How to Default on a Mortgage

Defaulting on a mortgage is never an easy decision. The detrimental credit record alone is enough to deter some homeowners, while others are more concerned about the legal and financial ramifications or, worse, the looming prospect of homelessness. Nonetheless, homeowners do go into default, and this article will explore the best--and, hopefully, the least painful--way to engage in this process.

Instructions

Default on a Mortgage

1

Contact your lender. While many financial institutions, especially larger banks, can have a reputation as heartless, many lenders are willing to work with their borrowers in times of crisis. Each default and subsequent foreclosure costs the bank thousands of dollars in processing costs and legal fees, not to mention the likelihood of a loss on the sale of the foreclosed home. All of these factors mean that many banks will work with troubled borrowers, and service representatives trained to assist with these situations can be reached at the telephone number found on the mortgage statement. Explain the financial situation to the representative and inquire about bank programs to help troubled borrowers.

2

Contact credit counseling services. If the bank is unwilling to help by modifying or postponing some mortgage payments, a credit counseling service may be able to negotiate a lower payment with the bank. Contact a credit counseling service (see resources below) and explain your situation to the representative. Credit counselors may ask you to close some accounts and stop using your credit cards. Negative credit ratings can result from some credit counseling techniques.

3

Contact a bankruptcy attorney. As a last resort before defaulting on a mortgage, consider contacting a bankruptcy attorney. In many cases, an attorney can craft a bankruptcy filing that allows a debtor to remain in his home while liquidating other property to repay debts. In some cases, a Chapter 13 bankruptcy filing may even allow the debtor to keep all of his property, including real estate, while under a court-structured repayment plan.

4

Stop making mortgage payments. If insufficient funds to make a mortgage payment are available, and no other options are viable, stop making monthly mortgage payments. The lender will make several attempts to contact you and may be more willing to help restructure your debt. After two missed payments, the bank may file a "notice of default." This notice serves as warning that the mortgage has officially entered a default state. The bank may complete foreclosure actions in as little as four months after the notice of default is filed.