The best mortgage advice, is to never miss a payment. Stuff can happen…to cause issues with making this promise. People lose jobs, become temporarily disabled, incur unexpected medical expenses or need to make a choice between paying the mortgage or repairing the car that gets them to the job to pay the mortgage.
Hopefully you will never be confronted with defaulting on a mortgage but if it happens this information will help.
Mortgage notes carry a grace period of 10 to 15 days. Many people “play the float” and delay through most of the grace period before making the payments. On day 16, a late fee is assessed and a friendly reminder from the lender is sent with no other ramifications. The late payment probably won’t show on a credit report but on Day 30 that changes. This is when the borrower is in default.
Laws regarding mortgage default and foreclosure range for each state and mortgage lenders and servicing companies vary in their approach with delinquent borrowers. There are a hundred different scenarios that can play out in mortgage delinquencies.
On Day 16, additional debt is incurred as a mortgage late fee, which is usually a percentage of the principal balance which can grow pretty fast if the next payment is also missed. Past Day 30, some lenders will allow the borrower to make a partial payment of past due amount or they may insist to bring everything current in one check, including late charges as well.
Day 45 will probably involve phone calls from mortgage collectors which will come pretty regularly. Most states have rules regarding collection activities and telephone calls including the frequency, content and timing (morning and late night are off limits).
At Day 60 to 90, after the initial missed payment the lender will send a notice of default, usually sent by Certified Mail, giving the borrower a finite period to cure the situation by paying all past due amount. By now, collection costs are added to the late fees. Once this remedial period passes, the collection department will refer the loan to the lender’s legal department, which will send the documents to a local attorney to begin foreclosure proceedings. Serious legal fees will then begin accruing.
A foreclosure is a legal event in which benchmarks must be met. When the case is turned over to an attorney, the impending foreclosure must be advertised in local papers and the largest and closest newspaper. The entire process takes a long time from initial default to the actual public auction of the property. If a member of the military is the owner of the property, there are additional safeguards required by law and in some cases, states included. The longer the foreclosure takes, the greater, the debt accrued and the larger the liability the homeowner has, something that will become critical down the road.
The law in most states gives the homeowner every opportunity to stop the process leading to the foreclosure, right up to the minute that the auctioneer’s gavel comes down. Sometimes there is even a period after the foreclosure during which the homeowner can redeem the property (right of redemption).