What to do When You Can’t Afford Your Mortgage Payments

No one who buys a home intends to miss any mortgage payments. But unexpected life circumstances can quickly stymie the best of intentions, and homeowners can’t always prevent defaulting on their payments.


If you’re one of these homeowners, it’s important that you take steps to prevent the situation from getting worse. Many homeowners fall into the traps of procrastination or overreaction, neither of which is helpful. Instead, you should adopt a measured response in which you take into consideration all the options available and act decisively before you lose your home. Below are some suggestions.

Contact your lender
Once the due date for your mortgage payment has come and gone, it’s only a matter of time before your lender knows you’re in default. But don’t wait for them to contact you; act preemptively and call them right away. If you leave it up to them, they may not contact you for several months – when it will be much harder to resolve the situation.

Lenders deal with defaulted customers every day, so they often can provide solid advice. And most lenders aren’t eager to expend the money and time it takes to foreclose on your home, so they’re open to other alternatives.

Before you sign any agreement with your lender, have it reviewed by a real estate agent, attorney or a local housing counseling agency approved by the U. S. Department of Housing and Urban Development.

Know the deadlines
If you default on your loan and don’t work out a plan of resolution with your lender, the lender will schedule a public foreclosure auction of your property. In some states the countdown to the auction is less than a month; in other states it is more than a year. In either case it’s critical that you understand exactly how much time you have before you lose your home. A tangible deadline will help you set goals and take control of the situation.

Consult RealtyTrac’s State Foreclosure Laws Summaries to find out more about the foreclosure timeline in your state.

Consider your alternatives
Homeowners in default have several viable options to stop the foreclosure process. Not all of these options will work for every homeowner, but you should consider the advantages and disadvantages of each option and determine which is best for you if you are in default.

  • Adjust your budget: If you haven’t done so already, take a look at where all your money is going. Look for ways to bring more money in and cut non-essential expenditures.
  • Restructure your payments (Forbearance): Find out if your lender can offer you a forbearance agreement that allows you to lower your monthly payments now and pay the difference when you’re back on your feet financially.
  • Refinance your loan: If interest rates have fallen since you last financed the home, ask your lender if they would be willing to refinance your loan so that you have lower payments.
  • Sell your property: Although this probably isn’t your first choice, it can allow you to walk away with any equity you’ve built and it’s a better alternative than losing your property at a public auction.
  • Deed your property in lieu of foreclosure: If you don’t have any equity in the property, you may choose to simply transfer ownership to the lender so that they stop the foreclosure proceedings against you.

Consult a real estate professional
Whether you decide to restructure your payments, refinance, sell or deed the property in lieu of foreclosure, you should enlist the help of a local real estate professional — such as a real estate agent or attorney — to guide you through the process.

Many homeowners in default don’t have the money to pay an attorney and don’t want an agent’s commission to eat away at any profit from a home sale. But keep in mind that just an hour or two with an attorney may be sufficient to ensure that you’re avoiding any pitfalls in the process. And a good agent will give you solid advice even if you can’t afford to have them list your home. They know that if they help you out now, you’re more likely to use them the next time you buy or sell a home. And they know you’re more likely to refer them to a friend.

Be wary of scams
Some people take unfair advantage of homeowners in default. These scammers will promise to help you but will only leave you in worse shape. According to HUD, the most common scams are equity skimming and phony counseling agencies.

  • Equity skimming: you will be approached by someone who promises to pay off what you owe to the foreclosing lender if you hand over ownership of your property, usually through what’s called a Quit Claim Deed. Once you’re out of the house, the new owner rents it out for a few months and never pays off your mortgage, causing the lender to foreclose. You end up with a foreclosure on your credit history and with little or nothing to show for any equity you had built in the property.
  • Phony counseling agencies: phony counseling agencies contact homeowners in default and offer help for a fee. Once they have your money, they may not do anything for you. If they do help you, it will be by contacting your lender or suggesting that you sell your house — tasks you can do on your own.

On its website, HUD suggests the following precautions to avoid scams:

  1. Don’t sign any papers you don’t fully understand.
  2. Make sure you get all “promises” in writing.
  3. Beware of any contract of sale or loan assumption where you are not formally released from liability for your mortgage debt.
  4. Check with a lawyer or your mortgage company before entering into any deal involving your home.
  5. If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer by contacting the state’s Attorney General, State Real Estate Commission or the local District Attorney.

If you find yourself unable to make your monthly mortgage payments, the key is to take control of the situation by knowing all your options and acting decisively to stop the foreclosure. That will allow you to make the best out of a difficult situation.

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