There are three ways to save your home: reinstate your mortgage loan, get a loan modification, or file for Chapter 13 bankruptcy.
Reinstate Your Mortgage Loan
The first option to save your home works best if you have the money to satisfy your home loan. For example, if you’re $50,000 behind and you have $50,000, you can write a check and reinstate the mortgage loan. If you can’t pay off what you owe, which often tends to be the case, the other way to save your home is to get a loan modification.
A Mortgage Loan Modification
Several different kinds of loans are backed by the government. If you have an FHA, Fannie Mae, or Freddie Mac mortgage loan, these loans have guidelines that the lender needs to follow in terms of evaluating you for a loan modification and whether or not they’ll give you that modification. If you have a regular private loan, the lender is not required to offer a modification or even have that as an option. Although, lenders often do offer modifications even if it’s a regular non-government bank loan.
There are a couple of things to look at in determining whether or not you’re a good candidate for a mortgage loan modification…
Lenders qualifying you for a mortgage loan modification start by learning what your monthly mortgage payment is and what percentage it is of your income. They also want your debt-to-income ratio to fall within certain parameters to show that you can make the payments. If the lender runs your financials, they can see if you are eligible.
The benefit of loan modification is that it resets your payment somewhere in the range of what your original mortgage payment was. If you’re paying $2,000 a month on your mortgage and you get a loan modification, your payment for everything brings the loan to around $1,800, somewhere near that original $2,000 amount. The problem with a loan modification is you’re not guaranteed to get one.
At Citizens Law Group, LTD, we review your financials. If your situation makes us think we can get a modification, then we take and file one. We will tell you that the odds are small if we think you do not qualify for a loan modification. While we can try, it’s not always likely to happen.
Chapter 13 Bankruptcy
Then the third way to save your home is through filing for Chapter 13 bankruptcy. This allows you to make payments on whatever you owe for missed payments. (They call that your arrearage.)
For example, say you’ve got an arrearage of $100,000. That $100,000 will get paid back through a bankruptcy plan. To do this, you make your regular mortgage payment to a bankruptcy trustee, plus you come current on the arrears over the next five years. The drawback with a Chapter 13 bankruptcy is that you’re paying more, but the one benefit is that so long as you can qualify and show that you can make the payments, you’re going to get approved, and your plans are going to get confirmed.
In addition, a Chapter 13 bankruptcy allows you to include your credit card debt, which puts the brakes on the interest associated with that debt. If you have a car that you bought more than 910 days ago and you owe more than it’s worth, you can have the car adjusted and you can have the car paid off in bankruptcy as well.
Thus, there can be additional savings on monthly expenses when you file a Chapter 13 bankruptcy. Although when considering just the mortgage aspects of it, your payments towards your mortgage are going to be higher than if you got a loan modification.
A Foreclosure Sale Date Limits Your Options
Even if you are in the process of foreclosure in Illinois, you have options – but once you have a foreclosure sale date, it’s too late. Sometimes, these sale dates are assigned quickly. For example, we had a bankruptcy that we filed for a client at eight o’clock one night, and they had a foreclosure sale date the very next morning.
The Automatic Stay
Filing bankruptcy automatically stops a foreclosure sale because of the automatic stay provision. This is a provision in the bankruptcy code that stops creditors from all debt collection. If a bank is foreclosing on your home and you file for bankruptcy, the bank can’t continue foreclosing unless they get an order from the bankruptcy court.
When you file a bankruptcy, you get an automatic stay. Though there are some limitations to the automatic stay. If you had a previous bankruptcy that was dismissed in the last year, the automatic stay is only good for 30 days. In that situation, you have to file a motion to extend the automatic stay. If you’ve had two bankruptcies that were dismissed within one year of filing, there’s no automatic stay.
The Effect Of Bankruptcy On Loan Modifications
If you submit a request for a loan modification more than 45 days before a foreclosure sale, the lender is required to give you notice of one of two things. They’re going to tell you that your submission is complete and that they are going to give you a decision in 30 days. Or, they are going to give you a list of documents that are missing within five days of submitting the request.
If you provide the complete package of the documents to the lender 38 days or more before a foreclosure sale date, your lender is required to review your loan modification request and make a decision on the merits. However, there is the 37-day rule. If you don’t submit a complete package 37 days or less from the sale date, the lender is not required to review your loan modification. They can deny it and say they don’t have enough time.
A lot of times, if you’re about 35 to 30 days away from the sale date and you have provided your lender with a complete loan modification package, they’ll look at the file. If the numbers look good, your lender will try to review them and get you a decision. But some people claim it’s a black hole because your loan modification request might be assigned to someone who doesn’t want to work the file and says, “Forget about it. We’re foreclosing.”
Asking The Judge To Reset The Sale Date
If you do have a sale date on foreclosure and you have submitted a modification request less than 37 days away from the sale date, you can go and ask the judge to reset the sale date to give the bank more time to review the loan modification. The judge might decide to set the sale date back for 60 days, and then the bank has to review it and make a decision.
One of the things to look at is which judge you are assigned. Some judges are more accommodating to homeowners and are going to stop the sale date and give the bank more time to review your loan modification application. While most judges will do this, there are one or two judges in the Chicago area who are much more difficult to convince.
For more information on Saving Your Distressed Property In Illinois, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (312) 313-1033 today.