Loan Modifications have been in our local real estate language for several years now. Programs under HAMP or Home Affordable Modification Program have many different programs that are supposedly available to homeowners like HARP or Home Affordable Refinance Program or HARP 2.0. The end-date for HARP according to the Making Home Affordable website is December 31, 2013. We have many clients who come to us with lost hopes of loan modification after being rejected by their mortgage companies for various reasons ranging from lost paperwork to not fitting within the requirements of the loan modification program. Today, we would like to review some specific problems with loan modification application that may be leading you into a more dangerous situation you are in. Our Bankruptcy Attorneys in Riverside and Orange County listen to hundreds of situations related to loan modifications every month and have been listening to people’s situations for several years. We have great helpful information to share with you.
PROBLEM #1: CONTINUING TO BE LATE ON YOUR PAYMENTS
When you are applying for a loan modification, most mortgage servicing companies and banks will tell you that you have to be late on your mortgage in order to submit an application. This is a great trap for your mortgage company that can put you in a very difficult situation. First, if you are late on your mortgage and you spend the money that you normally use to pay your mortgage, you are entering very dangerous territory. So, let’s say a customer stops paying their mortgage on purpose in order to submit a loan modification application. Three months later, the bank responds to the client, telling them that the loan modification application was rejected. Now, the customer asks, “How can I get my loan re-instated? I stopped paying for 3 months due to the loan modification application.” The bank responds by asking the customer to pay the past due 3 months of mortgage payments or face foreclosure. This is a realistic situation that we have seen many clients go through. We can help resolve this situation with a Chapter 7 or Chapter 13 bankruptcy. The lesson is to avoid getting behind on your payments if you can still afford to keep up. The risk of this situation may not be worth it. If you do take the strategy of stopping your payments, do as much as you can to save the money you are not spending on your mortgage so that you can get your loan re-instated if there is a need to do so.
PROBLEM #2: NOT ENOUGH INCOME
It is fairly common assumption that many mortgage banks target 31% of your income to be your adjusted mortgage payment when reviewing a loan mod application. Don’t put too much weight on this number when you are thinking about your chances of getting a loan mod approved. It does not mean as much as you think. If your income is too low for what the bank really needs to qualify for a loan mod, 31% is an insignificant number. If your income is $6000 per month and your mortgage is $3000 per month, 31% of your income is $1860. Your real question should be “How much will the bank accept as a minimum in a loan modification situation?” The 31% of your income is essentially meaningless. Let’s say the bank wants $2500 as a minimum for a loan modification. So, they will say “Your loan modification has been rejected because there is not enough income to meet our requirements for a loan modification.” It doesn’t matter what 31% of your income is. All that matters is the requirement that the bank needs to grant a modification.
PROBLEM #3: LOST OR MISSING PAPERWORK
A bank can tell you your loan modification has been rejected for any reason. It has come to our attention that missing paperwork has become a common reason for rejection of loan mod applications. A bank can tell you that you were missing one document that they did not receive even though you did mail it or fax it to them. The fact is, they could have asked you for the document before they ended your loan modification processing. They could have extended the processing time a few more days to give you time to send them the missing document. If they are really trying to help you with a loan modification, why would one missing document, all of a sudden, end all of your chances for a loan modification? Sometimes, the bank will allow you to retry a new submission of paperwork and start all over, or Chapter 13 bankruptcy can put all the past due debt into a trustee payment plan and get you caught back up with your mortgage into a current status.
PROBLEM #4: LOAN MODIFICATION TRIAL PAYMENT PLANS
If you are making trial payments in hopes of a finalized loan modification, don’t be surprised if your payments are not posting to the original loan in question. The trial payments sometimes seem to be a way for the bank to delay a foreclosure and collect some money while the bank has your home in line for a foreclosure after they’ve squeezed some trial payments out of you. We have seen clients who have made trial payments for 6 months to a year only to be rejected for a loan modification and have a looming sale date coming up to deal with. A Chapter 7 bankruptcy can stop the sale date and help you get extra time in the home to make a decision going forward.
PROBLEM #5: TAKING WAY TOO LONG TO PROCESS YOUR LOAN MODIFICATION
We have heard of situations where clients have a loan modification in process for 6 months. 6 months is not a realistic timeline to get a loan modification processed especially if you are not paying your mortgage for the whole 6 month period. Even 3 months is not realistic for any normal business to process an application. A business can usually resolve any issue with one client in a month or less. If your bank is telling you that your loan modification is being processed and they have had a long period of time to get to it, you need to question their real motivations. If they wanted to help you, they would not be “processing” your loan modification for several months. You need to look at other options to resolve your mortgage problem outside of your loan modification application.
Bankruptcy Law Professionals has excellent Riverside bankruptcy attorneys and Orange County bankruptcy attorneys to help you with your mortgage and real estate issues. If you would like to discuss your situation with us in a phone or personal consultation, please contact us at (855) 257-7671.