It sounds like a good idea. You just send in some basic paperwork to the Loss Mitigation Department and in 60 – 90 days, you will have your mortgage loan modified. Oh, and by the way, the mortgage company will stay the foreclosure sale on your property while they review the modification package. Great! Maybe you won’t have to file for bankruptcy to protect you and your family from losing your home after all! You gather all of the requested documents, sign where required, and spend a small fortune faxing it to your mortgage company’s Loss Mitigation Department, and you wait. And wait. And wait. You call the number for the Loss Mitigation Department and spend at least 15 minutes being rerouted to the correct department. Finally, a representative named “Greg” tells you that your file is “under review” or “in underwriting” and you should have a decision in about two weeks. You let out a sigh of relief. It is almost over. Two weeks pass. You receive a notice in the mail that the sale date on your home is set for a date three weeks away. You panic. You call Loss Mitigation. When you are finally routed to the correct department and explain your situation in a desperate tone, stating that “Greg” told you your file was under review, “Darrell” tells answers, “Well, I don’t know why he told you that. I have no information that the file is under review. Let me put you on hold while I get my supervisor, George.” “George” comes on the line and matter-of-factly tells you that your loan modification request was denied because you didn’t list all of your expenses. “Some of the items were left blank, such as the loan amount on your 1995 Honda Civic.” A little annoyed you answer, “I don’t have a loan on that vehicle.” “Well,” George replies, “how are we supposed to know that. You will have to resubmit the package.” Your heart sinks, but you surrender yourself to the grim task of resubmitting your request. “The sale date for the house is set for three weeks from now. That will be put on hold once I resubmit my paperwork right?” George can’t answer this question. He gives you the number for the local attorney handling the foreclosure. You call the attorney’s office and are told that the sale will go forward as planned.
What can you do now?
Hiring an Attorney to Handle a Loan Modification
Call an attorney who is versed in bankruptcy and loan modification. Many Americans have heard of President Obama’s Loan Modification Plan, but few know what the plan entails. Even though the mortgage companies and banks have set up loan modification measures, they are not under an obligation to modify your loan and each lenders modification process is different. If servicers choose to participate in the Plan, they are required reduce interest rates and/or extend the term of the loan to up to 40 years in an effort to lower a homeowner’s monthly mortgage payment so that it equals no more than 38% of the homeowner’s gross income. The government would then kick in some more money towards the monthly payment so that the total monthly mortgage payment would not exceed 31% of the homeowner’s gross monthly income. While this Plan seems to be workable on paper, there are some major hurdles facing homeowners who attempt loan modifications.
First, there are so many people in the loan modification process, getting an approval often takes more than a year. In addition, with the arduous paperwork, many times homeowners forget to fill something out, don’t send all of the paperwork in one package, or fill out the paperwork incorrectly (the instructions are often very cryptic). If the paperwork is not filled out exactly as requested and the file is not 100% complete when faxed to the servicer, the file is often marked as incomplete and the request for a loan modification is cancelled, leaving the homeowner to start all over again.
Another roadblock that many homeowners find is that the loan modification departments are often so large with so many requests that one hand never seems to know what the other is doing. One representative tells the homeowner one thing and two weeks later, another representative say something completely different. This phenomenon occurs much less frequently when homeowners have their mortgage through a local bank or credit union whose standards of customer service seem to be much higher.
You are not required to hire an attorney request a modification of your mortgage and an honest attorney will tell you that having an attorney handle the process for you usually does nothing to speed things up. However, having an attorney navigate the waters of loan modification does take a significant amount of stress and frustration away from the homeowner because someone else it dealing with the paper pushing and phone calls.
Filing for Bankruptcy
The only sure fire way to stop your home from being sold at a foreclosure sale (even if the sale is tomorrow) is to file for bankruptcy today. Filing for chapter 13 bankruptcy will allow you to set up a plan to pay off any arrears on your mortgage and may even allow you to strip off a second mortgage and make it unsecured, saving you potentially tens of thousands of dollars. Even filing for chapter 7 bankruptcy will allow you to stay any foreclosure process for a time so that you can figure out what steps to take next.
You should know that chapter 13 bankruptcy is not cheap and it requires that you stay current with your regular mortgage payment plus make a monthly plan payment to a trustee so that money can be used to cure arrears and satisfy some small percentage of the unsecured debt you may have. This is a difficult situation for many homeowners who are having a tough time just paying their mortgage. A qualified attorney will be able to help you decide whether filing for bankruptcy is a good option for you. The Goodman Law Firm offers a free consultation so that you can meet with an attorney and get all of the information needed to make an informed decision.
Bankruptcy and Loan Modification – The Best of Both Worlds
It is possible to modify a mortgage loan while you are in chapter 13 bankruptcy. If a homeowner can modify their loan and bring the payments to a comfortable level while stripping a second mortgage and paying only a fraction of what they owe in unsecured debts. This seems to be the most ideal situation, making it easier for homeowners to afford to stay in their homes and offering the most protection against foreclosure actions. That being said, receiving a loan modification within the context of an existing chapter 13 case is no less arduous and takes just as long (if not longer) to process. It is, nevertheless, worthwhile to discuss the option of a loan modification while in chapter 13 bankruptcy. Again, a qualified bankruptcy attorney will be able to discuss how the process works identify the potential benefits and pitfalls of such a situation.