What Are The Alternatives If Loan Modification Does Not Work For Someone?
What Happens If Someone Defaults On A Loan Modification? Is It Like Essentially Having A New Loan?
When you do a loan modification, they actually record a new deed of trust in the land records with the terms of the new loan modification. So, essentially if you fell behind in a loan modification, it’s just like falling behind on the original mortgage except the payments are lower and you’re not falling behind as fast as you were when the payments were higher.
The good news is the attorney can still file Chapter 13. Law office of Attorney James Logan has filed quite a few Chapter 13 for people who had modified loans. Because the payments are lower, a lot of times, the Chapter 13 will work out. You can always file a Chapter 13 after getting a loan modification if you want to try to hold on to your house. In some cases, people get second loan modifications and again, if their income situation is changed for the better, they may be able to get another loan modification from their lender.
What Are Some Of The Other Alternatives To Foreclosures?
Once you start to fall behind on your mortgage, your first option is to call your lender and see if you can work out either some kind of forbearance. If it’s a temporary collection on your income or you’re just out of work for 6 months but now you’re back to work, and the forbearance means they’ll work out some program with you to catch you up on the 2 or 3 months that you missed. Attorney James Logan can do a reinstatement if you have funds available.
Sometimes, people get a tax refund that’s allowing you to catch up the mortgage. But what you don’t want to do is pull out money from your 401(k) to reinstate your loan, that’s a very bad idea because you’re paying the taxes and penalties on the withdrawal for the 401(k). And if you ultimately end up losing the house, you wasted all that money. So, it is strongly advised never to pull out money from a 401(k) or IRA to catch up loan or catch up a mortgage.
If you have some other source of funds that you can use to reinstate the loan, that may be an option. In Maryland, you can apply for mediation at a certain point during the foreclosure process and the mediation is where you can actually sit down with the lender and a mediator was appointed by the court and talk about options to save your home. Sometimes, that’s successful.
Your ultimate option is to file a bankruptcy. You need to file a Chapter 13 where the attorney can set up a payment plan to catch you up on the back payments on the mortgage or you can file a Chapter 7 and just basically buy yourself a few months in the house and wipe out all your liability on the house and walk away from it. Sometimes, people just realize that they are never going to be able to hold on to the house and they start to buy time and walk away.
Why Bankruptcy Would Be A Better Option?
Bankruptcy may be a better option for loan modification if you’re not too far behind in your mortgage and you have other debts that can be dealt with in a bankruptcy. So, those are probably the two situations where it makes more sense to file a bankruptcy. Unfortunately, by the time many people come to see a lawyer, they’re two, three, four years behind in the mortgage which they can’t afford just the regular payment.
If they file a Chapter 13, they’re looking at the regular payment plus another payment on top of that. So, if you can’t afford the regular payment, how are you going to afford the regular payment plus more on top? But if you’re only a few months behind, which is becoming more common as we emerged from the recession, we’re starting to get past all the crazy day mortgages. Those kinds of situations make sense.
In another case, if you have a lot of debts, a lot of times, we can file a Chapter 7 and get rid of all your credit card debt and other debts that are weighing you down and you can focus on getting a loan modification to save your home.