Chapter 13 Scam Alert

Recently, there have been reports of Chapter 13 debtors being called by someone claiming to be the trustee. The person directs them to mail their payments to a different address. All Chapter 13 debtors should keep in mind that the trustee will never contact them by phone. All trustee contact will be by mail or through their attorney. Although payment mailing addresses have changed in the past, it is very rare and debtors should verify any notices of a new payment mailing address with their attorney.

Surrendering Property in Bankruptcy

Many people who file bankruptcy have property with a lien on it, such as a mortgage or car finance loan.  If they don’t pay the

secured loan, the property can be repossessed or foreclosed.  Bankruptcy provides the opportunity for people to give up property with a lien so that they won’t have to make the payments any longer.  In the bankruptcy schedules, they tell they court and creditors whether or not they want to keep the secured property.

Many people initially believe that they no longer own property if they decide to surrender the property in a bankruptcy.  However, even moving out of a home after expressing a desire to surrender it in a bankruptcy doesn’t mean that the home is actually surrendered.  That’s because the property isn’t automatically transferred to the mortgage company without further action being taken. 

What must be done?  Many mortgage companies will still go through the foreclosure process in order to reclaim the home after a bankruptcy is over or during a bankruptcy if they get permission from the court.  However, debtors do have the option to sign a deed transferring the property to the mortgage company.  This is called a deed in lieu of foreclosure.  This is the better option for debtors who have already moved out of the own so that they will no longer be responsible for maintaining the property.

Successful Mortgage Modification

Many of my clients have become overwhelmed with high mortgage payments.  Some of their payments increased due to an adjustable interest rate while a reduction in income made maintaining mortgage payments difficult for other clients.  The good news is that some of my clients have been able to successfully reduce their mortgage payment through a loan modification.  The bad news is that the process is often painstakenly slow and filled with pitfalls.

Getting approved for a loan modification isn’t always easy, but there are some things that can be done to increase the odds.  Mortgage companies typically request a hardship letter and financial information in order to evaluate someone for a mortgage modification.  It’s often helpful to have an experienced attorney or non-profit housing counselor review the application before it’s submitted.  I often find that most of my clients do not draft a compelling hardship letter or properly complete the financial statements.  These are things that can make or break a modification application.

It’s also important to make sure that all of the requested financial documents are promptly submitted.  An incomplete application will delay the process even further and may result in a denial.  Unfortunately, some mortgage companies seem to have a habit of losing applications or supporting documents so it’s important to always keep a copy of everything and to be prepared to quickly resubmit information, if necessary.  It’s also crucial to keep track of when information was submitted and to whom it was sent.  Keep fax confirmations and get delivery confirmation when mailing documents.

Regularly following up with the mortgage company after submitting the application and being persistant is important.  One of my clients was quickly approved for a loan modification after sending a hardship letter directly to the CEO of the mortgage company.  Sometimes, it’s possible to encourage a modification if there are problems with the loan such as Truth in Lending Act violations.  A creditor might modify the loan in order to avoid litigation.

It’s important to remember that banks offer more than one type of loan modification.  A denial for one type of loan modification doesn’t mean that it’s not possible to be approved for another type.  Also, it’s important to remember that being in a bankruptcy does not mean that it’s impossible to get a loan modification.  Many Chapter 7 and Chapter 13 bankruptcy clients are approved for loan modifications.

Related Articles:

Are Loan Modifications Causing Foreclosures? The Huffington Post, August 20, 2010

Banks wouldn’t do things that were sleazy and illegal, would they? Chicago’s Real Law Blog, August 2, 2010 Redd & Rao, PLC is a law firm that helps its clients obtain mortgage modifications by editing hardship letters and preparing financial information for the application. For assistance with a mortgage modification application, call Redd & Rao, PLC at 248-436-4009.