Have you stopped making your mortgage payments? Are you considering
it? If you’re just considering it and haven’t already stopped, read
the post, Should You Stop Making Your Mortgage Payments?
If
you have stopped making your mortgage payments, either because you can
no longer afford to pay or for some other reason, here’s what you can
expect:
First Mortgage
First
mortgage lenders are typically much easier to deal with if you fall
behind on your payments. They typically won’t harass you by phone, but
they’re likely to fill up your mailbox with letters reminding you that
have haven’t made your payment.
If you speak to your first
mortgage lender on the phone, they usually won’t use high-pressure
collection tactics. That doesn’t mean they won’t ask for a payment,
but the collection effort over the phone is not likely to go past that
level. They will make a lot of effort to determine if there’s a way to
bring the loan out of default status by offering a loan modification,
payment moratorium, or some other workout solution. However, these
workout solutions are rarely successful, since most borrowers just get
lost in the system.
This low-pressure collection strategy may
not apply if your loan was sold off to someone that specializes in
purchasing loans that are in default for pennies on the dollar.
Second Mortgage
If
you stop making payments on your second mortgage, this can create a bit
more of a challenge. Not only will the second mortgage lender fill up
your mailbox with threatening letters, your phone is likely to ring off
the hook as well.
I put second mortgage lenders in the same collection category as credit card collectors.
Second mortgage lenders have a lot more to lose, especially if the
first mortgage lender forecloses. Therefore, they tend to use
high-pressure, threatening, and sometimes unethical collection
practices. They may try to contact you at work or they may try to
contact your relatives, although you can request in writing that they
not do this.
They may lie to you. They may tell you
that they won’t approve a short sale or loan modification if you’re
behind on your payments. This is not true. If you challenge
something that they tell you and they offer to have you talk to their
supervisor to confirm, don’t take the bait. Their “supervisor” is most
likely just the collector in the cubicle next to them.
Letters In The Mail
During
the first 90 days or so, your mailbox is going to fill up with letters
from your lender. They may start out friendly, offering lots of
options and telling you how much they want to help you, then they will
start getting more threatening. Usually around the 60 day mark,
they’ll send letters by certified mail as well. They’ll use terms like
“Acceleration Warning”, “Notice of Intent to Foreclose”, “accelerate
the maturity of the loan”, “declare all sums immediately due and
payable”, “commence foreclosure proceedings”, “take legal action”,
etc. They're trying to get your attention. Just remember that no
matter what they say, there are specific procedures and timelines that
they must follow (see Foreclosure Process and Timelines in Washington State).
Two Notices To Take Seriously
If
you’re receiving so much correspondence from your lender that you’ve
given up even opening your mail, there are two letters (or notices)
that you should pay particular attention to. The first one is the “Notice of Default”.
This will usually be sent by regular mail, certified mail, as well as a
hand-delivered copy (usually taped to your front door if you’re not
home). This notice warns you that the bank may start the foreclosure
process if you don’t cure the default within 30 days.
The second notice is the “Notice of Trustee's Sale”,
which is sent 30 days or more after the Notice of Default. Like the
Notice of Default, this notice is also sent by regular mail, certified
mail, and hand-delivered. This notice means the bank has scheduled the
foreclosure auction for your property. The foreclosure auction will be
at least 90 days from the date of the notice. The bank has the ability
to postpone the auction at their discretion if you’re in the process of
a short sale, loan modification, or some other workout option.
As always, if you’re concerned about your legal rights or legal implications, you should consult with an attorney.
This
is just a brief overview of what to expect, and it may differ slightly
from lender to lender. Feel free to share your experiences.