Breaching a mortgage contract can cause you emotional stress in addition to financial burden. When faced with the prospect of losing your house, you may find yourself unsure of how to proceed. Fortunately, most lenders offer remedies if you default on your mortgage. Keep your wits about you, work with the lender and you may find a way to cure the default.
Dealing With Collections
When you default on your mortgage, you will get a letter from your lender’s collections department. The best way to begin to try to remedy the breach of contract is to get in touch with a collections officer immediately. Between legal fees and the time it takes to process a foreclosure, the lender often stands to lose money by not working with you. If you show a willingness to do what it takes to cure the default, the lender will often attempt to meet you halfway.
Often, when a loan is in default, the lender and the borrower can work together to see if a modification is possible. A modification changes the terms of the loan -- typically the interest rate and payments -- in an attempt to bring the borrower current. In many default cases, this isn’t possible. The next option is a forbearance agreement. A forbearance is a temporary arrangement in which the borrower makes minimal payments until his financial situation improves. The goal is to eventually get payments on track and avoid foreclosure.
If you are in default but still have reasonable capacity to repay, the lender may accept additional collateral. The best type of collateral is liquid, meaning something that is easily convertible to cash. Certificates of deposit, savings accounts, and vehicles are all examples of additional collateral the lender may accept. Putting yourself in a position where you stand to lose more than the original collateral shows your lender that you're serious about paying your debt -- it's a strong sign of good faith.
If you can't work out terms with your lender, the only remaining remedy for default is to pay off the loan. Since your inability to make payments created the problem, however, it's unlikely that you can pay the loan in full. Nevertheless, you might seek financing from a lender with less stringent approval guidelines. You may have to pay higher rates or fees, but you can potentially get out from under your defaulted loan.