I have heard the same story about loan modifications many times. Homeowners contact me in order to file Chapter 13 bankruptcy and stop foreclosure of their home. They are behind on their mortgage payments and can’t cure the delinquency in order to prevent foreclosure. However, the reason they are behind on their mortgage payments is bad advice from lenders while applying for a loan modification.
This is how it happens. Homeowner needs to modify their mortgage because they are having difficulty making their payment. They contact their mortgage lender to discuss a loan modification and at some point during the loan modification approval process two things happen. First, the lender tells them to stop making their mortgage payments during the approval period. Second, the lender repeatedly loses the documents provided to them by the applicant. Documents are submitted to the lender over and over, but each time the lender replies that they need additional documents.
Six months to a year goes by and then one day the lender tells the applicant that their application for a loan modification is denied. Shortly afterward a letter comes in the mail notifying the homeowner that they are several months behind on their mortgage and must cure the amount within twenty days or the property will be foreclosed. That is when they come to me for help.
If you are applying for a loan modification take steps to avoid this situation. First, when the lender tells you that you don’t have to make payments while the application is being considered, ignore their advice. Continue to make payments each and every month. If the lender is insistent that you should not make payments, then take the money you would spend on your mortgage payment each month and put it in a savings account and don’t touch it. You may need it later. If you find yourself in the situation I have described above and are facing a foreclosure, contact a bankruptcy attorney immediately. Chapter 13 bankruptcy can stop foreclosure of your home and provide you with a way to cure the arrears.