If you do not make your mortgage payments when due and allow your loan to become delinquent usually between two and four months behind your lender may opt to foreclose on your home. Foreclosure is a process in which a mortgage lender sells your home and applies the proceeds to your unpaid principal balance and costs associated with maintaining the loan. Several common situations can lead to foreclosure.
Reduction of Income
You may be at risk of foreclosure if you experience a reduction of income necessary to meet your monthly mortgage obligations. A reduction of income can occur for a variety of reasons, such as loss of a job, reduction in work hours or pay reductions imposed by your employer. A divorce can also cause a household income reduction if both your income and your former spouse's income paid for the mortgage. If a reduction of income causes you to fall behind on your mortgage payments, the lender may consider your loan in default and can typically initiate foreclosure proceedings after sending you a default letter and giving you a period of time in which to bring your account current.
Increase of Expenses
Like income reduction, an increase in household expenses can lead to foreclosure by reducing the funds you have available to make your mortgage payments each month. Having a child, illness and injury, increased property taxes and major home repairs not covered by insurance can all increase your monthly expenses.
Judgment Liens
Even if your mortgage payments are current, you may be at risk of foreclosure if you default on another debt. If a credit card company or other lender believes that you will not bring your account current voluntarily, it can obtain a judgment against you in civil court. It can then place a lien on your home. If you have substantial equity in the home not covered by your state's judgment exemptions, the judgment creditor may petition the court to force the foreclosure of your home. The proceeds pay off the judgment debt, and the court pays you anything that is left over.
Avoiding Foreclosure
Although several circumstances can lead to foreclosure, it can typically be avoided. If late mortgage payments put you at risk of foreclosure, contact your lender to negotiate a repayment plan, ask for a temporary payment forbearance or apply for a mortgage modification. You may avoid foreclosure caused by a debt judgment by settling your debt with your creditor, negotiating repayment of your past-due debt or taking advantage of credit counseling.
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