MORTGAGE MODIFICATIONS

A new report released in January 2013 from the National Consumer Law Center (NCLC) reveals both the successes and failures of mortgage modification programs used by top mortgage lenders and servicers such as Wells Fargo, Chase, U.S. Bank, Citimortgage and others. According to the report, as many as ten million homes are still estimated to be at high risk of foreclosure, with nearly four million foreclosures having been completed between 2007 and 2012. The report looks at the track record of the Home Affordable Modification Program (HAMP), created in 2009 to address the need for mortgage modifications by defaulting homeowners. NCLC found that while HAMP had successfully modified many mortgage loans, massive lender noncompliance had prevented the program from helping all the homeowners it could. In particular, NCLC said lenders violated HAMP by continuing foreclosures without first evaluating homeowners' eligibility for modification; mistakenly or falsely claiming investor restrictions as the reason for denying a modification; and failing to provide required notices. 

As of October 2012 over 14.5 million homeowners were delinquent on their mortgage by more than 60 days. Over 4.3 million homeowners had applied for a HAMP modification but only 1.1 million permanent modifications had been started. Even with the relatively small number of HAMP modifications in place, however, NCLC found that they were still more successful then the non-HAMP modifications mortgage lenders and servicers are more likely to approve. It's not uncommon for a homeowner who applies for a HAMP modification to be told that while they don't qualify for a HAMP modification, the lender or servicer has their own internal modification programs available. In fact, the vast majority of mortgage modifications are not done through the HAMP program but through a lender or servicer's own internal program. NCLC found a big difference between the HAMP modifications and the more common non-HAMP modifications. Over 80% of HAMP modifications are still performing within one year of the modification and they are less likely to default again and lead to foreclosure. But non-HAMP modifications that lenders and servicers push have re-default rates in the first year in excess of 35%. Some of the reasons for these higher default rates for non-HAMP modifications include the fact that there is no requirement that payments be affordable, lenders may require large upfront payments and many homeowners actually lose equity in their homes through non-HAMP modifications. For example, the report cited Chases' internal modification program that extends the term of the loan before doing anything else, leading to tens of thousands of additional dollars in increased interest. The report also found that, in contrast to popular belief, mortgage servicers have significant financial incentives to not approve modifications. Servicers in particular receive a lot of money from foreclosure fees and have little incentive to make modifications for homeowners. 

HAMP is set to expire at the end of this year but since most lenders and servicers push homeowners into non-HAMP modifications anyway, its expiration may not be widely noticed. More importantly, homeowners need to consider all alternatives to the mortgage modifications being offered by their lender or servicer. For example, a Chapter 13 bankruptcy that cures a mortgage default, possibly strips off a second mortgage and preserves existing equity might be far more beneficial. Before agreeing to any mortgage modification contact us at Nancy L. Thompson Law Office, P.C.  

How Does A "Chapter 20" Bankruptcy Work?

Most people are familiar with Chapters 7, 11, 12 and 13 of bankruptcy. Chapter 12 is for family farmers. Chapter 11 is often used by large corporations. Chapters 7 and 13 are used for consumers. But what's a "Chapter 20?" You won't actually find mention of Chapter 20 anywhere in the bankruptcy code but it's the commonly used name for a Chapter 13 following a Chapter 7. But why would anyone file two bankruptcies, one right after the other? Here are two examples of how a Chapter 20 might work.

A debtor who qualifies for a Chapter 7 but has significant nondischargeable debt, like taxes, back child support or student loans, could choose to file either a Chapter 7 or 13. If the debtor files just a Chapter 7 he or she will still leave bankruptcy with a lot of debt. If the debtor files just a Chapter 13 some or all of the nondischargeable debt will be paid through the Chapter 13 plan, but some of the dischargeable debt might be also, perhaps reducing how much money goes to the nondischargeable debt. A better approach might be to file the Chapter 7 first so all the debt that can be discharged will be eliminated. After the discharge, file a Chapter 13 to pay only the debt that couldn't be discharged in the Chapter 7. The Chapter 13 then focuses all the debtor's resources on paying the debt that needs paid. 

Another way Chapter 20 can be used is to file a Chapter 7 to discharge all unsecured debt, followed by a Chapter 13 to strip off a second mortgage or to cram down a motor vehicle or other secured property, neither of which can be done in a Chapter 7. This Chapter 20 then becomes a way to not only discharge all the debt that can be discharged but also to restructure secured debts.  

If you think a Chapter 20 might make sense in your situation contact us at Nancy L. Thompson Law Office, P.C..

FORECLOSURE SCAMS: BEWARE!

Scam-artists are trying to cheat Iowans caught up in the nationwide foreclosure crisis. Mortgage foreclosure "rescue" schemes ask you to pay thousands of dollars up-front for so-called assistance or "rescue" from foreclosure -- but they just take your money and do little or nothing to help. The scam puts you in a deeper financial hole, does nothing to save your home and diverts you from getting real help. The Iowa Attorney General's Office has received scores of complaints from families conned into paying thousands of dollars to companies that promised to help them obtain a loan modification and avoid foreclosure. But then the con-artists did little or nothing to help. The Iowa Attorney General offers these warning signs of foreclosure "rescue" scams:

• Beware of Internet ads promising loan modifications.
• Be wary of solicitations that come by phone, mail, e-mail, or even to your door. Information about people facing foreclosure is included in public court records.
• Watch out for solicitations from out-of-state law firms. Most are foreclosure rescue scams in disguise.
• Beware if someone claims to have a "special relationship" with your lender or "servicer" (they don't). Beware if they tell you not to talk to your lender or servicer directly because that's just what you should be doing.
• Beware if they ask for payment "up-front." It's illegal in Iowa to charge any fee until all services under the contract are provided.     

Don't delay. If you are facing difficulty making payments, or facing the threat of foreclosure, take steps now to save your home but don't fall for "mortgage rescue" loan modification schemes that will only make your situation worse! The earlier you get true assistance the more likely you can save your home. Chapter 13 bankruptcy is often the best method of saving a home and discharging other debt at the same time. It's also possible that a Chapter 13 could be used to eliminate second or third mortgages that are wholly unsecured. The important point is to seek help long before a sheriff's sale is scheduled. In addition, victims of foreclosure scams may have a right to get their money back plus damages. Contact us at Nancy L. Thompson Law Office, P.C. to discuss your situation as soon as you see a foreclosure problem ahead.