How Far Behind on Mortgage Payments Can You Get Before the Lender Forecloses?
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Everyone wants to make their mortgage payments on time, but sometimes life gets in the way, and foreclosure becomes a looming threat for even the most responsible homeowners. If you’re struggling to stay up to date on your mortgage, you may be wondering just how close you are to facing foreclosure. The answer is not always black and white, but regardless of your circumstances, it's essential to do everything in your power to avoid foreclosure. Read on to learn more about what the foreclosure process entails and the steps you can take to prevent it from happening to you.
Key points from this article:
- Foreclosure Process Timeline – Typically, a lender initiates the foreclosure process after four missed mortgage payments (120 days of delinquency). However, this can vary depending on the lender and specific circumstances, such as the COVID-19 pandemic or if the area has many homes in pre-foreclosure.
- Pre-Foreclosure vs. Foreclosure – In pre-foreclosure, the lender starts the foreclosure process, but the homeowner still legally owns the property. In Texas, this begins with a Notice of Default, followed by a Notice of Sale if the homeowner doesn't pay the owed amount. The property is auctioned off if no action is taken to prevent foreclosure.
- Avoiding Foreclosure – Homeowners have several options to avoid foreclosure, including repayment plans, forbearance, refinancing, loan modifications, short sales, deeds in lieu, bankruptcy, government programs, and negotiating with the mortgage company. These options can help maintain homeownership or manage debt more effectively.
Disclaimer – The information on this page is intended for general informational purposes only and not to provide legal advice.
How many mortgage payments can I miss before the foreclosure process begins?
In most cases, a lender will initiate the foreclosure process after four missed payments (or 120 days of delinquency). Still, the amount of time a homeowner has to make late payments before the foreclosure process begins can vary.
Some lenders will give borrowers a more extended period to make their payments, especially if there are many other homes in pre-foreclosure in the area or if extenuating circumstances like the COVID-19 pandemic are making it abnormally difficult for homeowners to make payments on time. Other lenders, however, may start foreclosure after just two missed payments. Lenders are more likely to speed up the foreclosure process if this is not the borrower’s first time in pre-foreclosure.
If you are at any risk of missing mortgage payments, it's important to look into your lender's policy to know exactly how long you have before the foreclosure process begins.
What is the difference between pre-foreclosure and actually being in foreclosure?
During pre-foreclosure, the lender has begun the foreclosure process, but the homeowner still legally owns their property until it is foreclosed on. The exact amount of time this period lasts differs from state to state.
In Texas, pre-foreclosure begins with the lender sending a Notice of Default, allowing the homeowner a grace period ranging from 20–30 days to get current on their mortgage payments. If the homeowner does not pay what they owe within this time, the lender sends a Notice of Sale. This informs the homeowner of the date when the foreclosure sale will occur if action is not taken to prevent it, which must be at least 21 days after the notice is mailed. Finally, the property is auctioned off on the first Tuesday of the month.
What are my options if I am at risk of foreclosure?
If you are behind on your mortgage payments, you may be able to work out one of the following arrangements for payment forgiveness by speaking with your lender:
With a repayment plan, you can continue to make your monthly payments as usual, in addition to paying your past-due balance.
A forbearance provides you with a grace period during which your mortgage payments are either paused or reduced, making it a good option for homeowners whose financial troubles are only temporary and can be resolved quickly.
A refinance replaces your current mortgage with a new loan covering the original loan amount and the past-due balance.
If none of the above options are suitable for your particular situation, you may be able to negotiate with your lender for loan modifications that meet your specific needs. Changes made by loan modifications can include decreasing your principal loan amount or interest rate, switching over to a fixed rate, or extending the life of the loan.
How does the foreclosure process negatively impact a homeowner?
While the commencement of the foreclosure process does not necessarily mean that a home will actually be foreclosed, it’s still best to prevent it from even starting in the first place for multiple reasons.
For one thing, missing even one mortgage payment has a detrimental effect on your credit. The damage is even worse if the missed payments lead to foreclosure, which causes a homeowner's credit score to drop an average of 80–160 points.
The onset of the foreclosure process also drains your equity. The various fees and penalties your lender imposes on you will add up, and the cancellation or forgiveness of a debt is considered to be a taxable event, meaning you’ll have to empty your pockets even more when tax season rolls around.
Finally, if your home is foreclosed on, it will be a lot more difficult to buy another house, not only for the reasons listed above but also because many lenders require a waiting period of two years or more post-foreclosure to take out a new mortgage.
Once the foreclosure process starts, is there any way to stop it?
While it’s best to avoid the foreclosure process starting at all, there are fortunately ways to prevent your house from being foreclosed on even after the process begins. While the simplest option is to pay all that you owe to get current on your mortgage, this is not doable for many homeowners, so attempting to stop foreclosure from occurring will require one of the following courses of action:
Selling the Home:
If your home is worth less than what you owe on your mortgage, you may be able to sell it in a short sale. A short sale operates similarly to any other home sale, with the notable difference that it must follow terms and conditions set by your lender.
Signing a Deed in Lieu:
By signing a deed in lieu, you forfeit your right to ownership of your home and transfer it over to your lender. If the deed in lieu is approved, you will usually no longer be required to pay the amount still owed on your mortgage.
Filing for Bankruptcy:
If you are not able to sell your property or get approved for a deed in lieu, you can file for bankruptcy to have your debt canceled. But, it's important to understand you cannot keep the home unless you have the means to make the payments once the bankruptcy court sets up a repayment plan.
Leveraging a Government Program:
There are various government loss mitigation programs designed to help homeowners avoid foreclosure, including the Home Affordable Modification Program, the Home Affordable Unemployment Program, Principal Reduction Alternative, and Making Home Affordable.
Talking to the Mortgage Company:
If none of the above options work for you, there may still be hope for avoiding foreclosure. A conversation with your lender may open up the opportunity for special arrangements that allow you to keep your home.
You can read more about the different ways to avoid foreclosure on this page.
If you need further guidance on how to prevent your home from being foreclosed on, don’t hesitate to come to AMI for advice. We can help you explore options that will allow you to keep your home or make you a cash offer on your property so you can maximize your equity, protect your credit score, and get a fresh start. Contact us to learn more.