What are the Consequences for Not Paying Your Mortgage Payments?

When it comes to making bill payments, sometimes there is simply not enough money left at the end of the month. Some people may be tempted to stop paying their mortgage, especially if they are upside down or owe more than the home is worth due to falling property values or creative financing loans that became problematic. However, generally not paying your mortgage is a bad idea as it can have severe consequences to your credit, can result in loss of your home and can even result in a lawsuit against you after foreclosure.

Foreclosure is the most obvious consequence of not paying your mortgage. However, the foreclosure process is usually fairly slow. First, when your payments are late, the bank will begin to contact you to try to find out why you are not paying and to try to obtain payment. Once you are between thirty to ninety days late, depending on your loan and lender, the bank will send you a notice of default. By this time, you will usually owe considerable fees and penalties in addition to your missed payment(s).

If you do not pay or speak to the bank after receiving a notice of default, the bank will usually begin foreclosure proceedings. Although the exact rules vary depending on state law, generally this involves the bank posting a notice of foreclosure in the newspaper, which is public record, and/or going to court to have you evicted from the home so that they can sell the home at a foreclosure auction.

When the bank formally forecloses, you must legally leave the home. This usually happens about six months from the first missed payment, depending on the state law and how aggressive your bank proceeded. If you do not leave your home, a sheriff or other police official can force you to leave the home.

In some jurisdictions, the bank is only able to foreclose and that is the end of it. However, in other jurisdictions, the bank can pursue a deficiency judgment if they are not able to sell the foreclosed home at a high enough price to recoup the money you owe them and the fees they incurred in foreclosing. They can take you to court to get this difference, and the judgment is called a deficiency judgment.

If this occurs, then you will be legally required to make these payments, even after the bank has foreclosed on your home. If you fail to make the payments, the court can garnish your wages or seize assets in some cases in order to satisfy the judgment against you.

A ruined credit score is another of the consequences of not paying mortgage payments. Your FICO score is determined in large part by your credit history and payment history. The missed payments show up as a black mark on the payment history aspect of your score, worth 35% in the FICO formula for determining your creditworthiness. Furthermore, a foreclosure stays on your credit report for up to ten years and has a comparable effect to bankruptcy in regards to dragging your credit score down.

If you cannot make your mortgage payments, consider alternatives instead of simply not making payments. Speak to your lender and see if they can offer you loan modification or otherwise work with you to change the terms of your loan. If you have decent credit and/or some equity in the home, consider refinancing so you can make the payments.

As a last resort before foreclosure, see if the bank will agree to a short sale in which you sell the home for less than what you owe and they accept that as full satisfaction of the debt. While a short sale can still hurt your credit, it is not as detrimental as a foreclosure and the bank cannot pursue a deficiency judgment against you if they agree to a short sale.

For more help on this issue see:

• Home Foreclosures and You
• Stop Mortgage Default

• US Department of Housing and Urban Development (http://www.huduser.org/portal/publications/hsgfin/mortgage.html)
• Michigan State Housing Development Authority (http://www.michigan.gov/mshda/0,1607,7-141-45866_47905-177816--,00.html)