San Francisco Bankruptcy Attorney Discusses Loan Modifications
San Francisco Bankruptcy Attorney Discusses Loan Modifications
There are many different variations of “loan modifications” being used in the market today. The most traditional loan modification is one where the lender changes the terms of the loan to accommodate the borrower. This usually occurs when the borrower is in a financial bind and has defaulted on their loan. The borrower does not have the funds to fix the situation by paying their arrears or they cannot make their current payments due to a financial hardship. The lender then modifies the loan (which is different from a refinance) to accommodate the borrower. A loan modification is discretionary and need not be approved by the banks. The modifications can include a reduction of interest rate, decrease in principal of the loan, or adding any arrears to the principal and extending the loan. Recently, President Obama released several billions of dollars to the banks to encourage them to modify certain loans.
Alternatively, many debtors have contacted “loan modification specialists” who often advertise late at night promising substantial reductions of a mortgage. Behind the lofty promises, these specialists often work in two ways. The first is a person who will basically negotiate with your lender on your behalf. Their goal is to try and get you the best loan modification possible. These “specialists” are usually people who have very good connections with the lenders and leverage their knowledge of the industry to get you to fill out the proper forms and get the best deal they can. These “specialists” need not be attorneys. The second type of “specialist” is a person who will go through your loan documents looking for errors. When a debtor borrows money for a mortgage, there is a substantial amount of paperwork involved which requires many levels of accurate and truthful disclosures. During the past 8 years, there have been several lenders who were less than experienced which resulted in non-compliant mortgages. Any mistakes present due to the need for quick mortgages give these “specialist” a bargaining chip to force the lender into a better deal on the debtor’s mortgage. Rumors are that certain mistakes can result in hundreds of thousands of dollars of reduction in home loans. These specialists usually want money upfront and the debtor should expect that money to be non-refundable regardless of the outcome. Since the money would basically be non-refundable, the debtor should be very careful as to who they select as their specialist. Luckily for the debtor, if these specialists do not succeed, bankruptcy is still an option for them.
Generally speaking loan modifications and bankruptcy are like oil and water. The two concepts do not work well together. If a debtor is in the middle of loan modification then any subsequent bankruptcy filing will put a stop to the process until the bankruptcy is finished. Also, if a debtor is in bankruptcy, the bankruptcy court must approve any loan modifications.
A loan modification and a bankruptcy can co-exist but it requires a lot of extra paperwork and many more hoops to jump through. It is better for a debtor to actually finish one before starting another. Technically speaking, if a debtor does a loan modification and then immediately files for bankruptcy, then the debtor’s transaction may fall into the presumption of abuse. The presumption of abuse is important because if the debtor pulled out money or paid down some balance then the debtor may have to return the money or reverse the transaction. However, most lenders will not cry foul unless the debtor intends to renege on the new deal.
If you have a question regarding Bankruptcy please contact us at 1-800-941-6730 or visit www.bkanswers.com and we can connect you with one of our experienced Bankruptcy Attorneys. After you have spoken with one of our bankruptcy attorneys we can schedule you a free face to face appointment in our office location nearest you. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 11 bankruptcy, a chapter 13 bankruptcy, lien stripping, cram down, stopping a foreclosure or wage garnishment, discharging debt, etc. we can help! We have bankruptcy attorneys located throughout California who can assist your needs.
