What to do if your mortgage goes to collections

Quick insights

• Mortgage collections occur when a homeowner falls behind on their mortgage payments, prompting the lender to take action to recover the overdue balance.
• Taking proactive steps, such as reviewing your finances and reaching out to your lender early, can help open opportunities to resolve missed payments and keep your mortgage on track.
• Understanding your options, such as setting up a repayment plan or applying for mortgage assistance programs, can help you manage missed payments and avoid foreclosure.

Falling behind on mortgage payments can feel overwhelming, but you’re not alone. Whatever the reason, knowing what to do can make all the difference. The mortgage collections process may seem intimidating, but with the right approach, you can navigate the situation, explore solutions and potentially get back on track.

What are mortgage collections?

Mortgage collections are steps a lender may take after a number of mortgage payments are missed. One missed payment doesn’t send a mortgage to collections. However, if missed payments continue and a lender’s notifications are ignored, the consequences may be collections and foreclosure. 

The process varies by lender, but here's what generally happens during mortgage collections:

• Reminders: If you miss a payment, expect phone calls, emails or letters reminding you to pay and avoid late fees.
• Late fees add up: Missing or making a late mortgage payment can lead to additional charges, making it even harder to catch up.
• Payment plans: Lenders may offer options like repayment plans or loan modifications to help you get back on track.
• Warning notices: If payments keep getting missed, you’ll start receiving official notices about your loan being delinquent. 
• Foreclosure risk: If too much time passes without action, the lender may start foreclosure proceedings, which can lead to losing your home. 

Why do mortgages go to collections?

Mortgage debt goes to collections when a borrower falls behind on their monthly payments and fails to catch up within a certain period. Mortgage debt could also end up in collections for reasons besides missed payments, such as financial hardship (job loss or unexpected medical emergencies), failure to work out a plan or long-term delinquency (usually 90+ days). 

How to avoid having your debt sent to collections

Avoiding mortgage debt from going to collections may require proactive financial management and open communication with your lender. 

Here are some key steps to stay on top of your mortgage and help prevent it from escalating to collections:

• Make payments on time: Set up automatic payments or reminders to ensure you never miss a due date.
• Communicate with your lender: If you’re struggling to make payments, reach out to your lender immediately. Some lenders may offer hardship programs such as temporary forbearance or repayment plans.
• Know your loan terms: Understand your mortgage agreement, including grace periods and late fees. Be aware of deadlines and penalties.
• Build an emergency fund: Having savings set aside can help cover your mortgage if you face temporary financial difficulties like job loss or medical emergencies.
• Explore loan modification options: If your financial situation changes, you may qualify for a loan modification (lower monthly payments or extending the length of your mortgage loan).
• Prioritize essential expenses: Cut back on non-essential spending to free up money for your mortgage. Consider financial counseling if you’re struggling to manage your budget effectively.

What happens if your home enters mortgage collections

If your home goes into mortgage collections, the lender will take action to recover the overdue balance. You'll likely receive persistent reminders, and additional fees may be added to your loan. If the issue isn’t resolved, the lender might offer options like restructuring the loan or setting up a repayment plan. However, prolonged delinquency could result in foreclosure, where the lender can take legal steps to reclaim and sell the property. 

If you’re struggling with mortgage payments, a good thing to do is communicate with your loan provider as soon as possible. Lenders typically try to work with borrowers before sending a mortgage to collections; however, if missed payments continue, the lender may hand the debt over to a collections agency or a specialized department to recover the money owed. Communicating early may help you avoid serious trouble and keep your home.

How to get through the mortgage collections process

Getting through the mortgage collections process can be challenging, but taking the right steps can help you regain control of your finances and avoid foreclosure. It’s important to work directly with the lender, following its process and instructions, as those can vary. 

Here are some tips to help you navigate the process:

• Assess your financial situation: Review your income, expenses and savings to determine what you can realistically afford to pay. Identify areas where you can cut costs to free up money for your mortgage payments.
• Communicate with your lender: Contact your lender to discuss your situation and avoid further penalties. Be honest about your financial struggles and ask about available options such as repayment plans or temporary relief programs.
• Negotiate a repayment plan: Work with your lender to create a repayment plan that allows you to catch up on missed payments over time. You might be able to spread overdue amounts across future payments or temporarily reduce your monthly payment. 
• Explore refinancingrefinance-hl000061 options: If you have equity in your home or improved credit since taking out the loan, refinancing may lower your interest rate and monthly payment.
• Seek financial assistance: Review available government programs, nonprofit housing counseling services or local assistance programs that can help you with mortgage relief or budgeting support. A certified housing counsel can provide guidance and help negotiate with your lender.
• Stay organized: Keep records of all communications, agreements and deadlines to stay on track with your repayment plan. 

In summary

Taking proactive steps and staying informed could make a significant difference in managing mortgage collections. Mortgage collections can have long-term effects on your credit and financial stability, so it’s important to address the situation as soon as possible. You may also want to seek professional guidance or assistance programs. By addressing the issue early on, maintaining communication with your lender and exploring available solutions, you can work toward regaining financial stability and protecting your home. 

You may want to seek legal or tax advice. This article is for educational purposes only.