What Happens If You Default On Your Payments After Loan Modification Was Granted
The federal home loan modification program was enacted by President Obama in 2008
in an attempt to help as many as four million homeowners who were at risk of losing their homes. The federal government put $75 billion into the program and offered incentives to lenders who worked with homeowners to avoid foreclosure.In the first six months of 2011, there were about 558,000 loan modifications. That's a drop from the 968,000 loan modifications in the first six months of 2010, according to federal statistics. Because of the lingering downturn in the economy, thousands have been unable to stay current in their loan modification program. A homeowner in that situation still has options and should consult with professionals, such as a loan modification attorney, to determine what steps to take next.
Let's take a look at the three options chosen most frequently: Foreclosure, short sale and bankruptcy.
Foreclosure. In most cases, after the default your loan will most likely be referred to a foreclosure attorney. Don't panic. In most states, you have at least six months and up to a year or more before your home will be sold at auction. A loan modification attorney can offer a more precise timeline. The foreclosure is the legal process in which your lender takes possession of your home, usually followed by a public sale.
Short sale. In a nutshell, there is no difference between a regular sale and a short sale, except that you are selling the home for the benefit of the lender in a short sale. The lender must agree in advance to accept only the amount that is generated by the sale - even though that amount will be ""short"" of the total amount you owe on the mortgage.
Bankruptcy. There are two bankruptcy choices for individuals in the country, and you would most probably be pursuing a Chapter 13 bankruptcy. In a Chapter 13, a debtor has the chance to save a home from loan modification foreclosure. Filing for bankruptcy stops all actions by your lender. That gives you the chance to propose a five-year repayment plan to take care of as much of the back-due mortgage payments and fees or other charges as you can afford.
The lender benefits by getting as much money owed as possible, without having to go through the complicated and costly process of foreclosing on a property. If your offer is reasonable, a bankruptcy judge may exert some pressure on your lender to accept the plan. Make sure you consult with a bankruptcy expert before choosing this option.
Which of the three options is best for you? Take some time to consult experts you trust, such as a loan modification attorney. One crucial area to consider is the potential impact on your credit standing. You'll take a beating with any of the options, but in some situations, a short sale may be the best choice if you're ultimate goal is to get a home loan again in the near future.
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