A mortgage default arises when a mortgagor fails to make monthly payments to their principal balance or interest on a home loan causing the mortgagee to force-sale the underlying asset. A mortgage default can cause a borrower to lose their house.
Borrowers should know that lenders are not always interested in selling mortgaged
properties. What they are interested in is the monthly payment and they will do anything to keep that going even if it means restructuring borrowers repayment plans. So it is important to know that activating foreclosure should be the point of no return and before that, you have a lot of options to trigger.

It’s important to know your options in case of a mortgage default and understand all the potential solutions that may be available to help you avoid foreclosure. It’s also important to understand what can happen if you fail to take action and foreclosure becomes unavoidable. The process can be stressful, embarrassing, and it can have long-lasting consequences.

Very often when homeowners default on mortgage payments they think foreclosure is the ultimate choice though walking away from your home voluntarily, may seem like the best solution when your home's estimated value is lower than what you owe. However, this action may lead to financial consequences in the future.

In some instances, you may be required to pay a portion of your mortgage debt even after the home has entered foreclosure. The impact of this on your credit may make it difficult to rent or purchase a home in the future. It may be best to explore other options to foreclosure with your mortgage company before making a decision to leave your home.

Mortgage default vs foreclosure

Foreclosure is the legal process where your mortgage company obtains ownership of your home usually forced to public auction. A foreclosure occurs when the homeowner has failed to make payments and has defaulted or violated the terms of their mortgage loan.

Keep in mind, your mortgage company doesn’t want to foreclose on your home. Just like there are consequences for you, the foreclosure process is time-consuming and expensive for them. They want to work with you to resolve the situation. However, some homeowners simply don’t take advantage of the help available and foreclosure becomes the only option.
Mortgage default consequences
If you default on a mortgage, you’ll be given the opportunity to repay your outstanding loan balance before your lender repossesses the property and takes control of your property. Your mortgage company wants to help you avoid foreclosure and, in most cases, will be willing to work with you. The biggest mistake you can make is to wait any longer to take action. However, if you fail to reach out to your lender, you can expect to experience the steps discussed below.

Eviction from your home — You’ll lose your home and any equity that you may have established and if your lender proceeds with the foreclosure, you’ll be forced to leave your home. Once control over your property is transferred to your lender, they’ll auction it off to recoup the funds you were unable to pay back.

Damage to your credit— This will impact your ability to get a new housing loan, credit, and maybe even potential employment, for many years. Also, foreclosure can also increase the borrower’s interest rate on other debts and make it challenging to qualify for a future loan.

You may owe a deficiency balance— you may possibly be liable for a deficiency balance after foreclosure. This is the remaining balance owed to a borrower after the collateral securing a loan is sold but the proceeds amount to less than the outstanding debt. This type of unsecured debt is typically the result of home foreclosures.
How To Avoid A Mortgage foreclosure

The most important thing is to take action and do not hesitate to talk to your mortgage company. You have nothing to lose (and everything to gain) by working with your mortgage company to avoid foreclosure.

If foreclosure is imminent, other options may no longer be available. However, you may still be able to leave your home without having to go through foreclosure. This means you won’t have a foreclosure on your credit history and you may qualify for relocation assistance to ease your transition to new housing.

Be ready to explain your current hardships and why you are having trouble making your mortgage payment and confirm that you are ready to leave your home to avoid foreclosure. Your mortgage company will need to understand the reasons why you are having difficulty in order to find the right solution for you.

Make sure you have your basic financial and loan information on hand when you call your mortgage company. You’ll need:

• your mortgage statements, including information on a second mortgage (if applicable)

• your other monthly debt payments (e.g., car or student loans, credit card payments), and

• your income details.

Contact your mortgage lender and tell them you are interested in Mortgage Release and you want to see whether you are qualified. With the Mortgage Release you are agreeing to Deed-in-lieu, meaning you are voluntarily transferring the title of the property back to the lender in exchange, the lender releases you from your obligations under the mortgage.
Summary 

Don’t always think foreclosure is the last solution to solve your default problem. Even if you think so you may still be liable for some of your first-lien mortgage debt and it may also cause you future lending ability. Foreclosure may result in owing the mortgage company an additional debt obligation as in the deficiency balance of your mortgage.