Maybe you lost your job. Maybe you or a family member contracted a serious illness. Maybe you got stuck with an unexpected bill for roof repairs. When the mortgage bill showed up, you just couldn’t pay. What happens next?
Your Mortgage Loan Terms
The answer starts at your mortgage loan documents. Most mortgages have fairly similar general terms, including the interest rate and length of the loan. Your mortgage will also include specific terms addressing what happens if you miss a payment. If you’re going to miss a payment, revisit your loan documents so you know what to expect.
When you miss a payment, your mortgage is considered “delinquent.” Many lenders will give you a grace period of up to a month to make a payment without charging you a late fee, but the account is still technically delinquent even if it’s just a day late. The farther behind you fall, the more notices you’ll receive from your lender asking for payment.
Depending on the terms of your mortgage, your lender may be able to sue you for collection once you’re delinquent. However, that’s an expensive and time-consuming move for your lender and it almost never happens. Your lender will be much more interested in working out a way for you to pay than in suing you for collection.
After a certain amount of time without making a payment, your mortgage account will go into default. Default often happens when you fall 90 days behind. Going into default will cause certain clauses in your mortgage to kick in. In some cases, the entire amount of your mortgage will become due as soon as you go into default. In other cases, you’ll need to pay fees and other costs.
Most critically, the bank can and will foreclose on your home once you go into default.
When you owe money to a credit card company or on a personal loan, the lender can sue you for collection. When a mortgage lender sues you for collection, it’s called a “foreclosure.” The goal of the lawsuit is to gain the right to sell your home and apply the proceeds toward the loan. When you borrow money to purchase a home, you pledge the home as security for the loan. That means the bank can sell the home if you can’t pay.
In some states, banks can simply let you know they’re going to foreclose on your home. They can go forward with the sale unless you do something to stop them. That’s called a non-judicial foreclosure. In contrast, Ohio is a judicial foreclosure state. That means the foreclosure has to go through the court system.
Judicial foreclosures can take as little as 4 or 5 months to complete. However, courts with a large backlog of foreclosure cases will be much slower.
When the bank decides to foreclose on your home, you’ll receive a notice called a “Complaint.” That’s a formal legal document notifying you that your lender is suing you to foreclose on your home. If you do not respond within 28 days, the court will rule against you by default – a “default judgment.” Once a default judgment is entered, it’s nearly impossible to change it. So, you have to act before that happens.
You may choose to file an “Answer” to the Complaint – that’s your formal legal response to the lawsuit. You’ll work with an experienced attorney to create an Answer that includes all possible defenses to the lawsuit. For example, the bank may be claiming that you owe more than you think you owe or the bank may have sold your debt and no longer have the right to collect on it. Your attorney will help you dig through your options and set out all the defenses that may be available to you.
After you file your Answer, the court will schedule a hearing and a trial to judge your case. You and your attorney will be present, as will a representative from your lender. Both sides will present their evidence and the judge will determine what happens to your home. That decision will include whether the bank can foreclose and how much you actually owe. If the court determines that foreclosure is appropriate, the lender can set up a foreclosure sale. That sale must be advertised for 30 days before it can actually take place.
If the home sells for less than you owe, the bank can sue you for the difference. It’s called a “deficiency.”
Another Way To Keep Your Home
Fighting foreclosure in court isn’t the only way to keep your home. You can also file a bankruptcy. Bankruptcy can help your mortgage situation in a couple of ways as long as you file before a foreclosure judgment is entered against you.
First, when you file a bankruptcy you get the protection of the automatic stay. The automatic stay is a legal protection for bankruptcy filers – it stops all collection actions for the duration of the bankruptcy. Second, a bankruptcy can wipe out your unsecured debt (like credit card and medical debt) so you have extra cash to catch up on your mortgage.
The way your mortgage is handled in bankruptcy depends on the type of bankruptcy you choose to file: Chapter 7 or Chapter 13. When you file under Chapter 7, you’ll surrender your nonexempt assets to the court as payment for your debts; your remaining unsecured debts will be forgiven. Most debtors don’t have any nonexempt property so they don’t have to give anything up. If you have less than $132,900 of equity in your home, your home won’t automatically be surrendered to the court. You may choose to voluntarily surrender your home to the lender. If you do, you won’t be liable for any deficiency. You may also choose to reaffirm your debt. That means you’ll make a fresh promise to the lender to pay and continue to make your mortgage payments. If you do reaffirm your debt, keep in mind that the mortgage will not be eligible for relief in a future bankruptcy.
If you file under Chapter 13, you’ll work out a 3-5 year payment plan to pay down your debts. Your current mortgage and any back payments will be included in that plan. You’ll pay your mortgage and other secured debts, then the remainder of your payments will be apportioned among your unsecured creditors. At the end of your plan, your remaining unsecured debts will be discharged. You’ll be current on your mortgage and you’ll be able to continue making regular payments once your bankruptcy is over.
Mortgage Warriors Will Fight For You
If you’re struggling to make your mortgage payments, we can help. You need an experienced attorney on your side to help you stand up to the bank and make sure you know about all the options that are available to you. Contact us today for a free consultation to learn about your options for managing your mortgage debt.