Archive for October, 2009

Written by Jason Leibowitz, Esq.*

The difficulties that Long Island homeowners are having with loan modifications was evident last week after listening to several colleagues speak at a Suffolk County Bar Association seminar entitled, “Sustaining Real Estate Ownership.”

The fact is that it is very difficult to obtain a mortgage modification, and many mortgagees are not cooperative at all.  This was a concept echoed by the speakers.

Home loan modifications, or “loan mods,” involve changing the terms of a mortgage in order to improve the odds that the homeowner will be able to keep up with their monthly payments.  So, whether you are really in trouble or not, the idea of getting approved for a home loan payment reduction through a loan mod is almost too good to be true.

Most Mortgage Modifications Are Too Good to Be True

The idea of getting a loan mod often seems too good to be true because it usually is.  I regularly meet with new clients who unfortunately already paid $3,000 or more to a “modification company” in the hopes that their loan will be modified.  The first instruction the homeowner is often given is to fall behind on the monthly mortgage payments if they are not behind already.  This is dangerous.

What mortgage modification companies don’t tell homeowners is that there is no guarantee that their lender will even agree to a loan modification.  In addition, once the homeowner voluntarily stops paying the mortgage (often referred to as a strategic default), late fees, attorney’s fees, and other penalties attach.   Many unscrupulous mortgage modification companies also do not reveal that for those homeowners who are already in foreclosure, the foreclosure process continues while the lender is reviewing the loan mod request. 

The Likelihood of Getting a Mortgage Modification is Slim

USA Today recently published an article stating that among major lenders, mortgage modifications on government-eligible mortgages had a success rate of less than fourteen percent.  With such a low likelihood of success, it often makes little sense to put your hopes on resolving a mortgage problem with a loan modification.

Chapter 13 Bankruptcy Is Often a Feasible Alternative to a Mortgage Modification Application

Homeowners should consider a Chapter 13 payment plan option.  A Chapter 13 bankruptcy may also make monthly payments much more affordable for homeowners.  That’s because a Chapter 13 bankruptcy has the potential of reducing or eliminating principal and interest owed to credit cards, personal loans, medical debts, vehicle loans, and certain home loans. 

Many clients do not realize that they are good candidates for such a bankruptcy and that it can be provide much better results than hoping for a loan modification that may never come through.  A simple consultation with a qualified Long Island bankruptcy attorney can help the homeowner decide what options may be best.

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 Jason Leibowitz, Esq. is a full-time associate with our firm