Ch 7, 13

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A mortgage modification allows you to negotiate the terms of your mortgage to make house payments more affordable if you are facing financial difficulties. There can be many benefits to this option but keep in mind that there can be drawbacks as well.

Pros

Avoid foreclosure: A loan modification will lower your monthly mortgage payments so that you can afford them, therefore avoiding foreclosure.

Pay less interest: One option of a loan modification is to negotiate lower interest on your mortgage or even an interest-only mortgage.

Lower your principal: If your home is worth less than what you owe, your lender may reduce the principal payment.

Reduce your payments: By extending the term, reducing interest rates or lowering your principal your monthly mortgage payments become more affordable.

Preserve your privacy: A loan modification is negotiated between you and your lender. Unlike a foreclosure it is not publicized or advertised.

Relax: Proactively discussing your options with your lender when under financial pressure and finding solutions together takes away the stress and anxiety most often associated with foreclosure.

Cons

Demonstrate financial distress: In order to receive assistance under the Making Home Affordable (MHA) plan you must prove that financial difficulties exist.

Your home is worth less than what you owe: Your mortgage must be 105% or less of your home in order to be eligible for a home loan modification.

Inconsistent coverage: Not all homeowners will receive assistance. MHA administrators are wary of homeowners who deliberately miss payments to qualify for assistance.

Credit score: A mortgage modification will lower your credit score, although a short sale or foreclosure has more severe effects on your credit score.

Scams: Beware of con artists. A number of companies have emerged who charge illegitimate fees and offer illegitimate services. Be sure you always work with actual government representatives.

Opting for a short sale to avoid foreclosure can have many advantages. If you have trouble making mortgage payments, the creditor will agree to lower your loan balance when you short sale your home. You will have to sell the home for less than the outstanding balance of the loan and pay the lender the proceeds. Using short sale is generally less costly and faster than foreclosure and presents benefits to both the debtor and lender.

Short Sale

* You are in control of the sale
* You do not have to foreclose
* You can be current on your mortgage payments
* The sale will be handled like any other home sale
* If you have no late payments and the lender does not require that you pay back the loan, you are eligible to buy another home immediately
* Short Sale will not affect your credit score
* Deficiency judgments are often negotiated between the seller and the short sale bank, in some states and cases there will be no deficiency judgment
* Loan applications do not ask questions about a short sale
* A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level; beware that some states will still tax you unless you qualify for an exemption
* You do not have to move immediately since the short sale approval process can take 2-3 months

Foreclosure

* With certain restrictions you may be eligible to buy a new home, if it was a primary residence, in five years, or seven years without restrictions
* Significant drop in your credit score that stays there for ten years
* Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure
* Loan applications will ask about foreclosures and often will deny credit because of it
* A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level; some lenders, however, may immediately send out 1099s, even if the owner is exempt
* You will have to vacate the property immediately and the creditor can initiate eviction proceedings if you don’t

It is hard to believe that there are people out there who have no qualms about taking advantage of the already distressed. Every day scammers target the unfortunate folks who are struggling to stay in their homes by deliberately combing public foreclosure notices to find their victims. Despite the government’s efforts to crack down on loan modification fraud or foreclosure rescue scams, you need to be cautious. If you are a candidate for a mortgage modification, be aware of scammers who will only take your money without delivering on any of the promises they lured you in with.

Be critical

Because scammers have become more sophisticated, they have learned to sell themselves as a seemingly legitimate entity. In fact, they have become so good at it that it also has become difficult to immediately pick out the bad apples. Be aware of companies which affiliate themselves with the government or have company names that are similar to reputable companies or resemble government initiatives. The administration’s mortgage modification initiative, Making Home Affordable, is the legitimate source. Familiarize yourself with the web site of the Treasury Department’s Office of the Comptroller of the Currency to learn more about scams so that you can more easily identify a copy cat con artist. Never trust anybody who requests personal financial information or any fees upfront.

Do not pay for help

Scammers will ask you to pay them in advance with the promise to get you out of trouble. You will most likely never see that money again, nor will you be helped. A legitimate or governmental source will not ask to be paid in advance. In fact, HUD-approved counseling agencies offer free foreclosure prevention counseling.

Do not transfer the property deed

One of the ugliest tricks is to convince homeowners to transfer the property deed to the scammer. The selling point of this idea is that the scammer will buy the home and let you rent it from them with the option to buy it back later. The scammer’s argument that giving the title to a new borrower with a better credit rating will help secure financing thus preventing loss of the home is completely unfounded and just not true. Instead of selling it back to you later, the scammer will most likely sell the home to anybody, or take the title, any equity in the home and squeeze more fees out of you and then just run. If you come across anybody requesting to transfer your property deed to their name, report them to the FTC.

Do not believe their lies of shortcuts

Foreclosure proceedings, mortgage modification requests and any other legal procedure implicating your property are complex procedures involving many parties, dates and therefore require time. Anybody who makes promises of a quick fix or instant debt relief cannot be trusted.

Stay away

Stay away from anybody who makes any claims that sound too good to be true. They probably are. Companies who affiliate them with the government should raise a red flag. Do not talk to third parties who single-handedly guarantee you an instant loan modification. Stay away from companies that offer to collect your mortgage payment while negotiating a mortgage modification and be sure to only send your mortgage payment to your mortgage company. Finally, stay away from businesses or counselors who tell you not to contact your lender, lawyer, or credit or housing counselor.

If you have fallen behind your mortgage payments and do not anticipate your financial situation to improve in the near future you could be eligible for a mortgage modification. However, lenders do have a set of criteria that you need to meet in order to qualify for a mortgage modification. These criteria can differ from bank to bank. These are some of the most typical criteria:

* You experienced documented hardship or change in your financial situation due to unforeseeable events

* You have fallen behind your mortgage payments and are 90 days delinquent

* The mortgage is for your primary residence

* You have not filed for bankruptcy

Your request for a mortgage modification will be disqualified if it can be proven that it is fraudulent, that is you have fallen behind your payment purposefully in order to negotiate a mortgage modification.
It is also very important that you work with the lender in a responsive and timely manner. Although some of these criteria may be examined to determine your eligibility, the truth is that you do have some leverage. No creditor likes any of the other time intensive and costly options such as foreclosure, collections or worse, a debtor’s bankruptcy filing which would leave the creditor with nothing. Therefore a lender may be open to re-negotiate the terms of your original mortgage with you. In fact, to extend the duration of the loan will lower your monthly payments and profit the creditor. There are no set rules. You have to explain your situation and ask the lender for cooperation. A mortgage modification may just be the only win-win solution.

If you are overwhelmed with your financial obligations and cannot afford to make your mortgage payments any longer you could be a candidate for a mortgage modification.

When a mortgage lender is faced with a non-paying debtor, none of the lender’s traditional options are promising to recoup their investment, that is the money they loaned you.

To initiate foreclosure proceedings in order to repossess your property, is a lengthy and arduous process and does not really pay for the lender, especially if the amount owed on the home is more than the worth of the property. Your lender could also make collection attempts either through the mortgage company or a third party. A standard collection method is through wage garnishment or a bank levy. This, too, is not a quick fix for the lender. The creditor first needs to file a petition with the local court, pay the court fees and then wait until the judge grants the petition. Most creditors will also be reluctant to stop taking any further costly action and accept the loss or wait for you to declare bankruptcy and not being paid in the end.

At this point you will have significant leverage to negotiate a so-called mortgage modification with your lender. A loan modification is basically a re-negotiated contract between you and your creditor to lower your monthly mortgage payments. This can be done by either lowering the interest rate – an option that makes the lender less profitable – or by extending the duration of the loan . This option is better for the lender as you would pay more interest on a longer term mortgage. Sometimes the creditor may even be amenable to lowering the mortgage amount. The negotiated term can be permanent or temporary.

Before you start the negotiations, be sure to do your homework and understand what each of the options will cost you in the end taken into account if any mortgage modification will be temporary or permanent.

Mortgage modifications can be very flexible and each lender has different criteria, so it is important to know what you want out of a mortgage modification before sitting down with the lender.

No, you are not required by law to file bankruptcy after a foreclosure.
When you foreclose on a home after you have fallen behind your mortgage payments, you will lose your home. But if you want to keep your home and file for Chapter 13 Bankruptcy instead, a repayment plan will help you keep your home. Alternatively, you can file bankruptcy following foreclosure to wipe out debt you owe.

Foreclosure

To set the foreclosure and repossession procedure of your home into motion, your lender must file a Complaint, Motion and Affidavit with your local Common Pleas court. Once you have been served the Complaint, meaning you have received a copy of all the documents your lender has filed along with a Hearing Notice you have the right within five days of receipt of the the notice to request a hearing to object the complaint. If your creditor’s Complaint is legitimate, you do not have much leverage and typically the judge will not grant the motion in your favor so that proceedings will continue as scheduled. However, by requesting a hearing you can delay proceedings if extra time will work to your advantage.

Keep in mind that Complaints and other essential correspondence is always mailed by certified mail and there will be a record of when you received each document. Rejecting certified mail will cause more harm than good. After you have acknowledged the receipt of the Complaint and all documents have been signed and notarized, an Order is sent to the Judge to be signed. The signed Order gives the creditor the green light to begin the process of repossessing the home.

Mortgage Debt in Foreclosure

First, your property must be sold so that your name can be removed from the title and your debt cleared. Foreclosed homes are posted in the newspaper so potential buyers can submit their bids. Then a time for the Sheriff’s sale is scheduled. During this time, you still must make mortgage payments to reserve your right to stay in the home. If you are not able to make payments, you will receive a Sheriff’s notice to vacate the property, typically within 30 days. Your debt obligation is cleared and foreclosures will stay in your credit report for seven years. You no longer have the title to the home.

Filing Bankruptcy

If you have fallen behind your mortgage payments and have an impending foreclosure hovering over your head, there are many advantages to filing Chapter 13 Bankruptcy before the lender proceeds with foreclosure. A Chapter 13 Bankruptcy will allow you to restructure payments, keeping you in your home and stopping all those service and late fees associated with foreclosure proceedings. Even if you already owe past due bills, they can be included in the Chapter 13 Bankruptcy and paid over time. It is critical that you take action early on to avoid complicating the process. The quicker you act, the less opportunity you give your mortgage lender to punish you with fees and forced removal from your home.

Filing for bankruptcy and foreclosing on a home are two very different things. Before you consider either or even both, it is important to understand the difference and how they may be related.

The two most commonly used bankruptcy laws under which individuals can file, differentiate between liquidation, Chapter 7 bankruptcy, and reorganization, Chapter 13 bankruptcy. Bankruptcy laws provide the legal elimination of debt. This means that when you file for bankruptcy you are protected from your creditors going after your personal property when you have become insolvent and can no longer pay your creditors what you owe. Therefore, if you do qualify for bankruptcy, you are the one who voluntarily initiates the bankruptcy filing by filing for it in your federal district court. Bankruptcy is typically governed by federal law, so the laws are uniform across all states with a few exceptions.

One of the biggest differences between bankruptcy and foreclosure is that you may be forced into foreclosure if you can longer make your mortgage payments. Your lender may take legal action resulting in you having to foreclose on your home or it just may be the best strategic option left to you. In foreclosure proceedings your lender may repossess your home as a collateral for the amount you owe and resell it to pay for the remaining balance on the home. The time frame differs from state to state but generally you can stay in the home for about a year in states where mortgages are used, opposed to states where trust deeds are used in which case you have less than four months. If it turns out that you have the means to make missed payments, you can reverse foreclosure action, the so-called period of redemption, by paying for all foreclosure costs, back interest and principal payments to gain repossession of your property. It is advisable to consult the services of a real estate lawyer in this case.

If you file for bankruptcy and also foreclose on your home, understand that after the foreclosure has started, your bankruptcy filing will grant you an “automatic stay” provision. This will immediately halt foreclosure proceedings at least for a given period of time.

Although bankruptcy and foreclosure are two separate events, you can strategize with your bankruptcy attorney to have these two events overlap and create a workable solution if you decide to proceed with both.

If you own a home and are 2 months or more behind in your house payment, you need to start planning on doing something about it as soon as possible. Foreclosure specialists can help you negotiate with your lender to lower your payments, and a bankruptcy attorney can help you file bankruptcy to save your home, but you must act quickly. (You can get a free bankruptcy review to learn your options with one of our bankruptcy attorneys.) If you do not anticipate being able to pay your mortgage for several months due to a sudden drop in income or other unusual circumstance, filing bankruptcy with a bankruptcy attorney before the beginning of formal court proceedings will save you $100’s, if not $1,000’s of dollars in service fees, late fees and other fees mortgage companies will tack on to the total you owe them. In fact, by not doing anything and not making your monthly mortgage payment, you may discover that you owe the creditor more than the original loan amount after all the late fees and extra charges are added on.

However, if you have found you are several months behind in our mortgage payment and/or you are interested in the procedure of foreclosing on your home, below is the normal procedure followed by creditors to foreclose on your property.

Complaint is Filed

Before a creditor or mortgage company can begin the procedure of taking possession of your home, they have to file a Complaint, Motion and Affidavit with the Common Pleas court in the county where your home is located. A copy of your signed contract and mortgage or title is attached to the Complaint to prove that the mortgage company has the right to foreclosure on your home. You will receive a copy of these documents when they are filed, which is called “serving the Complaint.” A Hearing Notice is also enclosed allowing you five (5) days to request a hearing to dispute the debt. Of course, if you know you owe the money you do not have to request a hearing, but requesting one can delay the foreclosure process because the court will have to appoint a hearing date in which you will appear and state your side of the story. The Judge will normally grant the Motion in favor of the creditor unless you can prove the debt or the amount owed is not accurate and the foreclosure proceeding will continue.

Because Complaints are served by the court by certified mail and personal service, and must be properly served before the process can continue; some people will not accept certified mail thinking it will “buy them more time.” However, the opposite is true. If good service cannot be obtained by certified mail, the Sheriff will be dispatched out to serve you the Complaint documents in person, which could be embarrassing. Ordinary mail service is also performed by the creditor filing a Praecipe with the Clerk of Court and if the post office does not return the piece of mail, the court considers this to be notice of proper service.

After service of the Complaint and other documents are done, an Order is then sent to the Judge for his/her signature. Once the Order is obtained, the mortgage company will them begin the process of actually repossessing the home.

Filing Bankruptcy After Service of Complaint

I have had several clients decide to file bankruptcy at this point because it can be a scary situation when the court or Sheriff serves foreclosure documents. However, it would have been to their advantage if they would have filed before this period of time. Even if past due arrears are owed on a home, these arrears can be included in the Chapter 13 bankruptcy petition and paid over a period of 3 to 5 years, stopping all additional service and late fees.

But, if you are in a situation where you have waited this long and decide to file bankruptcy now, the bankruptcy petition will delay the foreclosure procedure for a short period of time. This is because the creditor will only be able to repossess the home but will never be entitled to a money judgment because you filed bankruptcy. This causes the creditor to re-file additional paperwork with the court in order to proceed and will help the debtor “buy some time,” especially if he or she is planning to surrender the home and get rid of the debt entirely.

The Next Step

Repossessing a mobile home is different from foreclosing on real property (real property is anything attached to God’s green earth.) That’s because a mobile home is considered to be personal property. It is easy for a truck to hook up the mobile home and return it to the creditor, but that would be impossible for an actual home attached to a piece of land. Instead, real property must be sold and/or the title removed from your name.

The foreclosure procedure for real property involves posting a notice in the newspaper, allowing time for bids and finally setting up a time for the Sheriff’s sale. If payments have not been met to satisfy the creditor, the Sheriff will deliver a notice giving you a period of time (normally 30 days) to vacate the property. At this point, you better have a place to move to or money to pay all the past due payments, late fees and extra added-on charges. Sheriffs have been known to physically enter the home and set the furniture and anything else outside on the lawn in order to repossess the home because people still refuse to move after being given this “grace period” to move on their own. Again, this would be a very embarrassing situation for you and your family and will probably result in damage to your household goods and furnishings.

How Long Does All This Take?

Because every mortgage company is different and has different collection methods, it could take from 2 to 9 months for everything to occur and you be ordered to move from the home. While it is not suggested that you live “rent free” in your home until the last minute before the Sheriff sets you out on the street, if you are severely behind in your mortgage payments and cannot afford to keep the house, use the next few weeks to save for a down payment on a rental and move as soon as possible.

Or, if you want to keep the home, you can contact a foreclosure specialist to negotiate with your lender or file a Chapter 13 bankruptcy with a bankruptcy attorney as soon as you realize you are 2 months behind in your payments and include those past due payments in your Chapter 13 Plan so they will be paid with your other debts.