Loan Modifications: The Bank's Opportunity to Lie, Cheat and Steal ... From You!
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
Modifying your home loan to meet your current financial situation sounds exactly like what you need.
So you send in the mountain of paperwork to your lender. Then you wait.
You call their offices. The voice-mail menu bounces you from person to person in your lender’s high-rise office building. They tell you that your loan package is under review. Just wait a little longer to hear from them.
Weeks pass. You call again.
Whatever they told you before is completely unknown to the person speaking with you now. Nothing that you’re saying is noted in your file. In fact, your file doesn’t even say that you’re requesting a loan modification.
Oh, but your file does say this: The date scheduled for your home’s foreclosure sale is less than three weeks away.
Does this sound familiar? You’ve likely heard the horror stories. And you may be going through this same scenario right now. The bottom line is this:
Don’t trust anything your lender tells you.
Don’t believe that you bank’s ultimate goal is to modify your loan. It isn’t. Their ultimate goal is to cut their losses – and even make a profit from the sale of your home, if they can. And, most likely, collectors in their loss mitigation department get bonuses based on how much money they wring out of you – and how quickly they get it.
Here are Facts You Should Know – and Steps You Should Take
Fact #1: Most applications for loan modifications are denied.
The idea of a loan modification sounds terrific. But most homeowners’ applications are denied. Why? If you can’t make your current payments, then why should the bank believe that you can make your newly proposed loan payments. After all, you must be a AAA candidate to get a loan modification. And if you are a great credit risk, with a high credit score, then you probably don’t need a loan modification. You’ve heard the old adage: A bank will loan money to you only if you can prove that you don’t need it. The same is true with loan modifications.
Fact #2: If you’re fortunate enough to get a loan modification, that approval often takes longer than one year!
Why? The incredible stacks of paperwork. Most people who apply for a loan modification don’t fill out the documents correctly. Or they forget to attach a form. Or they fax the paperwork to the wrong office. Right now, imagine every excuse that the bank might use. Then you should know that, in truth, the bank has twice that many excuses. Excuses that will make you scream and tear out your hair.
So what happens? The lender marks your file as “incomplete” and your request is denied. Then – if you still want a loan modification – you can start the process all over again. Back to square one.
Fact #3: The left hand doesn’t know what the right hand is doing
One person tells you one thing. A few days later, another representative tells you something else. In no time at all, you can see that they don’t have a clue what they’re doing. They have so many applications on their desks – and so many inexperienced clerks pushing paperwork – that it’s a wonder that anyone’s application gets approved. And the fact is, most don’t.
Step #1: Hire a lawyer.
No, the law does not require that you hire a lawyer. But when you’re dealing with inexperienced employees at the lender’s office – and when you’re up against the lender’s law firm that has already scheduled your home for foreclosure auction – believe it, you need a lawyer – an experienced bankruptcy lawyer that deals with mortgage lenders every day. Plus, your lawyer is working for you. He knows your circumstances and he can recommend what he thinks is in your best interests. Not the bank’s best interests – but yours!
What’s more, the government keeps coming out with new lending programs and it’s often hard for you to know which program, if any, is appropriate for people in your situation. Your lawyer will be up to date on your available options – and will recommend which is best for you.
Step #2: File for Bankruptcy.
If you want to keep your home from being sold at a foreclosure action, then file for bankruptcy. The founding fathers wrote bankruptcy into the Constitution because they wanted everyone to have a second chance and get a fresh start. So take advantage of the law and file for bankruptcy – if your lawyer recommends that bankruptcy is right for you in your current situation.
A Chapter 13 bankruptcy (repayment plan) lets you create a plan to pay off your missed mortgage payments. Plus, your lawyer may be able to completely remove a home equity loan (second mortgage) from your property. This by itself could save you many thousands of dollars.
A Chapter 7 bankruptcy (liquidation) lets you at least delay the foreclosure sale while you and your family decide what you should do next.
Yes, You Can Have Your Cake and Eat it Too
While you are in a Chapter 13 bankruptcy, it is possible to modify your mortgage. What’s more, you may be able to lower your monthly payments – erase your second mortgage – and eliminate many of your unsecured debts, such as credit cards balances.
Still, modifying your loan while in a Chapter 13 bankruptcy is a painstaking process and takes a long while. Even so, it may be a good option based on your circumstances and you should discuss this with an experienced bankruptcy lawyer so you know about the risks and benefits so you make an informed, intelligent decision.