How Loan Modifications Help (and Don’t Help) Stop Foreclosure
Each year, people facing foreclosure look to the banks for help. They hope with a lower interest rate and/or lower mortgage payment, they might be able to save their home. But can you prevent foreclosure with loan modification?
Here are three scenarios we see all the time at our Memphis bankruptcy firm and what they each mean if you need to stop a foreclosure.
“My Loan Modification Was Approved”
If you qualify for a loan modification right now, it can make a world of difference. With a lower mortgage payment, some people can get back on track with their bills and prevent foreclosure.
That said, a lot of people assume a loan modification solves the problem. They may think banks will forgive some non-payment issues moving forward because you’ve proven you’re trying to address the problem. But that’s not really how banks work.
What’s more, we often forget all the other debts that make it hard to pay that mortgage in the first place. And we forget to adjust for inflation or prepare for life changes like health expenses or job loss, which can make even a lower mortgage payment impossible.
So while a loan modification is great and can help a lot of people, it doesn’t promise you’re in the clear. It’s a tool you have to use properly.
“My Loan Modification Made Things Worse”
During the pandemic, loan modifications came easily. The federal government set up a mortgage modification program, which helped people apply for and receive loan modifications. Interest rates plummeted, and a lot of people got a lot of help.
There’s just one problem: with some of the modifications, the debt came back to bite people later.
Say you got your mortgage lowered by half for three years. That would make a world of difference for most families, but if it’s part of a Covid relief package, it’s likely temporary. Once those three years are over, you may be thrust back into higher payments.
You’ll also be responsible for any missed payments, and the bank will want those in full. In that situation, you may be shocked to discover you suddenly owe anything you were behind on—not at 50%, but at 100%.
“They Told Me My Loan Modification Would Go Through, But It Didn’t”
This is a very common problem right now. During the pandemic, federal relief programs helped banks approve tons of mortgage loan modifications to help people stay in their homes. But now that the relief has ended, banks are much less likely to accept your application.
While they take their time deciding on your case, you get further and further behind on payments. As you wait, you face foreclosure threats and other creditors hounding you. You put them off in the hopes your loan modification will make it easier to pay back all of your debts soon.
And then you get the bank’s decision: your loan modification fell through. Now you’ve lost time, accrued even more debt, and are back to where you started.
When You Can’t Prevent Foreclosure with Loan Modification (Stopping Foreclosure Through the Courts)
Sadly, you can’t always prevent foreclosure with loan modification. Sometimes it works, but when it doesn’t, you may need a more powerful option to keep you in your home.
That’s where we come in. Our Memphis attorneys stop foreclosure through the court system by helping you file something called Chapter 13.
Chapter 13 allows you to set up a payment plan specific to your situation. Once the court finalizes it, the banks have to accept the plan. It stops creditor harassment, foreclosure threats, and other debts from destroying your life.
If you need to stop foreclosure, and loan modifications haven’t worked, there’s hope. Our team will work with you to see if you qualify for Chapter 13, and we’ll help you every step of the way. In fact, we’ve even created a free report called The Power of Chapter 13 to help you understand the process.
Contact us today to discuss your situation. The conversation is completely free, no strings attached.
Just call 901-327-2100 or fill out the form below to get started.