Many of my clients have successfully received loan modifications. However, I’ve seen an increasing number of people default on their loan modifications. When this happens, it is difficult and often impossible to obtain another loan modification, and this situation often leads to foreclosure.
The Federal Government’s Making Home Affordable Program (HAMP), will be offering loan modifications to qualified borrowers through participating servicers through December 31, 2013. A default under the HAMP program is defined as a three (3) month or more delinquency. Under HAMP guidelines, absent a change in circumstances, a borrower may generally only receive one modification for their principal residence.
Once a re-default occurs (a default on modified loan payments), HAMP Guidelines require participating servicers to consider the homeowner for other home-retention loss mitigation options, such as refinance, forbearance or other in-house modifications that the servicer may offer. They must also consider the homeowner for options that ultimately lead to the loss of the home outside of foreclosure, such as a short-sale or deed-in-lieu of foreclosure.
If you have defaulted on your loan modification, and are not currently in a Chapter 13 bankruptcy, consider a Chapter 13 Bankruptcy filing. This will allow you to retain your home, make your mortgage payments based on the modified mortgage payment, and cure the default over a five-year plan of reorganization. You can also use Chapter 13 bankruptcy to discharge (or eliminate) unsecured debts which may have contributed to the loan modification default. Examples of unsecured debt include hospital bills, pay-day loans, credit cards, personal loans, repossession deficiencies, and certain old taxes.
If your mortgage goes into default for any reason, and the mortgage company stops accepting your payments, DO NOT SPEND THAT MONEY! Instead, put those mortgage payments in a savings account, instead of spending the money, or instead of using the money to catch up on other bills. This will make it easier for you to save your home from foreclosure down the road.