Risking Foreclosure - How Late Can You Be On Your Mortgage
Before Being Foreclosed?
Just five years or less one out of four households had a negative adjustable loan. This product was
very popular because you could choose to pay a negative payment (1% amortized over 30 years),
interest only, 15 year amortized payment or a 30 year amortized payment. To qualify for this loan you
needed to put down 10%. This loan was very popular because home values were appreciating.
Fast forward to today, "How late can I be on my mortgage before risking foreclosure?" Home values
have dropped over 30% and most people who purchased the past 5 years have more than 20%
negative equity in their homes. So you can do one of four things; walk away, Deed in Leu, short sale
or ask the bank to modify your loan.
Loan modifications are an ongoing disaster, two years into it and you still don't know where you
stand. Short Sale may be a smart option to not have a foreclosure on your credit report. A Deed in
Leu may work, but many banks want the home to be listed on the market for a minimum of 90 days to
qualify for this program. Lastly, walking away from the home will result in a foreclosure on your credit
report and may deny you the ability to qualify for a new home loan for the next two to three years.
You ask, "How late can I be?" It depends on your bank and how pro-active you are. If you start with a
loan modification and stop paying on your mortgage the bank will not stop foreclosure proceedings,
approximately three months after you stop payment the bank will notify the trustee and the trustee will
issue an NOD or Notice of Default. This notice will be publicly recorded against your property and this
is the first stage of active foreclosure. In theory you have three months to make up the delinquency
before the trustee will issue an NOS or Notice of Sale. Three weeks after the trustee issued a NOS,
the property will be sold at a public auction, known as the Trustee Sale.
However, here is the loophole; if you happen to be in workout status the bank can not legally
foreclose on your property. Workout status means that you have applied for a short sale or a loan
modification and your file is in underwriting, awaiting a final decision or additional documentation to
make a final decision. The bank is often just the servicing company of the note and they need to go
back to the investor for a final workout approval.
The workout process can last several years in some cases. The bank can not legally foreclose on the
home while your loan is in review. During the review process you can request to have the sale date
pushed or removed completely. However, once the review process is over, there is no guarantee that
you will qualify for the loan modification, short sale or a deed in lieu and that's why the bank suggests
for you to continue payments on your mortgage if you can. Once in active foreclosure your only way
to reinstate your balance due is in full, plus any attorney and late fees.
In conclusion, there is no set time as to how long you can be late on your mortgage loan payments,
as long as the loan is in active review and you are awaiting a final decision.
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