I was at a party
the other day where people were discussing walking away from their
home. This is a great article advising on some of the consequences.
Credit score will suffer; you could get ousted from home
By Harriet Johnson Brackey
Sun Sentinel (South Florida)
We all talk about what-ifs.
One big what-if many homeowners have today has to do with
mortgages.
Many Northern San Joaquin Valley mortgages are underwater,
meaning the homeowners owe more than the home is worth at today's
depressed prices.
Some homeowners certainly are wondering why they're sending in the
payment on, say, a $400,000 mortgage, when the house would sell today
for only $150,000.
Your options: Keep paying or try to change your loan's terms.
But some people wonder, what if I just stop paying the mortgage?
It may be a tempting idea, but it quickly leads to trouble.
Here's what could happen if you don't pay the mortgage:
• Report to the credit bureau — If your payment does
not arrive, your lender or servicer will report this late payment to
the credit bureau by the first day of the next month. This can happen
in as little as two weeks from due date and put a negative mark on
your credit report.
• Your credit score drops — The late payment report
whacks your credit rating. Your credit score starts to drop, by up to
200 points, if this is your only late or missed payment.
• Cards are closed, rates rise — In the next 30 days,
you can expect your other creditors to take note of the late payment
and to take action. They can raise your interest rates, shut off your
credit card entirely, or lower your credit limit. You also could face
other changes in your financial life, because auto insurance, student
loans and other forms of credit are pegged to your credit score.
• Tightening of credit lowers your score — Credit
scores feed on themselves. If your credit card limits are lowered and
you are carrying a balance, you are then using more of your available
credit, something known as your utilization rate. When that goes up,
it lowers your score some more. The negative mark stays on your
credit report for seven years. But the impact on your credit score
lessens over time. The biggest impact is for the first two years.
• Lender response — The phone will start ringing. Your
lender will try to contact you to persuade you to go into a loan
modification of some kind. But after 90 days, you cannot just start
making payments again. The lender may send your payment back, if you
send it this late and have not been in contact.
• What happens next — After four months of not paying
your mortgage, you will likely be served with a foreclosure notice.
If you don't respond within 20 days, then the lender, in the
following 60 days, will ask a court to issue a judgment against you.
A county sale will be arranged 50 to 120 days after the judgment.
Then, 120 days after the sale, the sheriff will be at the door. Ten
days after that, you'll be thrown out of your home.
This schedule is a general one, however. Courts are facing a
backlog of foreclosure cases and could take longer to go through
these steps. If you hire a lawyer and fight the foreclosure, you may
be able to delay the sale for many months or avoid it altogether.