Loss Mitigation ?

[imtryingtho]

Okay, so we are really confused right now. We filed for Ch 13 on November 10th. Our house is exempt and appraised at less than what we owe. We owe back payments of $22,000 or so due to covid forbearance. The way it was presented to us is the trustee pays our house and car first and then all our other debts. And that the trustee would catch the mortgage up but payment for that $22k would be worked into our plan.

So we’ve been getting letters from a mortgage company that isn't our mortgage company and it seems like the mortgage was transferred to this new company. We’ve received their proof of debt claim in the mail and everything.

Well then yesterday we receive a packet forwarded from our attorney and it’s a loss mitigation packet he received a month ago from our original mortgage company. He said he recommends applying for the loss mitigation but that he doesn’t represent us in the loss mitigation.

I seriously have no clue about loss mitigation. I’ve been googling it and it seems weird that we would have to be doing this ourselves when we are paying an attorney already for the Chapter 13. We already have a trustee assigned and I had assumed she was in charge of our mortgage going forward. I’m really frustrated our attorney forwarded this letter only now because I don’t even know if it still applies if our mortgage was transferred.

Anyone have experience with this? We’re in Texas. My plan is to call the original mortgage company and try to figure out what is going on.

[justbroke]

I wish you were in the Florida Middle district, since we have a mortgage modification mediation built in to Chapter 13s where the debtor is behind in payments or can't afford the mortgage. It was meant to provide a fast way to obtain a modification where the lender is required to attend the mediation with someone that can make the decision on the spot. I didn't use that process, but it seems to be doing the job where the debtor can actually afford the home. The target in the mediation is to get the debtor to less than 31% of their gross income.

The reason why some attorneys don't want to involve themselves in modifications is that it would likely take a lot of their time and this "help" is not included in their base fee. In the Florida example, the fee is already set and it is $250 for debtor and $250 for the lender. But that's a superstreamlined process.

The Chapter 13 Trustee is not in charge of your mortgage. The Trustee's base job is that they are primarily the representative of the creditors. The Trustee is in charge of making sure that you pay what you are required to pay by law (and your plan). The Trustee's other job is to distribute checks to the creditors. The Trustee is never your friend, even though they usually try to make sure you're successful. That's because their success (commission) is tied to your success (continuing to pay).

If you wanted your attorney to negotiate with the bank on loss mitigation (a modification), then the attorney would likely want upwards of $250/hour to represent you. If you want to pursue modification, you should contact the new servicer. They likely have a similar program for modifications.

[imtryingtho]

I wish you were in the Florida Middle district, since we have a mortgage modification mediation built in to Chapter 13s where the debtor is behind in payments or can't afford the mortgage. It was meant to provide a fast way to obtain a modification where the lender is required to attend the mediation with someone that can make the decision on the spot. I didn't use that process, but it seems to be doing the job where the debtor can actually afford the home. The target in the mediation is to get the debtor to less than 31% of their gross income.

The reason why some attorneys don't want to involve themselves in modifications is that it would likely take a lot of their time and this "help" is not included in their base fee. In the Florida example, the fee is already set and it is $250 for debtor and $250 for the lender. But that's a superstreamlined process.

The Chapter 13 Trustee is not in charge of your mortgage. The Trustee's base job is that they are primarily the representative of the creditors. The Trustee is in charge of making sure that you pay what you are required to pay by law (and your plan). The Trustee's other job is to distribute checks to the creditors. The Trustee is never your friend, even though they usually try to make sure you're successful. That's because their success (commission) is tied to your success (continuing to pay).

If you wanted your attorney to negotiate with the bank on loss mitigation (a modification), then the attorney would likely want upwards of $250/hour to represent you. If you want to pursue modification, you should contact the new servicer. They likely have a similar program for modifications.

okay thanks for your feedback! I guess where I’m confused is whether we HAVE to do this whole loss mitigation step or if it’s just an additional option for us so that we can lower payments permanently? My husband has legal coverage through work so it wouldn’t necessarily cost us much to have our attorney help with the modification.

[justbroke]

It is always optional. The reason for it is to reduce your base housing cost below 31%. Most credit models consider a housing (mortgage) cost of more than 31% of your salary/income as a possible flag that the housing costs are unaffordable.

Modifications can be extremely helpful. You could get the interest rate lowered (in our district we go as low as 1% and then graduate it to 2% then 3% over the life of the Chapter 13), as well as get a principal reduction. The principal reduction could be good if you are underwater and the home doesn't have the value to support the loan. Additionally, the loan could be reammortized for 30 years or 40 years. In the end, it could be helpful.

[imtryingtho]

It is always optional. The reason for it is to reduce your base housing cost below 31%. Most credit models consider a housing (mortgage) cost of more than 31% of your salary/income as a possible flag that the housing costs are unaffordable.

Modifications can be extremely helpful. You could get the interest rate lowered (in our district we go as low as 1% and then graduate it to 2% then 3% over the life of the Chapter 13), as well as get a principal reduction. The principal reduction could be good if you are underwater and the home doesn't have the value to support the loan. Additionally, the loan could be reammortized for 30 years of 40 years. In the end, it could be helpful.

thank you so much! I was thinking we had all dropped the ball on something. We’re going to see if our attorney will represent us on it.

[flashoflight]

Been through this so here is the deal:

The loss mitigation packet from the lender is probably completely separate from the bankruptcy court's own loss mitigation program (if offered). It costs nothing to apply so why not if you are north of 31%. This is DIY except at the very end for court approval of the loan mod. Your lawyer will need to be involved for the final step and will charge you a little bit of coin. You are free to ignore it. The lenders are totally swamped with loss mitigation applications so don't expect fast action here without a lot of prodding over the phone.

The court's loss mitigation program is your best shot at a loan modification since it is supervised by the court, but it incurs legal fees more than $2k with no guarantee of success. You must use your lawyer if you go down this path. If you are above 31% and getting to 31% helps, then maybe it is worth it. I don't think you can finance these legal fees through your chapter 13 plan. Again, you don't have to do this.

The third option is to let your lawyer setup your plan payment and pay the arrearage off over the 3 to 5 year plan. If you had disposable income to pay unsecureds, it would go to your mortgage arrearage instead so Mr. Amex is "taking one for the team" to help pay your mortgage here. So your plan payment may be the same or similar regardless of whether you had the forebearance or not.

After 12 ontime payments to the trustee and all secured lenders in your 13, you can try to refinance out of this mess with a FHA manual underwrite refi so you will want to start credit rebuilding right away if allowed by the trustee and the court.

[imtryingtho]

Been through this so here is the deal:

The loss mitigation packet from the lender is probably completely separate from the bankruptcy court's own loss mitigation program (if offered). It costs nothing to apply so why not if you are north of 31%. This is DIY except at the very end for court approval of the loan mod. Your lawyer will need to be involved for the final step and will charge you a little bit of coin. You are free to ignore it. The lenders are totally swamped with loss mitigation applications so don't expect fast action here without a lot of prodding over the phone.

The court's loss mitigation program is your best shot at a loan modification since it is supervised by the court, but it incurs legal fees more than $2k with no guarantee of success. You must use your lawyer if you go down this path. If you are above 31% and getting to 31% helps, then maybe it is worth it. I don't think you can finance these legal fees through your chapter 13 plan. Again, you don't have to do this.

The third option is to let your lawyer setup your plan payment and pay the arrearage off over the 3 to 5 year plan. If you had disposable income to pay unsecureds, it would go to your mortgage arrearage instead so Mr. Amex is "taking one for the team" to help pay your mortgage here. So your plan payment may be the same or similar regardless of whether you had the forebearance or not.

After 12 ontime payments to the trustee and all secured lenders in your 13, you can try to refinance out of this mess with a FHA manual underwrite refi so you will want to start credit rebuilding right away if allowed by the trustee and the court.

I was hoping you’d respond! We were under the impression we were doing option 3, so we were totally taken aback getting this packet from the lender with our attorney’s letter advising us to fill it out. The reason we included the mortgage to begin with was because of that $22k we are behind and it making more sense to pay our disposable income to that versus a creditor and keep any savings we have (instead of trying to pay it off and wiping out savings/stocks).

[womanonfire]

After 12 ontime payments to the trustee and all secured lenders in your 13, you can try to refinance out of this mess with a FHA manual underwrite refi so you will want to start credit rebuilding right away if allowed by the trustee and the court.

Very interesting. How do you build credit while in an active Chapter 13? And do you mean getting a loan to pay off your Chapter 13 early?

[flashoflight]

Very interesting. How do you build credit while in an active Chapter 13? And do you mean getting a loan to pay off your Chapter 13 early?

Many districts will let you incur a limited amount of debt without trustee/court approval. My interpretation is that a $5000 credit line is not the same thing as incurring $5000 in debt. So I think you can incur $5 in debt without anyone knowing and even if you can't, nobody is going to throw you out of the 13 over $5 in debt. You only need three revolvers (one of them a national bankcard) and put a real small amount of debt every month ($5) on a single national bankcard every month and nothing more. The credit limits don't matter. The one card with a balance needs to be less than 8.9% of its own total limit. This is not an excuse to finance a car or run any part of your budget through credit cards while in a 13. Just buy a soda or snack on credit card once a month and that is it.

The trustee will ask why you're doing this if you are not ending the 13 early. Most trustees will go along as long as the unsecured dividend is the same or greater. You can cashout only if you are handing over 100% to unsecured to end the chapter 13 early. Some folks have bad mortgages such as ARMs, higher interest rates, junk fees being added frequently on a mortgage, or a HELOC with the fully amortized P&I payments starting soon so there are plenty of other reasons to refi out of the mortgage during the 13.

[womanonfire]

You can cashout only if you are handing over 100% to unsecured to end the chapter 13 early. Some folks have bad mortgages such as ARMs, higher interest rates, junk fees being added frequently on a mortgage, or a HELOC with the fully amortized P&I payments starting soon so there are plenty of other reasons to refi out of the mortgage during the 13.

Ah I knew there was catch! So it seems this would not work for anyone in a plan that isn't paying 100%.

The building credit part during is extremely intelligent, thank you so much for bring that to light!

[shipo]

The building credit part during is extremely intelligent, thank you so much for bring that to light!

Unfortunately, not everybody has the option of obtaining even a few dollars of credit during their Chapter 13s; in my case, I had to wait roughly a month after my Discharge before I could start rebuilding my credit.

[imtryingtho]

Our credit had tanked from not paying creditors, so it actually improved once we filed. 😂 To be honest, besides getting a bigger house someday, I could care less about our credit scores. Having amazing credit ruined us. 😬