How To Legally Stop Paying Your Mortgage

Before making this choice, you should be aware of three things if you are experiencing financial hardship or difficulty due to the pandemic. Table Of Contents.

Request a deed in lieu of foreclosure – A deed in lieu of foreclosure arrangement can help stave off financial hardship. Under its terms, you’ll give your mortgage lender the deed to your home, releasing you from your mortgage responsibilities and avoiding having a foreclosure appear on your credit report.

What Kind Of Lender Or Loan Servicer Do You Have?

As a homeowner, it’s vital to understand what type of lender or loan servicer you have.

Specifically, Do You Have A Federally Backed Mortgage Or Private Loan?

Recently, Congress has passed into law the CARES ACT, which allows for 2 Trillion in stimulus funding for individuals and business owners.

The good news is that for homeowners who have a Federally backed mortgage (think Freddie Mac or Fannie Mae), the CARES ACT provides certain protections for homeowners during COVID-19.

How To Legally Stop Paying Your Mortgage

So What Is A Federally Backed Loan?

A mortgage that is supported by government servicing organizations like Fannie Mae and Freddie Mac is known as a federally backed loan.

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In accordance with the CARES Act, Congress enacted a foreclosure moratorium that permits borrowers with federally guaranteed loans to suspend payments and defer interest for a period of six months while barring any servicer from initiating a foreclosure action for at least 90 days.

How To Legally Stop Paying Your Mortgage

What If I Have A Private Loan?

You must exercise extra caution and consult your lender about your options if your loan is not federally guaranteed.

We still don’t have a clear definition or direction for what happens if a borrower misses their mortgage payments, even though some private lenders initially mentioned deferment and/or forbearance options for borrowers.

As a result, you must document all conversations with your lender in writing.

It’s quite common to hear the word foreclosure moratorium in the news these days. However, many homeowners need to understand that the Federal government, individual states, and even local municipalities have enacted their foreclosure moratorium laws.

For instance, the CARES Act, which is enacted at the federal level, grants federally backed loans a 90-day provision to stop servicer-initiated foreclosures. Your state or even city of residence determines your eligibility for private lenders.

A 60-day foreclosure moratorium has been implemented in California, prohibiting any servicer or lender from pursuing or initiating foreclosure proceedings.

This was a governor’s executive order, and it wasn’t clear whether it applied to only privately or federally backed mortgages. Due to the lack of guidance from loan servicers in this matter, you must exercise caution.

  • Without direction, you could end up in a foreclosure situation.
  • Have You Confirmed With Your Lender?

    How To Legally Stop Paying Your Mortgage

    It is best to obtain written confirmation from your lender of how they will handle your missed payments before you decide to stop making your loan payments.

    Borrowers were informed that they were given a 60 to 90 day forbearance period before their next mortgage payments would resume in the media and even on some bank websites.

    However, a borrower must exercise extreme caution as this could still lead to a situation in which your home is at risk of foreclosure or loss.

  • Get it in writing is your best protective measure.
  • Forbearance, Deferment, Or Modification?

    What distinguishes a loan modification from a deferment or forbearance?

  • A forbearance is designed to put a pause on payments where you are having difficulty making payments such as the current situation resulting from the COVID-19 pandemic.
    • When a traditional forbearance expires, the lender will determine a new monthly mortgage payment that accounts for the higher principal balance brought on by the missed payments as well as the new interest being charged on the higher principal balance.
  • A loan deferment is when the lender completely defers both monthly payments and interest for the period That you withhold, making the mortgage payments.
    • For instance, if the lender grants you a 60-day deferment, they won’t collect mortgage payments during that time, they won’t collect interest during that time, and they’ll only add the missed principal amount to the mortgage’s back end.
  • A loan modification is a form of loss mitigation typically only provided to borrowers that have entered into default (meaning they have missed a mortgage payment even as little as one payment). It is designed to allow a modification of the mortgage terms.
  • What options will be available to borrowers as a result of missing mortgage payments has not been made clear by banks to them. The main cautionary matter to be aware of is that some borrowers have received communications stating that when their 60–90 day period is up, their entire three months’ worth of payments will be due.

    How Can An Experienced Foreclosure Defense/Mortgage Attorney Help?

    A knowledgeable attorney who is familiar with working with mortgage servicers or reviewing mortgage-related loss mitigation options is essential.

    Many borrowers in the 2008 financial crisis were informed that they had options. However, as a result of the banks receiving sizable bailouts, the situation turned out to be the exact opposite of what they had been told.

    An attorney can help you make sense of any uncertainty and determine whether it is safe for you to stop making mortgage payments.


    How can I legally get rid of my mortgage?

    Here’s a look at seven different ways to get out of a mortgage.
    1. Sell Your House. …
    2. Turn Over Ownership to Your Lender. …
    3. Let the Lender Seek Foreclosure. …
    4. Seek a Short Sale. …
    5. Rent Out Your Home. …
    6. Ask for a Loan Modification. …
    7. Just Walk Away.

    How can I get out of my mortgage without penalty?

    Make extra principal payments Most mortgage loans issued after Jan. 10, 2014, do not charge prepayment penalties. This means that you can increase your monthly mortgage payment or make a larger, lump sum principal payment each year without incurring penalties for paying off your loan early.

    What can the bank do if you don’t pay your mortgage?

    A late fee is the first penalty for failing to pay your mortgage on time. After 120 days, the foreclosure process begins. HUD housing counselors can assist you in determining the best option for your circumstances if you are a homeowner who is behind on your mortgage payments.

    How long can you go not paying your mortgage?

    How soon will I be facing foreclosure? Generally, the legal foreclosure process cannot begin within the first 120 days of your mortgage default. After that, the length of time until a real foreclosure sale varies by state once your servicer starts the legal process.