Missing Mortgage Payments
Information provided by Consumer Credit Counseling Service-RI

Always consider the mortgage payment your Most Important monthly expense. PAY IT FIRST, before any other bill.

• If for any reason, it becomes impossible to meet your monthly mortgage payment, you need to understand the consequences:
• A late payment will result in a late charge.
• A missed mortgage payment will affect your credit rating.
• Two missed payments means your mortgage is in default. The lender will normally require both payments at once to consider the loan back in good standing.
• After a third missed payment, the loan is turned over to the legal department to initiate foreclosure.

There are five ways to avoid foreclosure:

• Forbearance Agreement
• Refinancing
• Loan to Reinstate
• Sale of the House
• Deed-in-Lieu

A Forbearance Agreement is made between the homeowner and the lender. The lender agrees in writing to allow the borrower to catch up on the mortgage payments over a period of several months. For example, if two payments were missed, the lender might agree to accept 1 1/2 payments each month for 4 months. This would bring the mortgage current. The homeowner must be very careful to keep the commitment or explain in advance why it cannot be kept. Lenders may require a financial application before agreeing to this. If the homeowner has a good payment history, the lender may be more willing to do a forbearance.

Refinancing is applying to the original lender, or another lender, to obtain a new loan. This could be done to lower the interest rate, establish a fixed rate, lower the monthly payment, or all of the above. One purpose of refinancing is to make mortgage payments more affordable and prevent default.

A Loan to Reinstate can be attained from any source to make up back payments and other fees on the delinquent mortgage. Be sure that the repayment of this loan will fit into the rest of the family budget.

Sale of the House should be considered if the regular mortgage payments have become impossible and the value of the house exceeds the mortgage. Be prepared to sell the home at a reduced price in order to sell quickly and avoid foreclosure. If the value of the home is less than the outstanding mortgage a Short Sale may also be considered by the lender. In this case the lender agrees that the house be sold for an amount less the balance of the mortgage. The lender should also agree not to come after the homeowner for deficiency. The lender does not have to agree to a short sale.

A Deed-in-Lieu is a document which allows the borrower to return or deed the property back to the lender. The borrower gets no money but avoids the expense and negative mark of foreclosure on his or her credit report. However, a deed-in-lieu will appear on the credit report for 7 years. If there are liens or second mortgages, this is not an option to be used. The lender does not have to agree to grant a deed-in-lieu.