Loan Modification Process in Bankruptcy
Here’s how it works:
File for Bankruptcy
1. A client files for protection under the US Bankruptcy Code. Subsequently, the filing triggers protection of all assets. Further, it allows the debtor to address and possibly eliminate other debts. As such, the debtor can now allocate all available disposable income toward retaining residential real estate.
341 Meeting of Creditors
2. Within 30 days of the 341 Meeting of Creditors, our office would file a Motion with the Court to enroll into the Loss Mitigation Program. The mortgage modification is essentially under the bankruptcy umbrella. Accordingly, your assets and financial interests are protected while the modification is sought under the Court’s supervision.
Seek Program Approval
3. After the loss mitigation application has been approved, the court signs an Order with rigid guidelines for the borrower and the lender. As a result, your mortgage company must operate in good faith. During this time, they will examine the current status of your mortgage and your mortgage modification packet. Deadlines are clear for the lender and the borrower. These rules and directives make the mortgage modification process transparent for the borrower.
Clear & Consistent Communication
4. ALL correspondence goes through an electronic “portal” which the Court can monitor to ensure all parties are acting in good faith. The portal streamlines the process, reduces costs, and saves time for all parties.
The rules indicate that the loss mitigation period should be usually complete within sixty (60) days.The borrower or lender can seek additional time, if necessary. The deadlines and timing are crystal clear. Borrowers and lenders are highly discouraged from “dragging their feet” as there could be serious consequences.
Each mortgage situation is quite unique. Results are not guaranteed and vary based upon each individual situation. We have seen a variety of outcomes. Past clients have been approved for:
◦ A reduced interest rate for a short period, or for the life of the loan;
◦ Mortgage arrears moved to the end of the loan,
◦ Mortgage arrears occasionally reduced or even eliminated;
“Success” in the Loss Mitigation Program is a relative term. In other words, the result of the program could be the realization that the homeowner simply cannot afford the property under any reasonable circumstances.
When a homeowner enters the Loss Mitigation Program, he or she should expect a clear, expedited decision from the lender so they can move on with their life one way or the other. Nothing is more frustrating than being in mortgage “modification limbo” for months, if not years. The Loss Mitigation Program creates a level playing field for the homeowner, where you can make a realistic decision on residence affordability.
If you are interested in learning more about mortgage modification and the Loss Mitigation Program, contact us for a free consultation. A licensed Pennsylvania attorney will sit down with you to review your situation and determine whether bankruptcy and potentially the Loss Mitigation Program is an appropriate solution.
We have offices conveniently located in Erie, Meadville, Franklin, Mercer, Cranberry and Warren.