If you don’t pay your mortgage on time or if your payment is for less than the amount that’s due, you’re in default on your loan. The consequences of default can be costly.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, says it’s important to understand the costs of default. The agency also stresses that if you’re having trouble making your mortgage payments, contact your loan servicer to discuss your options as soon as you can. The longer you wait to call, the fewer options you have.
Defaulting on your mortgage can add the cost of various fees to the amount you already owe. It also can damage your credit score. Ultimately, it can lead to you losing your home.
Late Fees. If your payment is late, you may be charged a late fee. Late fees can add hundreds of dollars to your mortgage bill.
Default-Related Fees. Your mortgage servicer is the company that manages your mortgage loan account. If you’re in default, your servicer may charge you for “default-related services,” which can add hundreds or thousands of dollars to your loan over time.
Default-related services can include:
Damage to Your Credit Score. Mortgage servicers provide information about your payment history to credit reporting companies, including whether you’ve been late with a payment or missed any payments. Even one late payment lowers your credit score, which affects whether you can get a loan in the future – and what your interest rate will be.
Foreclosure. If you are in default, your servicer may start the foreclosure process. Not only will this add to the costs you will have to pay to bring your account current, but the foreclosure filing will be a matter of public record. This will make it tougher for you to get credit and buy another home in the future. If you aren’t able to bring your loan current or work out another solution, your home could be sold at a foreclosure auction. In many states, you also may be responsible for paying a “deficiency judgment.” That’s the difference between what you owe and the price the home sells for at the foreclosure auction.
Pay close attention to your mortgage loan account. Review your account regularly to make sure your payments are credited on time and that there aren’t any unexpected or unusual fees or charges. If you don’t get monthly statements, check with your servicer to see if you can access your account online. Be assertive. Question any items you don’t understand and keep good records of communications with your servicer. Among the items to monitor:
It is important to continue to monitor your mortgage account,
even during bankruptcy. Make sure your payments are credited
properly and on time. Watch for any inappropriate late charges
or fees, and keep an eye on your escrow account.
If you are struggling to make your mortgage payments or you’re in default, contact your mortgage servicer right away. Many people find it embarrassing to talk with their servicer about payment problems, or they’re hopeful that their financial situation will improve and they’ll be able to catch up on payments. Keeping the lines of communication open is critical to resolving issues with your loan. Options to help you bring your mortgage loan current and save your home from foreclosure include loan modifications, repayment plans, or a temporary reduction or suspension of payments. If you’re not eligible for any of these options, your servicer may be able to help you find a solution other than foreclosure, like a short sale or a voluntary transfer of the property through a “deed in lieu of foreclosure.”
Staying in touch with your servicer also could save you money and make it easier to bring your mortgage loan current. For example, although servicers have different policies about when they will order default-related services, some may not order property inspections or property preservation work if you let them know each month that you are still living in the home and maintaining the property. They also are more likely to delay a foreclosure sale if they are working with you to find a better solution.
If you are having a hard time reaching or working with your loan servicer, talk to a certified housing counselor. Call 1-888-995-HOPE for free personalized guidance from housing counseling agencies certified by the U.S. Department of Housing and Urban Development (HUD). This national hotline – open 24/7 – is operated by the Homeownership Preservation Foundation, a nonprofit member of the HOPE NOW Alliance of mortgage industry members and HUD-certified counseling agencies. For free guidance online, visit www.hopenow.com.
To learn about the President’s plan to help homeowners,
visit
www.makinghomeaffordable.gov.
The FTC also has free information about dealing with mortgages and debt. Visit ftc.gov/yourhome to read the following publications:
The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.