The Intersection of Bankruptcy and Insurance Modifications Aka Loss Mitigation

Is your home in foreclosure? Have you been working with a mortgage company for months trying to get a insurance modification that could solve the problem? Does the mortgage company seem to be slowing down and asking you for the same documents over and over and yet you seem no closer to actually achieving anything? Now apparently there was a notice of the sale of the guardian / sheriff. You panic. There is an option that will save your home and enable you to continue working for a insurance modification. This option is Chapter 13 bankruptcy. Chapter 13 will stop the sale now and give you a payment plan that if completed will put you where you should be with your mortgage (your mortgage will become effective). A Chapter 13 filing doesn’t mean insurance modifications aren’t possible, but if you’ve already started, you should probably start over. But this time there will be no danger of losing your home. On the other hand, if you are giving up a home, there is still an option that you must pursue during your bankruptcy.

After the lawsuit is filed and the sale is halted, you can restart the insurance modification process by requesting a loss mitigation package from your lender or service provider. When you do this, they usually send a “waterfall” packet. This is the application that will check eligibility for HAMP insurance modification, internal modification, eligibility for a short sale, eligibility for a deed in lieu of a mortgage, and possibly eligibility for a short bonus. This post will explore all those options and additional insurance modification options other than HAMP.

After you receive your loss mitigation package, it’s important to make sure you have all the required paperwork together before sending it to the mortgage company or provider. They will generally require you to have two to three month bank statements, a signed and dated Dodd-Frank Certificate, copies of the most recent payment slips for two payment periods of 3 months or longer, Form 4506-T signed and dated with your phone number and correctly filled in, and copies of the two-year taxes The last two, hardship letter. A number of these are self-explanatory, and some are perhaps unfamiliar. Dodd-Frank’s certificate just needs to be signed and dated, and there’s no big deal. Form 4506-T should ideally be filled out or else the loss relief application process will be delayed for months. You really need to check with your attorney to make sure you’re filing it correctly. In general, you need to fill in the top completely, select the type of records you want to send to the mortgage company, you need to list the years you want them to send, generally 3 years and they generally want the date format to be 12/31/2012, 12/31/ 2013, 12/31/2014 for example. You then need to sign and date it and put your phone number next to the signature line. The hardship letter should explain why you were late on your mortgage, and when and why the hardship ended or ended so that you could make some future payments.

Part of the application process also requires you to fill in your household income and expenses. A common mistake people make is under-reporting their income/over-reporting their expenses. Keep in mind that part of the process, if you are seeking a insurance modification, is that the modification review must go through an underwriting. This means that they will check to see if you will be able to afford the new payment they can offer. If you cannot prove that you can repay, you will not be offered a insurance modification.

The different types of insurance modifications a bank can or will offer will depend on whether they have offered you a insurance modification in the past. HAMP stands for Affordable Home Modification Program. It’s a program created in the wake of the mortgage crisis. Generally, you only receive one HAMP insurance modification offer per insurance. This is not a hard and fast rule, however, and I have seen HAMP modifications offered more than once per insurance. HAMP adjustments may lower the principal balance, they may lower the interest rate, they may repay the insurance over a longer period of time (extend your insurance), or they may do a number of these things to help you get a lower paying insurance. Offers that include a major discount will usually have certain criteria that you must meet to ensure that the underlying principle is truly forgiven. If you fail to meet these criteria, the disgraced principal will return. In general, you will need to ensure that the insurance is in good standing on the first, second and third anniversaries of the actual date of the trial period. Generally, the amount by which the capital is reduced will not be treated as taxable income. Talk to a tax attorney or accountant for more information about this. Another type of insurance modification that your mortgage lender may offer is an internal modification. For an onshore insurance, lenders do not comply with HAMP requirements. They can also file it even if they decide you do not qualify for HAMP. The results may not be as good but they should still be better than what you currently have. Unfortunately, you may find that the mod view is not to your liking. Maybe it doesn’t lower the interest rate that much, or maybe it adds 10 years to your insurance and you don’t find it palatable. As long as you continue in your Chapter 13 bankruptcy, you will finish your original insurance as is on the original terms and on time according to the original payment schedule. (There are a few small caveats to ask your attorney about.)

Another option if the modification does not work is to request a short bonus. Essentially, you are asking the lender/provider to settle the remaining balance for something less than owed. I’ve seen short gains between 10% and 33% so there are some amazing options if your lender decides you qualify. You will need to speak to your tax attorney/accountant to find out if you will have to pay income tax on the debt that is forgiven.

Short sale, replacement bond – what if you decide you don’t really want the property anymore? In this case, you have two options. Simply giving up property in bankruptcy is not enough. If you simply forego the property in bankruptcy and the mortgage creditor still sits on its rights and does not move to complete the foreclosure process, you will be stuck with liability on the property if anyone is injured or for housing law violations. To avoid this, you can try to do a short sale. Shorting is likely to be available where you are underwater at home. If there is only one lien on the property, you are more likely to short sale. The more franchises, the more convinced the parties are of the offer to sell. The same goes for the verb rather than the . The substitution deed, which is short for foreclosure substitution deed is where you sign the property to the mortgage creditor in exchange for no foreclosure on the property. This can save the banks a lot of money and has the benefit of you getting rid of any liability from continuing home ownership.

If this sounds like you, just know that there is help out there. Contact a local bankruptcy attorney with experience in this field to help you.

good luck ,