IMAGINE how frustrating this could be. You anxiously waited for months and months for your lender’s response after submitting your loan modification request. After countless hours of frustration on the phone, being put on hold, and the tedious task of compiling, completing and faxing tons of paperwork, you feel that you’ve done your part. Perhaps you were starting to imagine your nightmare coming to an end and being on your way to getting your fresh start. And then all of a sudden, your lender drops the bomb on you and tells you the last minute that you’ve been denied. The clock is ticking and you’re only days away from the date you’re house is scheduled to be sold. What do you do now?
Unfortunately, this is a reality that thousands of people are facing. What I’m seeing is that people spend so much time trying to get their lender’s approval that they have never for a single minute entertained the idea that things may not go their way. Hoping for the best is a good thing, in my opinion, but you should also have a back-up plan in case things don’t work out as expected. As I always tell my clients: “Hope for the best but be prepared for the worst.”
I am always asked whether filing bankruptcy is a good option after getting denied for a loan modification. If so, what type of bankruptcy should one file? Is it Chapter 7 or Chapter 13? I think the answer depends on the facts of your case and what your objective is.
For instance, if you have decided that you no longer want to keep your property and are afraid that you may be liable for a foreclosure deficiency, Chapter 7 may be advisable. This is true in those situations where there is a second mortgage on the property for which you may be personally liable after foreclosure. A lot of people are unaware that even after foreclosure of their property, it is possible (depending on the facts of the case) that an unpaid second mortgage holder may still retain the right to sue the homeowner personally on the now unsecured promissory note. Thus, if you have more than one mortgage loan on your property, don’t automatically assume that you will have no more liability after your house goes into foreclosure. Most people are shocked to get a collection letter or a lawsuit from their second mortgage holder months after foreclosure. Consult an attorney right away so that you can be properly advised regarding your rights and liabilities. Remember also that although Chapter 7 may not save your home, it could delay foreclosure and give you a little bit of time to breathe and figure out your next step.
If, on the other hand, you are interested in keeping your property, the first question to ask is whether there is still time to save the property. If the lender has initiated foreclosure, every minute is precious and it is in your best interests to understand where you are in the foreclosure timeline and to act quickly to protect your rights. If you qualify, you may be able to file Chapter 13 to stop the foreclosure and to consolidate all your delinquent mortgage payments, property taxes, HOA fees and other debts into one low monthly payment. If you do this, your regular mortgage payments will resume after your case is filed. If you have a wholly unsecured second mortgage (not supported by equity), it may be possible to have this treated as an unsecured debt in your Chapter 13 (This is called “lien stripping”) and have you pay it based only on how much you can afford. This means that while you are in Chapter 13, you no longer have to pay your second mortgage and once you complete your Chapter 13 plan, your second mortgage will be completely wiped out. In cases that I see where the amount of the second mortgage is substantial ($50,000, $100,000 or sometimes even more), this can result in significant savings- something that even a loan modification cannot do for you.
So, if you’ve been denied a loan modification, it may still be possible to save your home but you will never know until you seek legal help to at least find out if other options exist.
Currently, it is even possible to file bankruptcy and apply for loan modification at the same time and not have to worry about one adversely affecting the other in any way. If you are in a Chapter 13, remember that the bank will not be able to foreclose on your home even if you are denied a loan modification. Thus, Chapter 13 can be your “safety net” which can protect your home no matter what happens. To schedule a free consultation, please call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos , West Covina and Valencia.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.