Loan Modification FAQ
I have a “bad loan”. I had a “pick-a-pay mortgage”. I am part of the National Mortgage Settlement. Doesn’t my loan HAVE to be modified?
Absolutely not. There is no law that entitles you to a mortgage modification. If you had a “pick-a-pay mortgage” or a loan included under the National Mortgage Settlement, a lender is obligated to review a complete loan modification application. However, that application is subject to the same standards of review as a regular loan modification application.
Generally, I want my clients to understand that they should be lucky to be able to keep their home and avoid a foreclosure. If you qualify for a loan modification, after reviewing your specific loan to see what you are eligible for, a safe baseline for a loan modification is that the arrears are put on the back end of the mortgage, the interest rate is lowered to somewhere around the going market rate, and your payment stays the same, goes down a few hundred dollars, or goes up slightly. Surely, results vary. Clients do see significant reductions in their mortgage payments.
I wish I could. Getting the information from your mortgage lender to do a feasibility analysis, see what programs are available, what your mortgage arrears, payment, escrow are, and to slot in your income and expenses yields a guideline of what you can expect if a loan modification application is submitted. It’s all in the prep.
Not always. Many clients get mortgage modifications without the need to file a bankruptcy. It can come down to questions of timing. If you are just falling behind on your mortgage payment or are current on your mortgage payment, it may not be necessary to file a bankruptcy. Is a sheriff sale scheduled? Then we may need to file a Chapter 13 Bankruptcy to stop the sheriff sale and buy time to put in for the loan modification. Do you have a significant amount of unsecured debt (credit card debt, medical debt, personal loans? Is this unsecured debt affecting your debt to income ratios for a loan modification? A bankruptcy may be in order.
Absolutely not. What I can guarantee is that if you should get a loan modification and you work with me, if you should be qualifying for a particular program or a modification, if you are willing to go through the process and you are willing to work with me, we will get it. I can’t guarantee that you’re going to get one, but if you should get a modification based on the specifics of your loan, and you’re willing to commit the resources and the time to doing it, we will get that mod.
Loan Modification Attorney
Where are you with your mortgage? Loan modifications can run the gamut depending on what stage of delinquency a person is in.
Your variable interest rate mortgage is about to reset
Many of my former bankruptcy clients come to see me after they have received a discharge (forgiveness) of debts in a Chapter 7 or Chapter 13 Bankruptcy. These clients have a variable interest rate mortgage. It’s about to reset and their payment will go up substantially. They are unable to afford the increase in payment. Recent example, a retired couple on a fixed income live in a retirement community. The husband has a military pension and social security. The wife has social security. They also have small part-time jobs. Their mortgage payment is going to go up, and it’s going to increase by $600 a month, but their income is fixed, so that’s a problem. They know that in advance, so they’re able to come in and I was able to modify their loan so they can afford to stay in their house for life.
You’re behind on your mortgage
Another type of client is usually people who don’t have the foresight to come see me when they’re still current. A person is X amount of months behind on their mortgage, they know that they need to do something, and a foreclosure is imminent, so they come in at that point. Once they’ve been served with a foreclosure complaint, I’m going to answer it and do foreclosure defense because foreclosure defense is in the state court. Bankruptcy court is federal, so I would be doing a disservice to my client by not using all the tools in my toolbox if I don’t answer the foreclosure complaint.
Answering a foreclosure complaint
Not everyone has a bad mortgage. Sometimes, the foreclosure complaint is properly filed, and the goal of answering the foreclosure complaint is to buy as much time as possible in the most cost effective manner as possible to enable the bank to do a thorough loan mod review. This can also stop foreclosure and or delay proceedings for a period of time.
Foreclosure already has gone through the state court and a judgment of foreclosure has been entered.
Once that judgment of foreclosure has been entered, normally I’m not going to go back to the New Jersey State Superior Court and ask for that judgment to be vacated. The foreclosure case could be several years old. The right to answer the complaint ended years ago. In that case, I will then get all the information together and apply for a loan modification right then and there.
A sheriff sale date is scheduled
Next are clients who have a sheriff sale date scheduled. They get served with their foreclosure complaint, the summons, they don’t answer it. A judgment of foreclosure is entered. After the judgment of foreclosure is entered, it goes over to the sheriff’s office. The home is scheduled for sheriff sale. We’re up against a time crunch. In those cases, it depends on the timeframe because typically there may not be that much time. I’m going to use a Chapter 13 bankruptcy, which is a bankruptcy reorganization as a tool to stop the foreclosure and sheriff sale and help my clients receive a loan modification. In order to save the house, by filing a bankruptcy, an automatic stay is put in place. A “stay” means stop. What that stay does is, number one, it stops a creditor from attempting to collect on debts or take your property. So, a sheriff sale is stopped for a period of time, and any other creditors are stopped from attempting to collect debts from the client. It also means that no property can be taken from you for a period of time while you’re under the automatic stay, so that stops the sheriff sale proceeding. In Chapter 13 bankruptcy context, which is a small reorganization, sometimes the only reason for that bankruptcy filing is saving the home.
Submitting a loan modification yourself? Here are the typical outcomes:
A You don’t get the mod you should have,B You get a flat out denial because it was done incorrectly.
I can’t emphasize again how important the prep is on our end to get the information we need from your lender to workup all different loan modification scenarios based on your loan.
Once the client gets a loan modification, I then follow up and find out how was it underwritten because otherwise what if it was done completely wrong? Or, what if it’s completely wrong in the client’s favor? That’s great, but I need to know how the investor underwrote the modification. Then I know that I’m getting the best deal for the client and able to save their home.
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