What Should You Do When You Can’t Pay Your Mortgage?

By Shawn Hermosillo

Shawn Hermosillo, founder of Hermosillo Real Estate Group (HRE), is a Sonoma County native with deep roots in the community and a passion for real estate.

“What should I do when I can’t pay my mortgage?” Whether it’s a job loss or significant life changes, I understand, and you’re not alone. Many homeowners who purchased a home in the past two years with little equity may now be facing financial strain.

There are options that can help, like a short sale, a deed in lieu of foreclosure, or even bankruptcy. Each one comes with different consequences, so it’s important to understand them before making a decision. Here are three options you can consider:

1. Short sale. A short sale allows a homeowner to sell their property with bank approval, avoiding foreclosure while minimizing damage to their credit. While it is not ideal, it provides the opportunity to buy another home much sooner than foreclosure or bankruptcy.

If you are considering a short sale, the first step is contacting the bank. Many lenders offer solutions such as loan modifications or lower interest rates. If selling is the only option, a short sale provides more control over the process and timeline. Each situation is unique, so discussing options with a tax professional and an attorney is essential before making a decision.

In our experience with different clients, a family completed a short sale in about four months. Another short sale is currently being negotiated with Navy Federal Credit Union. The process requires patience, but it allows homeowners to control their timeline and avoid the fear of sudden eviction.

2. Deed in lieu of foreclosure. Another option is a deed in lieu of foreclosure, which involves handing the home back to the bank. While it can be a solution, it often has long-term consequences when trying to qualify for another mortgage in the future.

3. Bankruptcy. Bankruptcy can provide immediate relief by stopping foreclosure proceedings. However, it remains on a credit report for years and affects future home purchases. Depending on financial circumstances, it may offer time to either keep the home or restructure debts.

It’s hard when the going gets tough, but the right strategy can ease the burden and minimize long-term credit impact. If you have questions or need guidance, please reach out. You can call me at 707-591-0570 or send an email to hermosillogroup@gmail.com. I’m here to help.