Loan mods are not the only option
The term loan modification is not a new one, but it has picked up a lot of speed over the past year. In the past, homeowners and lenders have been able to workout deals to change the essential terms of a mortgage through private negations. However, in March of 2009, the United States government released their Home Affordable Modification Program (“HAMP”) and all of a sudden it was the new craze. The problem is now that the Government is involved at least to some extent, consumers seem to believe that banks have an obligation to “modify” or change a loan. When in reality, the government has no teeth to force the banks to do anything. A loan modification or credit workout is purely an optional program.
With that said, many consumers and frankly even Consumer Debt Advocates have been taken advantage of by the banks who have at the very least given the appearance of acting in a deceptive manor with respect to these loan modifications. Many homeowners were accepted into a loan modification trial program, in order to prove that they could make modified payments. The homeowners has made these payments for several months and after they have been faithfully making good on that agreement are kicked out for no reason, or even fraudulent or deceptive reasons and are facing foreclosure.
Many of use know the deal; the bank requests a bunch of documentation to review. They claim that they have not had a chance to review it and so ask for updated information. They do this while arrears are building up, and then finally offer a trial plan. Once the homeowner is in the trial plan for what is represented to them as 3 months, they soon learn that it can become two to three times as long, all the while the homeowner faithfully performs their obligations under a new agreement and pays sometimes tens of thousands of dollars to the bank, instead of investing that money in other avenues that my be more effective, such as filing for a chapter 13 bankruptcy, or challenging the standing of the banks.
It has been suggested by many on the interest though various blogs and chat rooms that this loan modification is nothing more then the banking industry’s “well-thought-out scam where the lender, knowing full well they ultimately intend to foreclose string the homeowner along to collect a few additional payments.
What many people do not seem to realize, is that there are other opportunities to save your home, or in the alternative, cut your losses before they arrears get too great to manage. The key to remember is that should you want to walk away from your home, if the home is sold for less then you owe, you may be liable for the debt. In order to avoid this, a simple Chapter 7 bankruptcy can eliminate that risk. Additionally, you can file a Chapter 13 case and pay back the missed payments over 5 years interest free. Perhaps more importantly, when you file a bankruptcy, the bank must stop any foreclosure or collection attempts for past due amounts. It may provide you with the time you need to go into court whether it be through the bankruptcy court, the land court or even superior court to challenge the standing of the bank.
The lender must prove that they even have a right to foreclose and in order to do this, they must have a copy of your original mortgage and note. If they can not produce that note, then a judge may indefinitely stay their foreclosure. If they file a claim for past due amounts, the bankruptcy court may hear this as evidence of a challenge to the proof of claim. You also may request a copy of your loan application and find out that there are many untrue statements that bank used to issue the loan. If this is the case, you may even be able to strengthen your position and negotiate a “real modification” where you have now come full circle.
Additionally, should you have a second mortgage that is not supported by any equity, you may be able to strip the lien entirely though a Chapter 13. In the event that the home is not your primary home, but rather an investment, you may even be able to cram down the principal to its current fair market value and a reasonable interest rate through a court order.
The bottom line is this, do not trust that you will obtain a loan modification even if you have been put into a trial period. You have several options, and should contact a qualified consumer debt attorney to learn what options are at your disposal.
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