The perils of Chapter 7 bankruptcy and loan modifications
The Great Recession that wreaked financial havoc on so many families, has left deep battle scares. Some of the most complex scars surround Chapter 7 bankruptcy and home ownership. Many home owners have been ill advised on the actual repercussions of mortgage loans and discharged debt. Since the bankruptcy law reformed in 2005, exemption of independent debts during the bankruptcy process was made nearly impossible…..mortgage debt is NO exception. Though reaffirmation of the debt is an option, it is nearly impossible to achieve successfully. Many clients that come to our firm, do not realize that their mortgage debt was discharged along with their other debts. Many are misinformed by their bankruptcy attorney, since this is an area of complex conflict. Most bankruptcy attorneys realize that the mortgage debt is a nightmare to handle throughout the process, so they stay away from it. Many attorneys will say “just work something out with your lender” or “just continue to make the payments”…this is where the real nightmare for the home owner begins. First and foremost, you must understand that the debt is gone and a zero balance is due. You still have title rights to the property, which secure your right to sell it. The lender must still foreclose to remove you from title…they reserve the right to do that at any time. Through the recession and the long recovery period, many lenders were hesitant to foreclose since property values declined so rapidly. Serious money was due to lost, so many lenders opted to keep people in their homes. Many lenders sent collection notices on payments due…some are still playing this game. They want you to make payments on “loose end” agreements. Offers that contain ambiguous, deceptive terms and high balloon payments run rampant. Most agreements put clients in a worse position financially than prior bankruptcy and ruin any chance of a pure recovery. Lenders tend to trap clients in this position because it enhances the ability to sell the debt at a very high profit margin. You must remember that the trade value on distressed mortgage debt is worth a lot more than servicing the debt itself. Many people find themselves making payments for years into a subsequent black hole, since they are deceived and sold on a “handshake” deal by their lender. Though primary banks like B of A and Wells Fargo are guilty of the described actions, the problem has spiraled out of control in the no bank service sector. Firms such as Ocwen and Nation Star have a long list complaints against them and have been sued many times over. Though achieving a real loan modification is the goal of many home owners post-bankruptcy, the recording of the new note and agreement is HIGHLY important. If the loan modification is not recorded, it is not valid. Regardless of what any attorney, banker, counselor or your Uncle Jerry may advise…the new loan modification MUST be recorded to be valid. Otherwise you run the risk of the lender swooping in and foreclosing at any time…regardless if payments are mad or not on the alleged modification deal….it could be 20 days from now or 20 years from now. With real estate values rising rapidly, many people have been trapped in modification deals that are worthless…since the motive of the lender is to foreclose. As you can see, this is a very complex issue that should be handled solo. We have handled hundreds of such cases successfully and are here to help – 877.777.2217.