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120 Days Late: Refinance & Prevent Foreclosure

By Tristan Hunt Published 12/29/2006 | Finance

Over the past several months, an increasing proportion of our callers from coast to coast and from all walks of life are experiencing a homeowner's worst nightmare: Foreclosure, the act by which a lender may demand the liquidation of your property at auction in order to satisfy a delinquent loan.  What are the different steps in the foreclosure process? How did these otherwise good people wind up on the courthouse steps? And what can you do to stay out of this situation, or get out of the situation if you're already in it? We explore some of these topics in this article, and detail some of the unique opportunities you may have to save your home, your credit and your way of life by avoiding foreclosure through a well timed mortgage refinance.

The Foreclosure Process

Foreclosures don't happen overnight, they are the end result of a series of late payments, fear, denial and finally shame.  Because many homeowners never imagine the prospect of foreclosure in their wildest dreams, let's walk through the process leading up to foreclosure:

1. A 30 Day Late Mortgage Payment

When you miss a mortgage payment deadline by more than 30 days you are considered 30 days late and marked as such on your credit report.  You will often have to pay late fees above and beyond your regular mortgage payment, and you will continue to be marked 30 days late for each subsequent month you do not make the payment you missed.  This means you need to make two payments the following month to get back up to current status.  30 Day lates hurt your credit score and lock you out of the best mortgage programs automatically for at least 1 to 2 years, but unless you have recently been released from a Chapter 13 bankruptcy or other payment agreement with your lender, being 30 days late will not immediately result in foreclosure.  If you do not believe you can make your next payment, this is the last opportunity you will have to qualify for a good mortgage.  One of the most popular refinancing options which allows for a single 30 day late is our Zero Interest & Zero Payments for 90 Days Mortgage Refinance because it provides 3 to 4 months of breathing room with no payments, but you need to act immediately after you've missed your payment in order to benefit from it.  Once you are marked 30 days late for a second month in a row, you are no longer eligible. For this excellent loan, or many other options which still allow for decent rates and loan amounts.

2. The 60 Day Late

If you are unable to catch up on your mortgage by clearing your 30 day late, and miss a subsequent payment (even if it is months later and you've paid all the payments in between) you will be marked 60 days late and will now be significantly restricted, but you can still find a regular, albeit more expensive mortgage with a 60 day late.  This is your last chance to refinance before things get really complicated.  If you do have a special payment plan or are out of a Chapter 13 bankruptcy which included the loan, 60 days is as late as some lenders will allow you to be without foreclosing upon the property, but otherwise you do have one or two more chance for redemption.

3. 90 Days Late, the Edge

This is really the edge of a cliff, if you miss 3 mortgage payments without bringing your account current, even if they are not back to back, you will be considered 90 days late and you basically will have  15 days from the date you receive this notice to refinance and pay in full before you are knocked out of the market permanently.  Your lender may offer to put you into a payment plan at this juncture, often referred to as a forbearance agreement, which you may want to do to buy yourself some time to refinance.  90 day lates have a tremendous negative impact on your credit report, but you should still be able to refinance if you act quickly and work with a lender who specializes in these situations, however don't expect to get more than 90% of the value of your home loaned to you at this point.

4. 120 Days Late, the Effective Foreclosure

Once you are marked 120 days late, you are for all intents and purposes eliminated from eligibility for 99% of all conventional mortgage financing.  This is because the grand majority of lenders, including so called "bad credit" lenders, cannot lend to a borrower who is reporting 120 days late because their underwriting systems and guidelines consider this a de facto foreclosure.  If you are 120 days late, stop reading this and skip down to the part of the article where we explain how much financing you can expect inside of a foreclosure. 

5. Notice of Default (NOD)

This is the point of no return.  Once you have been 120 days late, within a matter of days you will receive a notice of default on your loan, which will be recorded at your county courthouse and entered on your credit report as a foreclosure.  This will ruin your credit in ways you will only believe once you have experienced it.  We recommend avoiding this situation by acting as early as possible, because once a default has been recorded, your situation will be escalated to a legal matter.  While many states' homestead provisions allow for extensive legal battling, if you are truly in default you can expect to lose your home within 15 to 180 days of service of the NOD.

How Does This Happen?

The reason people miss payments is so simple you'll laugh.  They don't have the money.  It's true everywhere, no matter what we say about reasoning and motivation, there is no more basic reason. What they do after they miss a payment is what separates the people who keep their homes and get back on the right track with a clean slate from those who spiral into an auction of their home.

Denial, Fear & Shame are the reasons why people don't act in time to save their situations.  Upon missing their first payment, they ignore the calls from the lender, stop answering the phone and not opening mail, and often become paralyzed by the situation.  By the time they grasp the urgency of the matter, it's too late and nothing can be done.  After all, we can feel very powerless when we don't have the money to make ends meet, and our responsibilities to our families are so large that we never want to think that we could be letting them down.  S0 the 30 day late becomes a 60 day late, which drops credit scores and reduces mortgage quality, and then a 90 day late occurs, and suddenly credit scores have fallen through the floor and it becomes almost impossible to qualify for a good refinance, and now it's too late, 120 days late and foreclosure.  But when times are hard, it is extremely important to get help, professional help. 

The people who stay out of foreclosure are those who act as early as possible in the chain of lateness that we illustrated earlier. The sooner you refinance, the more you can borrow, the lower your rate, and the greater the possibility you can qualify for a minimum payment option loan which would slash your minimum obligations in half and ensure that you can make payments.  In fact, the best time to refinance is when you know you can't make next month's payment, even if you think it's a possibility, it's time to get a cheaper mortgage at any cost.  Failure to do so could cost you the whole house, but the earlier you act the better your chances of avoiding foreclosure.

OK But I'm Already 120 Days Late or More

In many cases, it may already be too late, and you will find that no one you talk to can close your loan.  It is important to realize two things.  99% of mortgage professionals don't know the first thing about handling foreclosures, we haven't had very many in the US for the past 10 years, until very recently.  So don't accept a flimsy pre-approval as some sort of promise to save you, the real foreclosure bailout process takes time, energy and effort from you and your lender to successfully complete.  Ten years ago, or even 5 years ago, you had no options at all if you were 90 or more days late on your mortgage.  Even today, there are only a handful of specialists in the USA who are able to efficiently deliver loans to borrowers with open 120 day lates or foreclosures, and even fewer who can lend to those with scores below 500 FICO.  It is a very difficult situation, but help is available to save your home from the bank.  If your broker doesn't know who or what about this industry, find a new broker.

Here are some rough guidelines to the types of specialty finance which companies such as ours have rolled out to help homeowners save their properties, their lifestyles, and their dignity from the foreclosure process: Firstly, most lending decisions in these scenarios are not based on your credit, but instead on the value of your home.  As a rule of thumb, you will be limited to borrowing a maximum of 60% to 70% of the true market value of your home.  So if you have a home which has a real market value of 200,000 and you currently owe 120,000 on a first mortgage, you would be limited to borrowing 140,000 to 150,000 maximum.  If you have a current second mortgage, you should be able to keep it in most cases.  In this case, if both your new first and second mortgages add pu to more than 95% of the value of your home, you may not be eligible.  In most cases, you will not be able to borrow less than 100,000 or more than 2 Million.  Debt consolidation is available to make it easier to pay the bills, and ask your lender if they will allow stated income to help you qualify regardless of the source of your income.  Many even offer a "No Doc" program where neither income nor assets need to be stated on the application.

While the foreclosure process can be complex and difficult, if you act quickly you may be able to save your greatest asset and your quality of life.  The longer you wait, the tougher it gets, but even when things seem impossible, check with a specialist, you may have more options than you think!  As always, our phone lines and email are open to your enquiries