Mortgage loan modification might be impossible after 13 months of unpaid bills

October 28, 2011

I’m 13 months behind on my mortgage but am interested in keeping my home. My question is: How do I know if I qualify for programs that would let me stay in my home without losing it?

You raise an interesting question. You are 13 months behind in your mortgage payments. You haven’t paid your lender in more than a year. With that in mind, it would be worthwhile to know whether you have saved that money and have it available for future mortgage payments.

Most of the government’s loan modification programs have been a failure. These programs have helped some homeowners, but the vast number who have applied for assistance through these government-sponsored programs or with lenders have not received any help.

With that in mind, you’ll soon see that the future is bleak when it comes to having your lender “help” you stay in your home. You might stay in the home for a while, but we assume that your lender has already commenced foreclosure proceedings against you. If you have not challenged those foreclosure proceedings, the lender will at some point attempt to foreclose on the home, evict you and sell the home in a sheriff’s sale.

So, to answer your question we have to learn more about your financial situation. If you are unemployed, the system does not have much in place to help you. If you are employed, then the question becomes whether you have the means to pay the expenses for the home, including the mortgage payments. If you have income, then there might be a chance for you to enter into a loan-modification program.

But the truth is that the lender will still try to decide at this point whether it will get more out of foreclosing on your property than if you are granted a loan modification. The lender will also be looking at all of those missed payments.

At this point, a lender might think that you won’t pay on a loan modification and might just decide that foreclosure is a better option.

Without a true government-mandated program that has certain requirements for lenders — and such a plan isn’t forthcoming — the idea that lenders will try to keep borrowers in their homes is a long shot. For most lenders, it seems, their bottom line in the next quarter or two is more important than what might happen to neighborhoods or the real estate market today, tomorrow or over the next year or two.

It’s hard to read the minds of lenders, but you do know that they are in it to make a profit. If they are servicing loans, they are looking to maximize the money from those loans. If they own the loans, they want to maximize the money they get from the loans.

In many cases, that translates into banks turning down a short sale now but accepting a foreclosure or a deed in lieu of foreclosure down the line.

Real estate brokers are puzzled by banks that decide to turn down some short-sale offers and accept others. It sometimes seems that the market is fragmented even within the same bank, with some bank officers or negotiators more willing to get things moving.

Some banks have been better at dealing with loan modifications and have a higher success rate than others. But the overall numbers are dreadful.

So while you may want to keep your home and work with a lender on a loan modification, the questions after 13 months of not paying on your loan are whether you can afford the home and whether your lender would even be willing to work with you.

You’re not alone; there are millions of homeowners struggling to make ends meet. Many of them were never late on their payments and applied for loan modifications, only to have the lenders put them in trial loan modifications, report them as delinquent on their loans, start foreclosure proceedings, deny them a permanent loan modification and leave them worse than they were before they came to the bank for help.

Others stopped paying their loans and effectively lived for free in their homes until the banks foreclosed and forced the borrowers to move.

The housing situation is terrible, and we desperately need someone with leadership skills to work with all of the different players to come up with an effective solution.

Kicking the can down the road has not worked so far.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through thinkglink.com

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