People can lose jobs or become temporarily disabled, or even incur unexpected medical expenses or end up making a choice between paying the mortgage or pay for an expense car repair that gets them to a job that pays the mortgage.
If you are confronted with the reality of defaulting on your home mortgage, here are some things to remember.
Mortgages notes carry a grace period of 15 days (typically but can be as short as 10 days). Many people “play the float” by delaying their payment, and one one, including the lender thinks much about it. Although, on day 16 a late fee is assessed. When this happens, usually a friendly reminder from a the lender’s customer service department will be made. The late payment may not show up on the borrower’s credit report. On day 30, that will change. At this point, the borrower is in default and things can turn quickly ugly.
Mortgage default laws can vary state to state in how they approach delinquent borrowers. Big mortgage keepers like Freddie Mac and FHA, will usually manage the delinquencies a bit differently since they realize it is more cost effective to retain the borrower with the property and help them work it out.
Starting on day 16, additional debt is incurred in the form of a late mortgage fee, which is usually a percentage of the principal balance (3 percent is typical). Past day 30, some lenders will allow the borrower to make a partial payment of the past due amount but others will assist that all payments be brought to current. Lenders may even return a check if it does not cover both current and past due payments.
On day 45, mortgage collectors may start calling.
On day 60 to 90 days, the lender will send a notice of default, sent by Certified Mail, giving the borrower a time period in which they need to cure the situation by paying all the past due amounts. By now collection costs are being added to the late fees. The collection department will later refer the mortgage loan to the lender’s legal department will send documents to a local attorney to begin foreclosure proceedings. This is when big legal fees are accrued.
Once the foreclosure is turned over the attorneys, the impending foreclosure will be advertised in both the local papers. The entire process could take a very long time from the initial default to the actual public auction of the property.
In most states, the law gives the homeowner every opportunity to stop the process of leading to foreclosure. In some states there is even a period after the foreclosure in which the homeowner can try to redeem the property (right of redemption).