Trying To Do Loan Modifications With A Pending Foreclosure Is Risky
Tell me if any of this sounds familiar.
You attempt to refinance or modify your home loans in order to obtain a more affordable interest rate or payment and avoid foreclosure.
But the bank has recorded its Notice of Default and is proceeding to foreclose.
Your application has already been denied or sent back for “more information” several times and you have to keep starting over.
A friendly voice on the other end of the phone will assure you that it’s going to be approved and that the foreclosure sale will not proceed.
But often this is not true.
This is the scary loop most who attempt loan modifications must face.
And by the time the modification is denied (which happens more often than not), you have accumulated another 6-12 months or more of past due payments.
And you may only have a few days’ notice prior to the continued foreclosure sale date.
It is at this point that most people contact a bankruptcy attorney to file either a Chapter 13 or Chapter 11 case to stop the foreclosure and use the bankruptcy to catch up on past due payments.
But it’s usually too late then to put a case together properly for filing.
And there isn’t time to properly analyze the budget to determine whether it is even feasible.
Some receive horrible advice from unscrupulous and misinformed loan modification agents to just file a “skeleton” bankruptcy petition to stop the sale and then dismiss the case right after. See Bad Loan Modification Advice on how one lady lost her home this way.
You Can Still Pursue Loan Modifications During Chapter 13 Bankruptcy
Now imagine that there was a way you could pursue your loan modification without the worry of foreclosure.
Imagine further that you can make payments in the meantime to catch up on your past due amounts and stay current with ongoing payments so the past due amounts don’t increase while your application is pending.
And imagine that your lender must accept these payments and terms.
So even if you don’t ultimately get approved for a loan modification, you have a plan in place to catch up on your payments!
Well, here’s some good news for those of you who have the foresight to read this early in the game:
Filing a Chapter 13 Bankruptcy does not preclude or prevent you from pursuing, or continuing to pursue, a loan modification during the bankruptcy.
Filing a Chapter 13:
- Stops any foreclosure sale dead in its tracks.
- Forces your mortgage company to accept repayment on the past due amounts over up to 60 months.
- And, in the meantime, you can pursue a loan modification to lower your regular monthly payments and , if successful, cure the arrearages early and, if you wish, dismiss your Chapter 13 case.
- Allows you to eliminate unsecured debts such as credit cards and medical bills, sometimes by paying nothing
- You can dismiss the Chapter 13 case at any time.
But wait, it gets better.
When you file bankruptcy your mortgage lender will likely move your file to their bankruptcy department which is frequently staffed by different people than those who were previously rejecting your application.
Thus, you may improve your chances of achieving a loan modification during a Chapter 13 case than you would otherwise.
So why put yourself in the extremely precarious position of losing your home for no reason at all?
Filing Chapter 13 has almost no downside when there’s a foreclosure sale and you want to keep your property and have the means to catch up on the payments over time.
If nothing else, it gives you the time and breathing room to pursue your loan modification without threat of foreclosure.
At the very least you should always have a consultation with an experienced bankruptcy attorney in your area before starting the loan modification process to determine your best options.
Tobias Scheck provided the image for this post.
