Mortgage Modification

Mortgage modification is a good solution for many people, if they can get it and in the right situation. When people come in to discuss bankruptcy, I am happy to compare it to modification and discuss pros and cons with the different options.

Many people think that all their debt problems would be solved, if only the mortgage company would work with them and modify their mortgage. When I run numbers for what a great modification deal would be, they are often shocked to learn they still can't make the payments even if they could get the modification.

Does that mean they should not seek modification? No! I encourage clients to explore multiple options, but they should do so with their eyes open and the education and knowlege to know they are comparing options that they understand correctly.

It is important to know that bankruptcy, especially Chapter 13, has strong and valuable powers which may be better than modification of a mortgage, or can add teeth to a modification by helping a client balance their budget so they can afford to pay the mortgage payments.

Both Chapter 7 and 13 may be able to reduce other debts to free up money to pay for your home. Without the credit cards or medical bills sucking up cash flow, families are better able to pay their mortgage payments. Modifying that can make that even easier - with the right modification.

Bankruptcy may even be able to reduce what you owe on your mortage, in limited circumstances, such as removing a 2nd mortgage, home equity line or judgments with liens on the home. This depends on the amount of equity in the house and will depend on each particular situation.

Bankruptcy can help you catch up your payments over time in a more affordable catch up plan, if you are behind on mortgage payments...and also reduce / eliminate general debts so you can take care of what is really important.

Unfortunately, it is difficult to get modificaitons for a number of reasons, starting with people not being able to find the right person to talk to who can actually do something and make a decision.

I tell people to come in for a consultation about bankruptcy even if they are looking into modification of a mortgage. It is better to know what your options are early on and find another way than it is to wait until your problems get so bad that they are unsolvable even in bankruptcy.

I hear horror stories from clients about how many times they submitted documents to the mortgage company, only to be told they were lost, not received, etc.

Others say they paid reduced payments (or no payments) because the mortgage company told them to do that, and after months of doing exactly as told they are turned down and informed they need to catch up all the reduced payments!

Not only do they owe a hopeless amount of money to catch up, but during that time period, they were "working with" the mortgage company they didn't save up money in case the modification didn't work. Money that could have / should have gone to protect the family home might have been used for other debts and credit cards - that would easily have been written off in bankruptcy.

Remember that the creditors and mortgage company are not always your friends. They are in the business to make money. They are not lawyers or allowed/qualified to give legal advice, and they do not put your interests above theirs. You need an impartial explanation of your options, and someone who will look at your case to see what is best for you. A good lawyer will always do that.