I get contacted almost every week by people who were attempting to do a mortgage modification (also known as loan modification) through their mortgage company, but ended up losing their house to foreclosure.
Mortgage Modification May Seem Like a Good Option
It’s a similar situation in every case: the homeowner is behind on his or her mortgage payments, and the mortgage company threatens or even starts foreclosure proceedings. In an effort to save the house, the homeowner contacts the mortgage company, and is told that he or she may qualify for a mortgage modification, but that she needs to complete an application, provide financial information, and then wait for this information to be reviewed by the mortgage company.
The mortgage company rep will even tell the homeowner that the foreclosure proceedings will stop while the mortgage modification application is being reviewed. Several months later, the homeowner will be informed that the modification was not approved. Shortly thereafter, sometimes as soon as the next day, the house is foreclosed upon (the actual procedure used in almost all cases in Arizona is called a “trustee’s sale”). And once the trustee’s sale takes place, nothing can be done, as a general matter, to reverse it and to allow the homeowner to keep the house.
So, can you try to do a mortgage modification if you are behind on your mortgage payments or facing foreclosure? The answer is yes, but there are several things you need to keep in mind.
First, and most importantly, remember that whatever you are told over the phone by the representatives of the mortgage company means nothing unless you get it in writing. Even if you are told that your mortgage modification has been approved, or is about to be approved, don’t believe it until you see it in writing. Make sure to request verification in writing for any such statements made by the mortgage company’s representatives. If they refuse to provide the verification, the safest approach is to assume that whatever you were told is false.
Second, you should assume that any foreclosure that has been previously scheduled will take place. This is why it is very important to keep track of the foreclosure date. You can and should contact the trustee (the individual or company handling the foreclosure) periodically to check on the status of the foreclosure. They will usually give you much more accurate information than the mortgage company’s customer service department, because they are the ones who will hold the foreclosure sale if it takes place.
Third, if you want to assure that you can keep your house, you must be proactive and plan ahead. If you are waiting on a mortgage modification while a foreclosure is pending, and the foreclosure sale is not cancelled or postponed in writing, the primary way to assure that the foreclosure sale does not take place is through bankruptcy. However, if you wait until the day before the foreclosure to contact an attorney, it may be too late—you may not find an attorney able to do a last-minute bankruptcy filing; you may not have time to complete your pre-bankruptcy requirements, like the credit counseling course; or you may not be able to come up with the costs and fees that need to be paid in order to file for bankruptcy.
Because of this, if you are facing a foreclosure, it is best to consult an attorney well in advance (at least two months before the scheduled foreclosure date). That way, you will know what your options are and what you will need to do if the mortgage modification doesn’t go through before the foreclosure. If you mortgage later is modified, then great. But if it isn’t, then you will know exactly what steps to take in order to prevent the foreclosure.
If you are renting rather than buying, you may be interested in this article: How To Use Bankruptcy To Stop An Eviction.