Dear Bankruptcy Adviser,
I have fallen behind on my mortgage due to waiting on a loan modification. I had to pay the bank upfront fees and make a modified loan payment for the lender to work on the modification and then find out I wasn't approved after several months of making payments. I only need a few thousand dollars to bring the loan current. If I can't resolve this matter I may need to file bankruptcy in order to keep my home. Is that my only option?
While you are not alone, you must feel completely isolated from the world. It appears that we could be dealing with millions of people faced with similar or worse scenarios. But that does not change how you may feel abandoned and demoralized by the process.
I am not defending the banks here. Not even close, but I do understand what is happening. The banks are attempting to recover some money while reviewing a loan modification request. This means that the bank will give you a temporary payment while the loan modification team works on your paperwork.
More cynically, the loan modification team just set you up on a payment plan to keep you from bothering them. You are making a payment, the lender is getting some money, and you are falling further and further behind on your mortgage payment.
I truly believe that the lender's loan modification team is so overwhelmed that the documents are being put into a pile in some room and never even processed. You are making payments, but your loan modification request is lying dormant, likely untouched by any other human hands besides yours.
Do I sound cynical? Probably. But the number of clients that have told me that they have had to resubmit the same information three to 10 times has become countless. It would be comical, if not so sad.
You have two options at this point, if you only want to keep the house:
- Bring the mortgage current. Yes, those four words are easy to write, but actually coming up with those funds may be impossible. You applied for a modification because you could not continue to make your current payment. You needed some assistance, and optimistically thought that the bank would help you.
- File Chapter 13 bankruptcy. This is known as a reorganization bankruptcy. That means you will bring the loan current over the next three to five years. The lender will not have any control of your right to select this type of bankruptcy. You keep the house so long as you make the mortgage payment and the payment to the court.
The terms of the loan do not change. Meaning, if the loan rate is adjustable and is set to change, then you will have to make that new payment -- even if it goes up, and, it is hoped, will go down.
You will also be able to work with the lender on another loan modification after you have filed your case. Your chance of success is similar to before filing, but your house is safe so long as you make the payments to the court and to the lender.
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