Loan Modification Question After a 7

[Ann]

All,
I'm 11 months post discharge from my 7. All has been very good for us. Best financial decision we could have made given our circumstances. My question may have already been answered so forgive me if I'm asking again. We did not reaffirm our 1st or 2nd mortgage. Now a year later our income has dropped somewhat and we now have 2 kids in college. Would it even be worth exploring the idea of trying to modify our 1st mortgage if we haven't paid our 2nd in a year? We tried to settle with them but so far it has not happened. I've heard real horror stories on how people have tried to modify and after making their payments on time they deny the mod and want the full amount in one large sum (original payments). Even a slight drop in our mortgage payment would help. Not quite ready to walk away from here. My mortgage company is Citi Mortgage. Any advice would be greatly appreciated!

[sh9730]

Sure - apply. It cant hurt. Just make sure you keep up on the process every step of the way. Now, for some of the programs (most actually), you do need to show that you are unable to make the current payment (i.e. your income drop) and that you are in some sort of imminent default. That doesnt ALWAYS mean you must be behind on your payments, but usually it does. Also, you cannot have reserves etc that cover too many months of payments to qualify.

IF you do go behind, you always have the option of bringing it current again...that doesnt mean you have to pay the entire loan...just bring the payments (plus fees etc...) current. Im not sure if you didnt reaffirm whether they can even tack on late fees? But they can charge legal fees for "starting the foreclosure process". If you get a mod, they will just roll those into the modified loan, but if you get denied and want to get current again, those will be added as well.

SO, if you just KEEP YOUR PAYMENT as if you were going to send it in....(dont spend it elsewhere!), and then for some reason are denied a mod, you can "catch up" again without toooo much trouble if you decide to do so....from a credit standpoint the damage is already done from the BK. Your lender probably is not even reporting your monthly payments now.

Just my thoughts....there could be some additional expense IF you do need to fall behind to get a mod review....but it cant hurt to contact the bank and see if you qualify....

[aquavir]

Would you mind losing your house?

If the answer is no and/or if you really can't make the payments (on both loans) without putting yourself back into the debt cycle, I would say stop paying, wait for the foreclosure to get rolling, then call the bank and ask for a modification. You will have much more leverage at that point because the bank will know that you are not going to pay (and don't have to because of your discharge) and the correct business decision for them to make is to modify your loan because they have a great chance of getting all their money back (including fees); you will probably have a better interest rate but a longer term, so you won't build equity very fast, so it will almost be like renting, but you won't have to move and you'll have your lower payment. If/when you secure the modification, you can then look to settle with the second, but just make sure that your modification of the first states clearly that it doesn't affect your discharge status.

Worst case scenario: you lose your home and have to rent (after months of not paying for housing); but perhaps, with 2 kids in college, you don't need as much space and can save money with a smaller rental while you wait the 3 years to purchase again...if you decide to purchase again.

Unfortunately this is the game the bank makes you play. It would be great if they would just modify the loan without you missing any payments, but from all the experiences I've read about on this forum that seems unlikely. They almost force you to use your bankruptcy as leverage.

Incidentally the above scenario is basically what we did, albeit we didn't plan it that way. We simply stopped paying because I had a lot of business expenses to take care of around the time of the BK and we just couldn't make our house payments. Then we didn't think we would qualify for a modification (and we were right, we didn't qualify for HAMP); but we did finally apply and after being rejected for HAMP I wrote GMAC a letter basically stating my terms. They could either give us a modification or take the house. They chose the modification. Then we recently settled our second, but I chronicled all that in another post.

Anyway; that is my 2 cents. All based upon your willingness to lose your house. Good luck with whatever you do!

[Ann]

Thanks Aqua! I appreciate your input. I would love nothing more than to do the whole "quit paying" game but at this point that is probably not a good decision right now. I'm glad it worked for you. I just wonder how many post bk people have attempted that move and lost? I worry about me not having paid that dreaded 2nd for the past year. Again, thank you for replying. Any advice I get is most welcome!