Being behind on your mortgage payments is one of the most stressful situations that can happen to a homeowner. Nobody ever sets out to get into more house than they can afford, or imagines that a crisis like a lay-off or medical crisis will happen to them. Regardless, life happens from time to time. Someone sinking under past-due payments is likely looking for a way out. It’s a little-known fact, but selling your house is actually an option if you are trying to bail yourself out.
The process of foreclosure technically starts as soon as you are late on your first mortgage payment. After that, the bank typically gives you 120 days to rectify the situation before they repossess the house and kick you out. A foreclosure is devastating not only emotionally and financially, but it will destroy your credit - we’re looking at about a 300-point drop here.
If you can sell your house before eviction for at least what you owe, then you can save yourself from foreclosure. You’ll still have to leave the house, but at least it will be on your terms. If you can’t get what you owe, you have the option of trying to work with the bank to negotiate a short sale. This is when your lender accepts less than the value of your mortgage. It will negatively impact your credit, but not nearly as much as a foreclosure. Going through the process of a short sale is not for the faint-hearted however, either on the buying or the selling side. Prospective buyers must submit offers to the bank, which may or may not counter with provisions designed to pad their bottom line as much as possible: for example, including the caveat that the house must be sold in “as is” condition.
There are other options if you are sinking under the weight of missed house payments, though not everyone will qualify. Under certain conditions, which vary from bank to bank, you could qualify for a mortgage forbearance, which is an extended grace period from making your payments. An alternative is a loan modification, in which the bank works with you to change the terms of your loan to make it more manageable. This is not a “free pass,” however - the sum of all missed payments will be added to your principal balance.
Given the fact that panic is often the first resort of people late on their mortgage payments, it’s good to know that there are some options.