Question Middle of modification but just filed. What happens w/mod

[NewStart2012]

Hello all! Thank you in advance for reading, and esp. if replying

We are in the middle of a modification with our 1st. We just filed for ch 7 to stop a sale on our house (amongst other reasons); however, we just discovered the sale has been postponed (not because of filing but because of the mod process). Since we just filed, how will it affect the mod process? Will it affect it? Is it better to withdraw the petition to file bk until the mod is complete? Is that even an option? Can the 2nd still be wiped out? We are very upside down.

Any experience/response is much appreciated! Thank you.

[TheBajan]

Hi and welcome.
I can't speak to the mod process at all but I will say that if you are underwater on your first and there's a second you are trying to strip, I believe you have to be in a 13. I'm sure someone with more experience here will correct me if I'm wrong but double check on that. It would be awful for you to lose that opportunity because you filed a 7.
Best regards,
The Bajan

[NoMoreCards]

The second can not be striped in a ch7. That is only possible in a ch13. Not sure how the mod will affect the filing, if it does at all.

[NewStart2012]

Thank you for the replies so far

So, would we be looking at trying to get a discharge from the house and not be able to modify anymore? Does that mean our only option at keeping the house (if we get a reasonable mod) is to do a 13? Is foreclosure the only way to keep a house in a Ch 7 when upside down? Sorry, I'm getting confused

[TheBajan]

If you foreclose on the house in a chapter 7, you don't get to keep it. It is a secured asset and it goes back to the lender. As far as I know, if the mod means combining the first and second, then you won't be able to strip the second. Give us more info on the market value of the house and the balances on your first and second. A chapter 13 could let you strip the second if you value is less than what you own on the first. I've never been involved in a mod and I don't know how it will affect your options. Do you have an attorney?

[btbeme]

One thing at a time...

Your loan modification will stop dead in its tracks. If you are applying for a federal HAMP modification, you can restart the process after your Ch 7 discharge. If it is a bank sponsored (in-house) mod, you can ask to restart after discharge, but it is up to the bank.

Now, since the sale of the house was already scheduled, it is possible that the bank will ask for a lift of the automatic stay so they can proceed with the sale. The automatic stay, put in place the moment you file, prohibits them from actually selling; however, they can continue behind the scenes to make preparations for the sale, and that sale can move forward if the stay is lifted or immediately after discharge, whichever comes first.

The second will stay in place, as will the first - they are secured by the property. If you do NOT reaffirm the loans (and you should NOT reaffirm) then your personal liability for both will be swept away at discharge. The bank can still take the house - the liens still exist - but they cannot pursue you for the difference, or 1099 you, etc.

Especially important for you to understand - a loan modification usually will NOT reduce what you owe on the loan. That is very rare. Usually, banks simply modify the payment so it can be affordable, but you will still be underwater. There is a good thread here that discusses loan modifications - it is a good read... http://www.bkforum.com/showthread.ph...-Ch7-Discharge

[tobee43]

yes, btbeme, exactly. actually, many times the banks are even more open to work with you on a loan mod after the bk. however, as you pointed out, it usually doesn't mean the principal will be effected.

Thebajan, when you file a 7 it doesn't mean you foreclose on home, you can list the mortgage and get it discharged. if the bank had started foreclosure prior to your filing, when the stay was applied all action stops until the stay is lifted and then the bank can continue with foreclosure process, ust like btbeme explains. this is for a 7, i really don't know how it's handle in a 13, but since OP is in a 7 that's really the way it's usually handled. i wish it just went back to the lender LOL!!! we have been waiting over 4 years after our close and discharge on that one.

[TheBajan]

yes, btbeme, exactly. actually, many times the banks are even more open to work with you on a loan mod after the bk. however, as you pointed out, it usually doesn't mean the principal will be effected.

Thebajan, when you file a 7 it doesn't mean you foreclose on home, you can list the mortgage and get it discharged. if the bank had started foreclosure prior to your filing, when the stay was applied all action stops until the stay is lifted and then the bank can continue with foreclosure process, ust like btbeme explains. this is for a 7, i really don't know how it's handle in a 13, but since OP is in a 7 that's really the way it's usually handled. i wish it just went back to the lender LOL!!! we have been waiting over 4 years after our close and discharge on that one.

Thanks Tobee for the clarification. It sounded like the op was under the impression that by filing, he could stop paying and still keep the house. I didn't think that was the case. I do appreciate the correction.

[btbeme]

I guess the bigger issue is this - do you really want to stay in a house that is so far upside down?

Of course, finding a place and moving are a pain in the butt - but financially, it can be a very good option for you. Points to consider:

- Staying means that you will have to do a lot of paperwork, and there is no guarantee that you will be successful in your endeavors. Banks very rarely cut the loan principle amount, which means that a modification is only temporary relief. You would likely still owe the full amount of your loan, though your payments might be lower. And, getting a modification often means making "trial" payments, which the bank keeps if your loan modification fails. Try a short sale, which can actually net you $3000 form the federal HAFA program.

- Renting is cheaper than owning, in most places anyway. Save the difference for an emergency fund so you can do car repairs, etc after discharge when you don't have (or shouldn't use) credit to do so.

- It will only take 2-3 years after discharge or foreclosure before you will qualify for another mortgage. In that time, we will know if there is a further collapse in the housing market. While I personally believe we are at the bottom now, I don't see a huge rally in values that would spark pricing increases. Lots of homes are being purchased for investments; these are often available as rentals. And, alternative purchasing plans are popping up everywhere.

[tobee43]

Thanks Tobee for the clarification. It sounded like the op was under the impression that by filing, he could stop paying and still keep the house. I didn't think that was the case. I do appreciate the correction.

yes, i think so as well. i know it gets confusing!

[tobee43]

I guess the bigger issue is this - do you really want to stay in a house that is so far upside down?

Of course, finding a place and moving are a pain in the butt - but financially, it can be a very good option for you. Points to consider:

- Staying means that you will have to do a lot of paperwork, and there is no guarantee that you will be successful in your endeavors. Banks very rarely cut the loan principle amount, which means that a modification is only temporary relief. You would likely still owe the full amount of your loan, though your payments might be lower. And, getting a modification often means making "trial" payments, which the bank keeps if your loan modification fails. Try a short sale, which can actually net you $3000 form the federal HAFA program.

- Renting is cheaper than owning, in most places anyway. Save the difference for an emergency fund so you can do car repairs, etc after discharge when you don't have (or shouldn't use) credit to do so.

- It will only take 2-3 years after discharge or foreclosure before you will qualify for another mortgage. In that time, we will know if there is a further collapse in the housing market. While I personally believe we are at the bottom now, I don't see a huge rally in values that would spark pricing increases. Lots of homes are being purchased for investments; these are often available as rentals. And, alternative purchasing plans are popping up everywhere.

so true about the renting. my daughter now says when the roof goes, so does she. (although, i do want her to buy another house). it's odd where she is in nc the prices never really went that down, whereas, here in florida we are seeing them creep back up slightly, but then again, we are talking about 300k plus houses were down to 90k. at least here in this neighbor. i know the house we purchased sold in 2005 for 360k, (we checked the records), we picked it up for 140k, but the house across the corner, a year later went for 90k, it had no kitchen or bathrooms left in it. but, it sold.

[NewStart2012]

@TheBajan - yes, we have an atty but she's in court today for other cases. We owe $800 on the 1st and $150 on the 2nd (2 diff lenders), and the house is now worth about half what we bought it for (about $500). We will not be reaffirming the loan. We are being sued by the 2nd for their loan but the 1st is trying to get us in a modification based on a new gov't program (I think from that huge gov't bailout). We understand we can't keep the house if it goes into foreclosure. We were just wondering whether we can avoid foreclosure by doing a loan mod during or after a ch 7 discharge.

@btbeme - thank you for the response, link, and details. I read all the posts on the link, which was helpful. The mod is some new prog, based from the gov't bail out, that is lowering the principal and interest rates. It's through the lender but is some gov't prog. So, if our personal liability is "swept away" by a discharge, can we still pursue a modification with only the 1st to keep the home? Granted, this will only be if they offer us a huge principal lowering. You said that some have modified after a ch 7 discharge. Can we do the same without modifying with the 2nd? Guess we're trying to see if there's a way to get a modification without combining the 1st & 2nd and doing away with the 2nd? What exactly does it mean that our personal liability goes away but the lien still exists? Guess I'm confused about that.

@tobee43 - yes, we planned to just let the house go into foreclosure and file our 7 to start over. But then the mod option just came up so it got us questioning whether we could keep the home and have a 7. What do you mean you've been waiting 4 years for your close and discharge? Would you mind explaining please?

[NewStart2012]

@btbeme - You're absolutely right...no, we really don't want to keep a home that's way upside down. The only reason we're even thinking of this because the lender said this new prog is lowering principal balances. That would be the ONLY way we could try to stay. Otherwise, we will go through the struggles of trying to rent after bk/foreclosure, which we know will be difficult but not impossible. Now, are you saying we can potentially buy again in 2-3 years after a 7 and foreclosure? We thought it was at least 7 years. Please clarify if you can. Thank you!

@tobee43 - really? Houses went down that much? I'm sure your daughter will buy again one day soon

[TheBajan]

That makes sense. Thank you for the clarification. I hope it works out for you and I hope you stick around and keep us posted. I wish I could offer some advice but you are in a situation I know nothing about. All I can do is to offer encouragement and let you know there are lots of people here who can and will help you as much as possible.

Best wishes,
The Bajan

[NewStart2012]

Thank you The Bajan Encouragement is much appreciated too! Will stay around and update. Thanks again!