5 Steps to Recover from a Delinquent Mortgage

If you are facing a delinquent mortgage, you need to take steps immediately to prevent the mortgage from going into default. Once you default, your home will be foreclosed on, your equity lost and your credit significantly damaged. Avoid these negative penalties by stopping the process today with these steps. 

#1 Respond to Your Lender

The first step to saving your mortgage is responding to any attempt your lender has made to collect from you. If you stopped responding, the lender may have moved your loan onto the fast track for foreclosure, assuming you would not be able to repair the bad loan. If this is not true, and you can repair the loan, then you must stop the lender by making contact.

#2 Explain the Circumstances

The contact you make with your lender should be a professional explanation of the circumstances of your delinquency. Simply overspending or failing to pay is not a sufficient explanation. However, if you lost your job, suffered an illness or are going through a major financial crisis, you can write a letter to your lender explaining the hardship. A lender has a number of options to help you through a trying financial time.

#3 Seek Deferral Options

The first option that is beneficial to both you and your lender is a period of deferral of payments. Interest will still accumulate on your mortgage, but no payments will be due for a specific period of time. This allows you to recover financially before you begin making payments again. Once you do, they may be slightly higher than your previous payments. However, your lender will keep you abreast of this information. The lender would rather you restore your loan than default. 

#4 Enter a Rehabilitation Program

There are a few options to rehabilitate your loan without deferring payments. For example, you can restructure the loan to make monthly payments more manageable. Changing a 10-year loan to a 30-year loan will accomplish this goal. The lender makes more money in the end from this option and saves the hassle of going through a foreclosure process. Another option, though it is harder to achieve, is a period of forbearance. This typically is offered if you do not qualify for a deferral of payments but the lender would like to give you a chance to reinstate your loan. Payments will come due, and interest will be charged, but the lender will give you several months to attempt to pay down your outstanding debts before taking any legal action against you or your home. 

#5 Opt for a Short Sale

In the end, you may simply be unable to exercise any option to stay in your home. The ultimate goal should be avoiding foreclosure because this is the most detrimental thing that could happen for your credit score. Ask your lender to approve a short sale. A short sale allows you to sell the home at a discount, even less than you owe on the loan, to remove your obligation to the lender permanently.