Loan Modifications

While the rate of mortgage defaults in Southern California is high and many people attempt to negotiate a loan modification or workout to prevent a foreclosure, The Los Angeles Bankruptcy Firm helps people to stay in their homes through provisions in the bankruptcy code which allow homeowners to put a stop to the foreclosure process.

If the loss of your job or a serious illness or injury has caused your debt load to spiral out of control, chances are you are having trouble making your home mortgage payments as well.  If your home is heading for foreclosure you may be able to delay or prevent the foreclosure through a Chapter 7 or Chapter 13 bankruptcy.  Before you reach that stage, however, you may be able to secure a loan modification that puts your mortgage payments within reach.

How do Loan Modifications Work?

Obtaining a loan modification means negotiating a workout with the lender when your loan is in arrears.  If a bank forecloses on your home, they are stuck with a piece of property they must sell at a loss.  In most cases, banks would rather keep you in your home making monthly payments.  The federal government has also offered incentives to lenders to modify loans in lieu of foreclosure.

Unfortunately, when attempting a loan modification, the lender controls the process and dictates the terms. Banks are reluctant to negotiate loan modifications and workouts with consumers who have a high ratio of debt compared to income. They feel that people with high debt-to-income ratios (DTI) will not be able to stick to a modified loan, because they have so much other debt to contend with. Sometimes a lender agrees to a temporary plan, but then later denies the modification. Permanent modifications are few and far between. Many people who have paid thousands of dollars to companies offering to get them a loan modification are now finding that out.

The Right Solution at the Right Time

Both Chapter 7 and Chapter 13 invoke an automatic stay which stops foreclosure proceedings, requiring the lender to obtain a relief from the stay in order to proceed with the foreclosure. In addition, Chapter 13 allows the homeowner to catch up past payments and end the foreclosure altogether. This is done through the bankruptcy court and does not require the homeowner to try to negotiate with an unwilling lender. Also, if the home is subject to a second or third mortgage but the value of the home is less than what is owed on the first mortgage, it may be possible to strip away these junior liens, leaving only the primary mortgage.

If you have missed mortgage payments and fear the bank is preparing to foreclose, contact The Los Angeles Bankruptcy Firm to find out how we can help you keep your home.