Finding it difficult to pay the monthly mortgage payments is a very common problem that can affect us all. However, knowing what can happen throughout the process and the options you have available can help you avoid major issues.
In most cases, you can not pay your mortgage for 120 days, or 4 months, before your lender will start the foreclosure process. Most lenders will prefer to work with you to help avoid foreclosure, so if you are worried this may happen to you, definitely speak with your lender.
In this post, I’ll explain why foreclosures happen, other major issues that can arise if you miss mortgage payments and other useful information that may be useful if you’re in this situation.
Why Does Repossession and Foreclosure Happen?
Repossession and foreclosure happen to allow the lender to recover the money they’ve lent out to you for the mortgage if you stop paying your monthly payments. Foreclosure is the legal process allowing the borrower to take back possession of the assets.
When the foreclosure process starts, that’s when your lender will apply for a repossession order to take back the property. Once the lender has repossessed the property they’ll usually then try and sell the property to recover their money. This is the reason why you’re often given better interest rates if you put down a larger deposit as there’s less risk to the borrower of not selling the property to cover their investment.
For example, if you put down a 5% deposit, and take out a 95% mortgage loan if you default on your mortgage, the lender has to sell your property for at least 95% of the original value to recover their money. However, if you put down a 40% deposit so only take out a mortgage for 60% of the property value, the lender only has to sell the property for 60% of the original value
As you can imagine, it’s a lot easier and also a lot more likely to sell a property for at least 60% of the value compared to 95% of the value. This means there’s less risk for the lender and because there’s less risk, they’re more willing to offer you better mortgage rates.
How Many Days Can You Go Without Paying Mortgage?
Mortgages usually have a 15 day grace period where if you pay your mortgage late you won’t have any penalties. After 15 days, you will start to incur late fees and after 30 days, late payments will start being reported to credit bureaus, then after 120 days foreclosure proceedings will start.
Once foreclosure proceedings start, that’s when your mortgage lender will highlight what process they’re going to follow and how you can remedy the situation. If an amicable solution isn’t reached before a certain time, usually a few weeks to a month, your mortgage lender will take you to court to try and repossess the property.
It’s definitely worth highlighting that every mortgage lender will have different processes, so definitely don’t rely on these dates and make sure to check your contract. Different jurisdictions across the world may also have different rules around when foreclosure proceedings are allowed to start.
If you do have any questions about your mortgage, make sure you either speak directly to the lender or with a mortgage broker as they can give you advice relevant to your specific situation and contract.
How Many Months Before Property is Repossessed?
Once the foreclosure process starts after around 4 months, there’s still a lot more that needs to happen before your property is repossessed and you get evicted from your home.
At the start of the foreclosure process, you’ll receive formal demand letters which if an amicable solution isn’t reached the lender needs to take you to court. This court appearance then needs to be scheduled in around availability which can delay timescales by a few weeks to even months.
Overall it can take up to 9 months from when you first miss your first mortgage payment to when the repossession finally takes place. However, remember that each lender will have different processes in place as well as different locations having different rules and regulations, so only take this as an estimate.
If you are taken to court, it’s definitely a good idea to seek legal advice. You’ll also be given the opportunity to argue why your property shouldn’t be repossessed and also be able to offer some solutions around repayment plans.
Remember that it’s never too late to speak to your lender to discuss potential solutions or even if you can just pay off your mortgage arrears. This can rectify the situation or help delay the escalations and ultimately avoid foreclosure and repossession.
How Does a Foreclosure Affect Credit Score?
One of the biggest issues with a lender completing the foreclosure process and repossessing your property is the negative impact on your credit score. Not only do you have the multiple missed payments that happen from when you stopped paying your mortgage, but you also have a foreclosure on your credit report.
Foreclosures are viewed very negatively by credit bureaus and lenders and it shows that not only have you missed mortgage payments, but the lender has actively had to take you to court to recover the money. From a lender’s point of view, this shows that you’re a very high-risk borrower and as a result has a significantly negative impact on your credit score as it’s a gauge of your risk.
The actual impact a foreclosure will have on your credit score will vary by person, mainly depending on whether your credit score was in good standing before these issues.
Also, different credit bureaus and lenders all have different criteria that they use to judge risk, however, foreclosures are viewed very negatively. They’ll also stay on your report for 7 years after your first missed mortgage payment so make sure to avoid this scenario if at all possible.
How To Avoid A Foreclosure & Repossession
A foreclosure and a repossession of your property is definitely a horrific process. Not only for the serious financial impact but also for potential negative effects on your mental health by going through the process and having your home taken away.
- Speaking to the lender. The lender has a lot of money at risk tied up in your property and their preference will be to try and reach an amicable solution. This will help avoid a costly foreclosure and repossession process and even after all that’s done, they still have all the costs of trying the sell the property and recover their money. It’s much easier for everyone to come to an arrangement and avoid this from escalating, so make sure you speak to your lender first if you are worried about missing any mortgage payments.
- Selling the property. If you are struggling to make the mortgage payments, it may be easier to sell your property and downsize to get a lower monthly mortgage payment. This can make the monthly payments a lot more manageable and enable you to make the payments.
- Remortgaging the property. Similar to selling the property but instead of selling, try and remortgage to reduce your monthly mortgage payments. This can be done by either extending the term of the mortgage or getting a lower interest rate.
- Checking for insurance. This one might be obvious to some people, however, if the reason you can’t make your mortgage payments is that you’ve either lost your job or can no longer work due to illness, you may have insurance in place that can help. This can be in the form of mortgage payment protection insurance or income protection insurance. If you’re reading this and are currently not at risk of foreclosure, now might be a good time to have a look into different insurance products.
- Claiming government support. Checking what support you’re able to get may also be a useful step. This is especially true if you’ve had a significant change in circumstances like losing your lob or sickness. There are also charities that may be able to offer support as well including confidential advice.
As you can see, it takes a long time for the lender to be able to start the foreclosure process, and then once that happens a few more months before they can get a repossession order from the courts to evict you from the property.
This does mean you do have quite a long time from your first missed mortgage payment to when you’ll be evicted from your property. However, make sure you fully consider how much of an impact this process will have on your credit score which can follow you for a very long time, making applying for credit in the future extremely difficult. This post I’ve written about the penalties and impact of missed mortgage payments may also be a useful read.
If you are facing a foreclosure, this post I’ve written on when is it too late to stop foreclosure may be useful. Also speaking to an independent mortgage advisor or legal firm may also be useful as they’ll be able to offer you advice specific to your situation.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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