![]() “Many people don’t realize this until the following January, when they receive a 1099 in the mail for many thousands of dollars.” How to avoid mortgage default and foreclosure “The IRS considers the lender’s financial loss taxable income for the borrower,” says Fite. And there’s more bad news: Once a property is liquidated through foreclosure and resale, the borrower could be reported to the IRS for any loss the lender incurred for lending you money. “It would be rare for a foreclosure to take more than six to nine months,” says Fleming.Ī foreclosure stays on your credit record for seven years, which could make it harder to buy a new home down the road. Once a lender begins foreclosure proceedings, you’ll have to pack your bags and move out-and don’t presume you’ll have time to linger. That’s where a lender takes possession of a home and tries to sell it to recoup its losses. So what happens if you stay mum and ignore those notices? After a payment is 120 days late, a default can turn into something far worse: foreclosure. When mortgage default becomes foreclosure Speak up, and you might be able to avoid a mortgage default entirely, and this is a good thing for a number of reasons: It means you’ll remain in good standing with your lender, and it could keep your financial troubles from lowering your credit score and affecting your ability to borrow money in the future. ![]() “If you speak to them, you can usually work something out,” Fleming says. In fact, they may be flexible about lowering or even suspending payments for a period of time. In fact, you should ideally reach out before your payment is even due to discuss your options.īelieve it or not, mortgage lenders aren’t loan sharks who’ll break your kneecaps when they hear you can’t pay up. “Reach out to the servicer early to explore your options if you know you’ll have trouble making your payment on time.” “Communication is key,” says Whitney Fite, president of Angel Oak Home Loans in Atlanta. If you don’t, the lender will usually send more reminders, and call, just to make sure it wasn’t an oversight.Īs unpleasant as these reminders to cough up some cash might be, the biggest mistake you can make is to ignore them. ![]() Once your payment is more than a month late, your lender will send you a notice of default and ask you to correct the problem. While the length of time it takes for a mortgage to be in default varies by lender and contract, the typical time frame to watch for is 30 days past due. ![]()
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