as soon as possible as otherwise you may end up losing your home.

Below, you will find the main reasons for overdue mortgage payments and how to avoid losing your home to a mortgage foreclosure.

Main reasons for belated payment

The reasons for belated mortgage payments are numerous and personal. However, some of the two most common ones are:

  • Losing your job
  • Unexpected medical expenses

In such cases, people usually neglect the mortgage installments as they seem the least important compared to the everyday needs such as buying food, paying bills, etc. A delay of couple of months is not so serious and can be resolved using alternative financing methods or negotiating the payments with the bank. A more serious delay and lack of efforts on your side to catch up on the mortgage payments, however, may result in a foreclosure procedure and the bank taking your home. So, here are a few options to consider.

 Tricks to avoid mortgage foreclosure

If you want to catch up on your late mortgage installments, there are a few ways to get some more money to do it:

  • Renegotiate your payment plan with the bank – the first thing to do if you are late with your mortgage installments is to visit your bank and try to renegotiate the terms on your mortgage. Since the lender will not benefit from a foreclosure procedure either, you will find that they are willing to offer a more relieved or flexible payment scheme.
  • Get a second or a third job – if you are short of money, you might consider working a bit more. Even though it is not an easy solution, it is one of the best ways to get you out of financial trouble. It doesn’t mean that you should sacrifice all your free time to the rest of your life but at least for several months until you are back on track.
  • Ask a family member for a loan – instead of taking money from unknown lenders ask your immediate or extended family if they can help you a bit to get out of the financial trap you are in. You might be surprised by the results.
  • Seek government help – the US government runs the Home Affordable Refinance Program (HARP), which helps people with repaying their mortgage. However, you should not be late on your payments toqualify for it. It is for homeowners who are on time with their payments but expect having financial troubles. Under HARP you may be able to refinance your mortgage at better and lower rate. For more information you should check the official site of the program.
  • Find alternative financing – as a last resort to your financial troubles you can look for some alternative financing methods, like peer to peer financing or “hard money” lenders – these are private lenders who are willing to give money to people with financial troubles but at quite high interest rates. Make sure to read careful all the terms and conditions and assess whether this financing option will actually help you or not.
  • File for bankruptcy – another option to use if you feel the debt is too high and you cannot manage it is to file for bankruptcy. Below, you will find what are the option in case of a mortgage foreclosure.

How to proceed when served with a mortgage foreclosure

If you were unable to catch up with your mortgage installments for more than 6 months, the lender (usually a bank) has the right to serve you with a mortgage foreclosure. In this case you are faced with two options – to fight for your home or to surrender it. The solution in both cases is to file for bankruptcy but using a different chapter of the law.

  • Chapter 7 bankruptcy

Chapter 7 bankruptcy is for those who are ready to surrender their home. It is the better choice if the property value is much below the overdue mortgage. In this case, when the bank sales your property it will cover some of the money you owe, while the rest of the debt will be discharged. In addition to that you will be granted 6 months to live in the house before the bank takes it. This is a good option, since it will allow you to find new accommodation and move your belongings to your new place. Keep in mind, though, that with the petition you can discharge other major debts that you have. In most of the cases people repay nothing to the lenders after filing for Chapter 7 bankruptcy and in 90% of the cases people lose nothing by making this step.

  • Chapter 13 bankruptcy

If you want to fight the foreclosure and keep your home, then you need to file for Chapter 13 bankruptcy. In this case your debt will not be discharged but the court will offer you a 3- or 5-year repayment plan. The scheme will allow you to catch up on your belated payments. You should note that this option is for those who expect their financial situation to improve in the following years. Keep in mind that a Chapter 13 bankruptcy also affects your credit record in a negative way and will remain in your credit history for 7 years. Your foreclosure attorney will be able to give you some tips on how to repair it.

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