What to Do If You Can't Pay Your Mortgage in California
If you're struggling to make your mortgage payment, you're not alone. Thousands of California homeowners face this situation every month due to job loss, medical expenses, divorce, or other financial hardships. The good news: you have options, and the earlier you act, the more options you have.
What Should I Do If I Can't Pay My Mortgage?
- Contact your loan servicer immediately - before you miss a payment if possible
- Ask about forbearance - temporary payment relief while you recover
- Apply for loan modification - permanently lower your monthly payment
- Contact a HUD-approved housing counselor - free expert advice
- Review your budget - identify ways to cut expenses or increase income
- Know your options - selling, short sale, or other exits if keeping the home isn't realistic
What Happens If You Miss a Mortgage Payment?
Understanding the timeline helps you know how much time you have and when to act:
Most mortgages have a 15-day grace period. No late fee charged yet. This is the best time to contact your servicer if you know you'll have trouble paying.
Late fee (typically 4-6% of payment) is charged. Payment not yet reported to credit bureaus in most cases.
Late payment reported to credit bureaus. Your credit score will drop. The longer you're late, the more damage.
Under California law, your servicer must contact you (or attempt to) to discuss alternatives at least 30 days before filing foreclosure.
Lender can file formal foreclosure notice. You have 90 days to cure after NOD. Total time to auction: typically 200+ days from first missed payment.
Your Options When You Can't Afford Your Mortgage
If You Want to Keep Your Home
Forbearance Agreement
Your lender temporarily reduces or suspends your payments (typically 3-12 months) while you recover from a hardship. You'll need to repay the missed amounts later through a repayment plan, lump sum, or loan modification. Best for: temporary hardships like job loss or medical emergency.
Loan Modification
Permanently changes your mortgage terms to make payments affordable. Can include lower interest rate, longer loan term, or principal forbearance. Requires application with income documentation and hardship letter. Best for: ongoing affordability issues.
Repayment Plan
Catch up on missed payments by adding extra to your regular payment over several months. For example, if you're $3,000 behind, you might pay an extra $500/month for 6 months. Best for: short-term cash flow issues when you can afford slightly higher payments.
California Mortgage Relief Program
If you were affected by COVID-19, you may qualify for up to $80,000 in assistance through the state's mortgage relief program. Funds can cover past-due payments and up to 3 months of future payments. Visit CaMortgageRelief.org to apply.
If You Need to Exit
Sell Your Home
If you have equity, selling allows you to pay off your mortgage, keep remaining equity, and avoid foreclosure. Even in a tough market, a quick sale to a cash buyer is often better than foreclosure.
Short Sale
If you owe more than your home is worth, your lender may agree to let you sell for less and accept the proceeds as full payment. Less credit damage than foreclosure, and the deficiency is typically waived in California.
Deed in Lieu of Foreclosure
Voluntarily transfer ownership to your lender in exchange for release from your debt. Avoids formal foreclosure process. Requires lender approval and typically no junior liens.
Will the Bank Work with Me?
Yes. Foreclosure is expensive for banks - they typically lose 30-40% of the loan value. Lenders would rather find a solution that keeps you paying (even reduced amounts) than go through foreclosure.
California's Homeowner Bill of Rights also requires lenders to:
- Evaluate you for loss mitigation options before foreclosing
- Provide a single point of contact for your case
- Not foreclose while reviewing your complete loan modification application
- Give written explanation if they deny your modification
The Key: Contact Your Servicer Early
Lenders have the most flexibility before you're severely delinquent. If you know a hardship is coming (job loss, divorce, medical issue), contact your servicer immediately - even before you miss a payment. Early intervention has the highest success rate.
What NOT to Do
Avoid These Mistakes
- Don't ignore the problem - It won't go away, and waiting reduces your options
- Don't pay for foreclosure help - Legitimate counseling is free; upfront fees are a red flag for scams
- Don't deed your property to a "rescuer" - This is a common scam
- Don't assume it's too late - Options exist even late in the process
- Don't drain retirement accounts - Before touching protected retirement funds, explore all other options
Should I Just Walk Away?
Walking away from your mortgage (strategic default) has serious consequences:
- Foreclosure stays on your credit report for 7 years
- May not be able to buy another home for 3-7 years
- Any equity you have is lost
- May face tax consequences on forgiven debt
Before walking away, explore all options. Selling (even for less) is usually better than foreclosure. A short sale has less credit impact and lets you move on faster.
Get Free Help Today
You don't have to figure this out alone:
- HUD-Approved Housing Counselors - Free foreclosure prevention counseling. Find one at HUD.gov or call 800-569-4287
- California Mortgage Relief Program - Up to $80,000 for COVID-affected homeowners at CaMortgageRelief.org
- Your Loan Servicer - Call their loss mitigation department to discuss options
Need Personalized Help?
Our licensed California team can review your specific situation and explain all your options - at no cost.
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