Loan Modifications in California with a Bankruptcy Attorneys

The Broken Promise of Loan Modifications
When it was introduced in February 2009, the Obama Administration announced that the goal of the Home Affordable Modification Program (HAMP) was to provide loan modifications to between 4 and 5 million struggling homeowners. The program was then launched surrounded by proclamations that help was finally on way for financially strapped homeowners and that their foreclosure worries were a thing of the past. HAMP then struggled out of the gate and the harsh reality of the program’s shortcomings set in shortly after. Talk to our California bankruptcy attorney about the programs.

Through the month of April 2010, as The U.S. Treasury Department reported recently, nearly 300,000 people had been granted permanent mortgage loan modifications under the guidelines of the Home Affordable Modification Program. With fourteen months behind it, HAMP had provided only 6% of their targeted homeowners with loan modifications. Bogged down by shortcomings and short-sightedness, HAMP has failed horribly for 94% of the people it was intended to help. Reasons for this failure are many and include:

• No provisions for dealing with negative equity – Principle reductions were suggested in the program but only if lenders volunteered them.
• There are no mandatory requirements for lenders to grant loan modifications.
• Homeowners were urged to do the loan modifications on their own. Many simply didn’t have the time or knowledge to get through the entire process.
• The incentives provided by the government to lenders for executing loan modifications were insignificant compared to the funds they received in the bank bailout.
• The maximum size of loan which can be modified is $729,750, a limitation that excludes many homes along both coasts and many metropolitan areas.
• The program covers only the first mortgage, not seconds or home equity lines of credit (HELOCS).

While one government program has failed homeowners, there is another government sanctioned form of debt relief with extremely high rates of success and the capacity to reduce interest rates and principle balances owed on a home. While this form of debt relief is probably quite familiar to most people, the benefits which can be derived from it probably aren’t. The form of debt relief which can deliver on many of the promises made by HAMP, and which is also sanctioned by the government is bankruptcy.

How Bankruptcy Works
Bankruptcy is a form of debt relief available to anyone struggling to make payments on their secured and unsecured debt. There are two forms of bankruptcy available for individuals; Chapter 7 bankruptcy and Chapter 13 bankruptcy. The determination of which type of bankruptcy an individual can file for is largely dependent on the amount of debt, equity, and income that is reported on a “means test”, which a filer completes prior to initiating the bankruptcy filing. A California bankruptcy attorney can assist you today. Generally speaking, filers with lower incomes income and little equity end up filing for Chapter 7 bankruptcy while higher income filers with larger amounts of equity usually file for protection under a Chapter 13 filing.

Chapter 7 Bankruptcy
A Chapter 7 bankruptcy’s biggest benefit is that it legally discharges almost all debt, whether it is secured by an asset like a home or automobile, or unsecured like a credit card. A Chapter 7 bankruptcy also allows the filer to keep property such as a home, vehicle, furniture and personal effects. The process takes from 4 to 6 months to complete, after which the filer’s debts are fully discharged leaving nothing owed to previous creditors.

» Click here to learn more about Chapter 7 Bankruptcy

Foreclosure
Another benefit of filing a Chapter 7 is that the filing also stops any foreclosure proceedings which are under way. One caveat, a Chapter 7 postpones a foreclosure on a house, it does not prevent it. The filing gives homeowners a chance to catch up, if possible, but if they can’t get caught up in fairly short order, the foreclosure proceedings can be re-started by the lender. Should the home eventually be lost to a foreclosure, a Chapter 7 discharges all debts attached to the property.

Chapter 13 Bankruptcy
Unlike a Chapter 7 bankruptcy, a Chapter 13 serves as a reorganization of debt where a repayment plan is established under the auspices of the court. These debt repayment plans consolidate all debt listed in the bankruptcy and then set up payments which typically stretch over 60 months.

» Click here to learn more about Chapter 13 Bankruptcy

Lien Stripping
A Chapter 13 bankruptcy allows for “Lien Stripping”, which is the process of discharging subordinated mortgages and lines of credit attached to the home under certain circumstances. The specific circumstances where lien stripping would take place is when the value of the home drops below the balance on the first mortgage, leaving the subordinated liens unsecured. In the eyes of the court, these unsecured liens are the equivalent of other unsecured debts such as credit cards and, in most cases, dismissed in total. It’s in this manner that a Chapter 13 can deliver a principle reduction and lower mortgage payments where a loan modification cannot.

Foreclosure
The filing of a Chapter 13 stops foreclosure proceedings while the debt repayment plan is established. Filers then have approximately 5 years to catch up back mortgage payments. Because these payments are part of the repayment plan, there are no interest charges attached to them.

The filing of either a Chapter 7 or a Chapter 13 bankruptcy can result in benefits which were promised by loan modifications but were never delivered. Not until recently has the government offered loan modifications with principal reductions to home owners in Option ARM loans with over 20% negative equity. This new program may help few but not many who are faced with foreclosure due to a wide variety of factors. If you have been denied for a loan modification or declined for a permanent loan modification after a trial mod from your mortgage lender call the Law Offices of Zhou & Chini. To see if your personal situation can be helped we offer a free and confidential consultation to discuss all your options attorneys. Our attorneys understand how mortgage servicer’s loss mitigation department’s foreclosure departments operate. Call the Law Offices of Zhou & Chini today toll free at (800) 972-9600.