Category Archives: Loan Modification and Bankruptcy

Loan Modifications in Bankruptcy

By Kitty J. Lin, Attorney at Law

If you have a house that is underwater, and you have problems making your monthly payments, or you know you will have problems making your monthly payments in the future, chances are you have or will be trying to obtain a loan modification.  For those of you that are seriously delinquent in your monthly payments, you may have tried to hire a loan modification company that promises to help you obtain a loan modification.  Be sure you are hiring a reputable loan modification company.  California law does not allow anyone to receive upfront fees when providing loan modification services.  If you have paid upfront fees you are not dealing with a reputable loan modification company and they have violated California law.

Far too often whether you are trying to obtain a loan modification or hired someone to help, the only result you see is the fact that your house is edging closer to foreclosure than it is to a loan modification.  One of the biggest trends that we currently see today is a homeowner filing for bankruptcy the day before the foreclosure date to try and stop the foreclosure sale.  Most of the time, they are filing their bankruptcy case without an attorney, so they are unaware of what needs to take place to correctly file a bankruptcy case. There are a lot of issues involved in a scenario such as this, and finding a bankruptcy attorney that can guide you in these rough waters may be what you need.

Issue #1 – Credit Counseling Course

As discussed in “What are the Required Courses to File Bankruptcy” the credit counseling certificate is mandatory.  You need to complete the class and obtain the certificate prior to filing for bankruptcy, or your case will be dismissed.  Most people that file for bankruptcy by themselves do not know this, and therefore do not know that their case is doomed to fail from the start.  If your case is dismissed, the mortgage lender can proceed with the foreclosure process.

Issue #2 – Dismissal of case due to lack of paperwork

If you file a bankruptcy petition to stop the foreclosure you probably did not have an opportunity to file all the schedules and forms that are required in your bankruptcy case, such as Schedules A through J, Statement of Financial Affairs or Means Test.  The Bankruptcy Court normally issues an order in your case to file all missing documents within 14 days from the date of the order or your case will be dismissed.  You may file a motion with the Bankruptcy Court to ask the Court to extend the deadline to complete the bankruptcy petition.  If the Court grants your motion, you have a little more time, normally 30 days.

Issue #3 – Short term effect on foreclosure process

Even if you file the credit counseling certificate, and file all the paperwork, bankruptcy only acts as a temporary stay on the foreclosure process.  If you filed a Chapter 7, your mortgage lenders can file a motion to lift the automatic stay and proceed with foreclosure proceedings.  If you filed a Chapter 13 case, and you do not make monthly mortgage payments to your mortgage company, your mortgage lender may ask for relief from the automatic stay and continue to foreclose on your home.  If the Chapter 13 plan filed does not provide for your missed mortgage payments, your mortgage lenders may file an objection to the confirmation of your case.  If the objection is not resolved, your Chapter 13 case will not be confirmed, and your case will most likely be dismissed.  The bottom line is this:  unless you can provide for some way to pay back all of the arrears in the plan, or come up with some payment plan that will satisfy the lender, your case is doomed.

After you overcome these obstacles, and your bankruptcy case is still in good standing, you now have some breathing room to try to obtain a permanent loan modification while you are in a Chapter 13 plan.  It may be easier, since most of your debt will be taken care of in the Chapter 13 plan, but there are no guarantees that you will receive a loan modification.  Be sure to keep copies and records of all communications and paperwork sent to the lenders to prove that you have indeed provided the information to them in the event the paperwork is claimed as lost or not received.

If you need the help of an experienced bankruptcy attorney to help you navigate the complications of a bankruptcy case and to achieve the long term goal of saving and keeping your home, contact us at 877-9NEW-LIFE or 877-963-9543 to speak with our Oakland bankruptcy attorney or San Jose bankruptcy attorney.

Is HAMP a Colossal Failure? What is Next for Homeowners Seeking Loan Modification?

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The Home Affordable Modification Program began in March 2009 and it could not be clear that HAMP is a colossal failure.  The Obama administration set a goal to help 3 to 4 million American homeowners.  HAMP has only helped a tiny portion of that goal and has not reached the vast majority of American homeowners feeling the effects of the mortgage crisis.  The Congressional Budget Office estimated $72 billion in Troubled Asset Relief Program money would be available to fund HAMP.  Recently the Congressional Budget Office provided that HAMP would end up costing taxpayers $22 billion.  It would seem that servicers are collecting fees from the HAMP program without providing permanent loan modifications to distressed homeowners at the expense of all taxpayers.

To top it all off, on Tuesday March 29, 2011, Congress voted 252 to 170 in favor of ending HAMP altogether.  President Obama has provided he will veto any attempt to end HAMP and whether the Senate will agree with Congress to end HAMP still remains to be seen.  Most likely HAMP will continue as a program that gives hope to distressed homeowners but does little to actually successfully modify their loans permanently.

Has HAMP Helped Direct Loan Modifications From Servicers?

According to statistics released by services and the Treasury Department the number of loan modifications services issued on their own and not according to HAMP number 4 to 1.  One positive of HAMP is that it arguably increased the number of loan modifications than prior to the implementation of HAMP.  The argument is that servicers had very little incentive to modify loans.  But why are there so many more loan modifications if you seek modification directly from the servicer instead of applying for a HAMP loan modification?  One reason seems to be that services offer less favorable terms of modification, higher fees that are prohibited by HAMP and the servicer loan modification has a higher rate of repeated default.

So What is Next?

The HAMP program should be revised to make the loan modification process more transparent and implement mandatory structured procedures for mortgage companies and servicers to follow.  Simply asking for documents and then continually asking for more information gives homeowners false hope.

If you are having trouble making your mortgage payment, or are behind on your mortgage payments bankruptcy can help.  A free consultation with one of our Bankruptcy Lawyers or Bankruptcy Lawyers usually lasts 30 to 40 minutes depending upon the complexity of your case.  Call today toll free 877-963-9543 to start your new life debt free today.