by Jennifer Hendrickson

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Home Loan Modification and Bankruptcy

October 1, 2015:  UPDATE:  All principle attorneys at Hendrickson Law Group, PC have been qualified as mediators under the MMM program.  No other firm has as many attorneys qualified as mediators in the Northern District of California.  Our main focus is on consumers, but if you already have a qualified Chapter 13 attorney representing you and you are considering the MMM program, you can suggest to your Chapter 13 attorney that he selects an attorney from Hendrickson Law Group, PC as a mortgage modification mediator. 

August 6, 2015:  UPDATE:  All principal attorneys at Hendrickson Law Group, PC have attended the full-day Mortgage Modification Mediation (MMM) training approved by the Northern District of California Bankruptcy Court.  In addition to the experience we have with home loan modifications, we are also on the cutting edge of home loan modifications through the MMM program (see below).

Here are the requirements from the Northern District of California Bankruptcy Court:

  1. You must be an individual (not a corporation or LLC);
  2. You must be in an active Chapter 13 bankruptcy case in the Northern District of California (all divisions are included:  Oakland, San Francisco, San Jose, and Santa Rosa);
  3. Your attorney must file a Chapter 13 plan using the model plan adopted August 1, 2013 (we expect an update to this plan shortly);
  4. You must pay the following costs up front:  (a) Document Preparation Software fee (normally $79, but currently $40 through a special arrangement with the Bankruptcy Court), (b) the MMM Portal submission fee (currently $40); and one-half of the mediator's fee ($300);
  5. A determination must be made by the debtor that a mortgage modification is feasible, and the debtor has enough disposable income to fund both the Chapter 13 plan and the modified mortgage payment.

During the training, it was emphasized the MMM program is going to be successful if all parties work collaboratively to keep the debtor in their home - with an affordable mortgage.  HLG has years of experience with home loan modifications, both as the originator of the home loan modification application and coming in after the homeowner has already filed an unsuccessful loan modification application (and turning it around to make it a successful application). 

Why are loan modification applications denied or trail loan modifications unsuccessful?

bulletThe #1 reason:  The application packet is incomplete or inaccurate.  Without fail, whenever we have stepped in for an unsuccessful homeowner, the main reason they were denied is because the application packet was incomplete or inaccurate.  
bulletThe homeowner fails to qualify.  This sounds simple, but many homeowners fail to understand the program guidelines the mortgage servicers follow.  In order to qualify, your income, debt, expenses all must come together in such a way that you fall into an "approved" category for the loan servicer. 
bulletThe homeowner goes into the process with unrealistic expectations. Many modification applicants know of someone or have a friend that got a loan modification that included a principle reduction, a 40-year loan at 2% APR, deferred balances, or some combination thereof.  You cannot expect the same results because your mortgage might not be owned by the same entity.  If your loan is owned by a government agency (Sallie Mae/Freddie Mac/VA), then you cannot get a 40-year loan.  Some programs will not allow for principle reductions.  Some investors have guidelines for APR's that only allow for "market rate."  Finding out who owns the loan is the first step in determining what you are going to qualify for.  

 

July 11, 2015:  The Bankruptcy Court for the Northern District of California has approved a Mortgage Modification Mediation (MMM) program, effective August 1, 2015.  Hendrickson Law Group, PC (HLG)  has been using the Court-approved Default Mitigation Management portal for years to effectively obtain loan modifications for clients.  The U.S. Bankruptcy Court has now endorsed this system.  At the time of this writing, the MMM program is not even active.  HLG is on the cutting edge of this program in an effort to being debt-relief to our clients and keep them in their homes.

Sonoma, Napa, Mendocino and Lake County residents often call for assistance in obtaining a modification to their mortgage.  Modification of your mortgage may be possible, depending on your circumstances, and the programs offered by lending institutions change frequently.  HLG can assist you with your application for modification, including HAMP modifications.  Through the MMM program, our goal is to assemble your application in an easy-to-review format for the mediator.  We want the mediator to make a recommendation of modification.   

In the past, not all applications for modification will be accepted by your bank and this could also be a very lengthy process.  We have had clients "under review" for as little as 44 days and as long as 22 months. Under the MMM program, we anticipate our applications will be ready for review by the mediator within 30 days.  

Typically a Chapter 13 client is a good candidate for a loan modification. Hendrickson Law Group has helped people from all over the bay area obtain loan modifications, including Santa Rosa, Ukiah, Windsor, Petaluma, San Rafael, and Rohnert Park. Keep in mind that almost very few bankruptcy attorneys know much about the loan modification process. Thus, almost no bankruptcy attorney will agree to assist you in dealing with the bank to modify your mortgage.  They just do not know where to start.

Getting your application done correctly and neatly can expedite your loan modification and can make updating and resubmissions more efficient - and increase your chances of getting your loan modified.  Most importantly, you need to have realistic expectations. Principal reductions are few and far between. Lowering your payment a bit to make that monthly payment more affordable is where you should be focus your hopes so you aren't disappointed by the outcome.

Loan Modifications and Bankruptcy

Time and time again, we meet with clients who already did a bankruptcy with another attorney, thinking they would modify the mortgage later. We believe this is the wrong approach.  

First, if you did a Chapter 7 bankruptcy and hoped to cure the problems with the mortgage later, it's likely you were either unrealistic about your ability to save the home, or your attorney just did not have the knowledge and skill to assist you with all your financial problems. 

The fact is, many attorneys may see a Chapter 7 debtor in a potential client simply because of lack of experience.

HLG Attorneys see things differently - they have done foreclosure defense litigation and loan modifications, and approach a bankruptcy client with a home from that perspective. The essential question is: do you really want that house? Only you can answer that.

If the answer is yes, then we counsel our clients to consider Chapter 13 as an option. Sure, Chapter 7 is faster, but is quick and easy the only consideration here? It shouldn't be, when it comes to your home. 

Chapter 13 is one of the most useful tools in my arsenal to deal with mortgage issues. It makes sense, when you think about it. A loan modification requires steady income. So does a Chapter 13. A loan modification requires hardship. Typically that goes hand in hand with a Chapter 13. A loan modification requires prioritization of your debts. So does a Chapter 13.

So, if you are an excellent modification candidate, you are probably a good Chapter 13 candidate because you can strip off that second mortgage, pay the mortgage over credit card debt, and not only does the Bankruptcy Code like that, banks taking modification applications like that as well.

The Chapter 7 Discharge: Shield and Sword

Most regular people do not consider how powerful the Chapter 7 discharge can be. It is certainly a shield, protecting you from creditors and from continued efforts to collect money from you. However, the banks often use it as a sword. They use the Chapter 7 discharge as an excuse not to give you a modification.

Plus, if you filed a Chapter 7 because your attorney told you that you could always strip the second mortgage later in a "Chapter 20" (7 plus 13), that attorney failed to consider the quickly changing landscape of bankruptcy law. The Northern District of California has started requiring a 100% payout to the unsecured creditors in a Chapter 13 when the debtor already received a Chapter 7 discharge. So, even though I could get a motion to avoid (a motion stripping that second mortgage on your house) granted, you'd then  be required to pay it in full during the Chapter 13 plan. Usually, if my client could manage that kind of large payment, they wouldn't need to file a Chapter 13.

So, yes you can strip later, but as a practical matter, it doesn't help you. So, in that situation, the Chapter 7 acts as a sword, cutting off your ability to do something about that pesky second mortgage.

Let's face it: if all you have is a hammer, the whole world is filled with nails. Of course there are no hard and fast rules, but you should explore all your options before plunking down money with the first attorney who says "Let's file a Chapter 7." The attorney should be able to explain the pros and cons of each and every option you have. The attorney should offer more than one option.  Jennifer Hendrickson is that attorney.

You need an attorney that has multiple tools in their box to help you find the best thing for your unique situation. Don't settle for less.  Jennifer Hendrickson is a local Santa Rosa Bankruptcy Attorney - put her experience to work for you.

 

829 Sonoma Ave., Suite 8
Santa Rosa, CA  95404
(707)540-6199

Copyright 2010-2016 Hendrickson Law Group, PC. The information contained on this website is provided for informational purposes only. Therefore, any information on this website should not be construed as legal advice. You should not act or rely upon this information without seeking formal professional counsel specific to your case. Any offer to provide free consultation is not intended to create an attorney-client relationship between Jennifer Hendrickson, Attorney at Law, and you. Also, any transmission of information from this website or communication via e-mail does not constitute or create an attorney-client relationship between us and any recipients. All liability is expressly disclaimed with respect to actions taken or not taken based on any or all the contents of this website. To the extent this is considered attorney advertising, as that term is defined in the Business & Professions code, a copy of this advertisement is available for review with the responsible attorney, Jennifer Hendrickson. We may be considered a Debt Relief Agency under Bankruptcy Code section 528.