My lender won't accept my mortgage payment

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, My hours were cut at my job, now I have bad credit, mortgage problems, and a lender trying to take my house away. I am trying to hang on until things get better. I missed a couple of payments and now I am trying to catch up, but the lender sent back my checks! I think they want my house. Can they do this? - John S., Burlington, Vt.

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Dear John,

I am sorry that you are experiencing mortgage credit problems. I have seen this situation before when I worked with a bankruptcy law firm, and I'll try to explain why your mortgage lender won't accept your checks.

Once you have "defaulted" under the original terms of the note (that is, not made your payments as agreed), your lender has no obligation to accept payments. When you default by missing several payments, your lender can (and probably will) begin the process of foreclosing on your home. They can choose not to accept payments unless you can come up with the full amount to cover missed payments and late fees, which is called "curing" the default.

Why a bank would ever say "no" to getting paid

By accepting partial payments, they would be implicitly allowing you to change the terms of your mortgage. A smart attorney would be able to argue that you had not in fact "defaulted" because the bank had effectively extended your repayment terms by accepting your payments. This would make it difficult for the lender to foreclose.

I assume that you have some equity in your home (because Vermont home values have held up and because you are trying to keep your home) and that the lender wants to foreclose because then it can recoup all of its losses. Having equity puts you in a weaker position than being underwater.

Loan modification: A different situation

But, you might say, what about all those people in trial mortgage modifications for the Home Affordable Modification Program (HAMP)? They get to make partial payments.

In HAMP, borrowers receive a trial modification agreement that states explicitly that it is a trial, that a modification may or may not be granted at the lender's discretion and that if you don't get a modification, you owe the entire overdue amount. Understand that entering a HAMP trial modification won't help your bad credit; mortgage lenders report you as delinquent on your mortgage during the entire trial period.

If you have not applied for HAMP, I suggest that you do so. HOPE LoanPort is a great site to find free counseling and mortgage modification applications. If you get a trial mod, you can make those partial payments without worrying about foreclosure during that time.

You might also check on foreclosure mediation in your state or consult an attorney about filing bankruptcy to halt the proceedings and dismiss the late fees and other charges. Vermont is a judicial foreclosure state, meaning that a court has to allow the foreclosure. This generally takes longer than foreclosure in a non-judicial foreclosure state.

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