Can Someone Get A Loan Modification During A Pending Foreclosure?

It is not infrequent that I have received a telephone call: “The sheriff’s sale was last week. Can you help me save my home?”

I reply, “Why did you wait?”

The typical answer is: “I was working with the mortgage company on a loan modification. They said it looked good, so I didn’t do anything.”

Once there is a sheriff’s sale (or more technically a judicial sale), a Chapter 13 cannot save your home, but before that date, filing bankruptcy can aid you in getting a loan modification.

Sad Facts

  1. Foreclosures and loan modifications work on different tracks. The train that gets to the station first wins. Often, the Bank will orally suggest that a loan modification is very likely to be approved; but it’s a mirage. The mortgage company continues on with their foreclosure action, until your home is gone.
  2. The Consumer Financial Protection Bureau (CFPB) has a provision that is supposed to stop the foreclosure while there is a pending Loan Modification application until a) the servicer {mortgagee} informs the homeowner that you are not eligible; b) the homeowners has rejected the workout option offered; or c) the homeowners does not comply with the terms of the workout deal {such as not making payments during the trial modification}. A recent report shows that certain mortgage servicers continue to dual track. We still get calls from homeowners saying they were given optimistic assurances that their loan would be modified but the sheriff’s sale was held anyway
  3. Mortgage companies don’t really want many loan modifications. That is why they make it complicated; often “losing” files; returning documents for minor reasons; making it a long drawn out process. If they really wanted to help they would streamline the process both in terms of paper work and time. They would have counselors working with you to be sure everything was in apple pie order before going to the actual decision makers.
  4. Foreclosure lawyers make more money when they actually complete the foreclosure.
  5. Mortgage companies are not your friends. If they can take your house back then sell it to another party, they make their money twice: first, by taking a money judgment against you, and second from reselling your property and (possibly) giving a new loan to the buyers.

The Irony

Most people don’t know you can file a Chapter 13 and still proceed with your loan modification. Many Chapter 13 clients are able to get their loan modified while still in the Chapter 13 case. Because you are in a bankruptcy, the creditor has to stop its foreclosure action and give you time and space to modify the loan. Even filing a Chapter 7 will stay the foreclosure temporarily, and give you a better chance at that loan modification because your budget will improve if you do not owe any other creditors.

Chapter 13

A Chapter 13 stops the foreclosure dead in its tracks.

To be eligible you have to have sufficient income to pay your current mortgage, pay some amount to the Chapter 13 trustee to catch up the mortgage arrears, and have enough money to cover your other expenses.

For more information on Loan Modification During Foreclosure, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.


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