When you took out a loan to buy your home, you most likely signed a promissory note and mortgage (or deed of trust). By signing these documents, you agreed to make periodic payments to repay the loan.
But if you fail to make a payment, your mortgage loan becomes delinquent. The mortgage loan is considered delinquent when you don't make the scheduled payment on or before the due date. If you don't cure the mortgage delinquency—by getting current on the overdue amount—the lender may eventually begin a foreclosure.
Or, if you can't bring your delinquent home loan current, your lender might offer you a way to prevent a foreclosure, like a repayment plan or loan modification.
Federal law says that a mortgage becomes delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and escrow (if applicable) becomes due and is unpaid. The loan remains delinquent until such time as no periodic payment is due and unpaid. (12 C.F.R. § 1024.31.)
Once the mortgage loan becomes delinquent, the lender can add a late fee to the account after each missed payment (after the grace period passes, if one applies). But under federal law, in most cases, a mortgage servicer is prohibited from starting a judicial foreclosure or nonjudicial foreclosure until the borrower's mortgage loan obligation is more than 120 days delinquent. (12 C.F.R. § 1024.41.)
The purpose of the 120-day waiting period is to give the borrower time to work with the servicer and, hopefully, avoid a foreclosure. If you submit a loss mitigation application for a foreclosure alternative during these 120 days, the foreclosure start date might get pushed out even further.
A mortgage becomes delinquent because the borrower fails to make the required payments. Typically, a mortgage delinquency happens after the borrower loses their job, following a divorce or separation, or after an illness.
In a "rolling delinquency," a borrower who is one or two months delinquent subsequently makes a full payment of principal, interest, taxes, and insurance (PITI) each month but doesn't get caught up on the past-due amounts.
The servicer applies each payment to the oldest outstanding periodic payment. So, the borrower's payment advances the date when the delinquency began.
You might think your loan servicer can't begin a foreclosure during a rolling delinquency because you aren't over 120 days delinquent. But that's not the case. Servicers have other ways to deal with situations in which a rolling delinquency might prevent the beginning of a foreclosure.
For instance, the servicer could choose to accelerate the loan. Once the loan is accelerated, you must repay the full loan amount (not just the overdue amount) by a specific deadline. If you fail to pay off the debt by the deadline, you'll be one day delinquent on the day after it was due. Once you're 120 days delinquent, the servicer can initiate a foreclosure.
If you're consistently one or two payments behind on your mortgage and can't catch up, you have options. The quickest way to resolve the mortgage delinquency is to double or triple up on your payment for one month, including any late fees.
If you can't afford to pay that much, another option for getting current on the loan is a repayment plan.
With a repayment plan, you work out an agreement with the servicer to make up the delinquent mortgage payments over a specified period, usually a couple or several months. During the repayment period, a portion of the past-due amount is added to each of your regular monthly mortgage payments.
If you make all the required payments, you'll be current on the loan once the repayment period ends.
If you want to use the repayment plan option, here's what to do.
1. Gather your financial information. To arrange a repayment plan, you'll need to contact your loan servicer. But first, gather up basic information about your finances, like:
Have this kind of information available when you call your servicer.
2. Contact your loan servicer. Call your servicer and say you're interested in a repayment plan and would like to find out if you're eligible. Be prepared to explain why you need help bringing your loan current, including why you fell behind and can't catch up.
Your servicer will walk you through the next steps to find out if you qualify and help you get back on track with your loan payments. A servicer can usually approve a short-term repayment plan on the spot without getting the lender's approval.
3. Sign the repayment agreement. After you and the servicer figure out a repayment plan, sign the agreement. The agreement will describe how you will repay the past-due amount, including the length of the repayment period and the specific terms.
After making all the payments, you'll be current on your loan.
In a "refinance," you pay off an existing mortgage loan by getting a new one. How much equity you have in your home (the property's value less what you owe on the existing mortgage loan) and your credit scores are factors in whether you'll qualify for a refinance loan. It's much easier to refinance your mortgage if your account isn't delinquent.
You might be able to refinance your loan even if your mortgage is delinquent, but the odds aren't good. Contact your current lender to find out if they have any available programs. Your current lender might be more willing to refinance a delinquent mortgage than other lenders.
However, you need to act before you fall far behind in payments. With each missed payment, your credit takes a hit. Because your credit scores affect whether you can refinance and the interest rate you'll get, you should refinance a delinquent mortgage as soon as possible.
For the best chance of approval, you'll need to refinance before you miss any payments. Once you're in foreclosure, you most likely won't qualify. However, even if you're desperate to stop a foreclosure, you should avoid foreclosure bailout loans.
Making sure your payments are affordable when you get the mortgage loan is the best way to avoid a mortgage delinquency. Also, make your payments on time if you can. Set up automatic payments if you think you'll forget to pay your mortgage on time.
You might be able to avoid a prolonged mortgage delinquency even if you've missed a mortgage payment—or think you soon will. You might qualify for a repayment plan, as discussed above, or another option. Be sure to keep the channels of communication with your servicer open.
Homeowners sometimes choose to avoid such stress by refusing to talk to the servicer. But ignoring a mortgage delinquency isn't a good idea.
A homeowner should always pay attention to calls, mail, or other attempted communication from their mortgage servicer. In fact, homeowners should be proactive in contacting their servicer in addition to being responsive.
Failing to establish and maintain communication with the mortgage servicer might result in missed information, lack of awareness about dates and deadlines, and, most importantly, might cause the homeowner to lose opportunities to cure a mortgage delinquency.
Homeowners should contact their servicer as early as possible in a mortgage delinquency, preferably before missing their first payment or immediately after any missed payment. Don't wait for the servicer to contact you.
Being proactive gives you the earliest, most affordable shot at working something out with the servicer. Costs will begin adding up after the loan becomes delinquent, especially once the servicer officially starts a foreclosure.
An active, involved homeowner can motivate the servicer to work harder to find a solution. Otherwise, you risk becoming an anonymous part of a standardized collection and foreclosure process.
Making your monthly payments on time is the best way to avoid mortgage delinquency. But financial obstacles and other issues often cause borrowers to fall behind in payments. Many homeowners face financial difficulties at some point during their life. Again, unemployment, medical problems, and divorce are just a few scenarios that can cause a homeowner to miss mortgage payments.
After you miss a payment, federal mortgage servicing rules, in most cases, require the servicer to contact you to discuss ways to cure the delinquency.
Under federal law, the servicer must personally contact you (or make a good faith effort to try to contact you) no later than 36 days after your payment is due and inform you about the availability of loss mitigation options, if appropriate.
In addition, no later than 45 days after you're late on the payment, the servicer must mail you information about the mortgage workout options that might be available to you and how to apply for those options.
To apply for any of these options, you'll most likely need to submit documents about your income and other financial information, such as bank statements, along with a loss mitigation application to your servicer.
Call your servicer if you need help with the loss mitigation application or have questions about it. Under a mortgage servicing rule called the "continuity of contact" rule, the servicer must assign a single person or a team of personnel by the 45th day after the missed payment to help you resolve a mortgage delinquency.
Once you've submitted an application to resolve the mortgage delinquency, so long as it is at least 45 days before a foreclosure sale, the servicer has five days to let you know if the application is complete or if it needs further documentation.
If the servicer needs additional items, it must give you a reasonable amount of time to submit those items to complete the application. Once you've submitted a complete application, the servicer must then evaluate you for all available alternatives to foreclosure.
The servicer can't move forward with a foreclosure until:
Under state and federal laws, the servicer must contact you at various stages after the account becomes delinquent and during the foreclosure process. If you refuse to answer phone calls, read the mail, or accept other efforts to communicate, you might not get this vital information.
Deadlines for opportunities to avoid foreclosure, like the opportunity to participate in mediation or to submit an application for a loan modification, might be missed. The possibility of catching up might fade as attorneys' fees and court costs add up.
Even if foreclosure is inevitable, you might be surprised by events if you aren't aware of dates and procedures. For these reasons, homeowners who want to keep their home should respond to communications from the mortgage servicer and contact the servicer proactively.
If you need help working with your loan servicer to resolve a mortgage delinquency, consider hiring a lawyer to assist you with the process. An attorney can also tell you about federal and state laws that protect homeowners in the foreclosure process and defend you against a foreclosure.
To get free assistance with completing a loss mitigation application or to learn more about different foreclosure alternatives, consider talking to a HUD-approved housing counselor.
You should not, however, hire a foreclosure rescue company to assist you.