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Borrower has second thoughts about that second chance

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By Ilyce Glink and Samuel J. Tamkin
Friday, March 11, 2011; 4:04 PM

Q. I was going into foreclosure, but the bank gave me a loan modification. I agreed to the modification at the beginning, but now I see it was a mistake and think foreclosure would be better. What do I have to do - just stop paying?

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A. A quick answer to your question is yes. If you stop making your payments, the lender will certainly reinstitute the foreclosure proceedings to sell the home and satisfy all or part of the debt you owe.

The whole loan modification process has been a nightmare - not so much for the big-box lenders but for troubled borrowers. The government held out the promise that loan modifications would help people save their homes. But it was far from the truth. At first, lenders were overwhelmed by the volume of applications and lenders took forever to get through the files. Borrowers were given the impression that they would be considered for a loan modification if they met a certain minimum standard and were granted a trial loan modification.

Those trial loan modifications were anything but a trial. Borrowers were told to follow the lenders' instructions, pay a certain amount and wait for a response from the lender. However, what the borrowers got was months on hold waiting for lenders, lenders that reported those same borrowers - whom they claimed they wanted to help - to the credit-reporting bureaus as either delinquent on their loans or as paying less than required.

Those same borrowers were being hurt by the system that was supposed to be helping them. Borrowers who had stellar credit histories and credit scores soon found that their trial loan modifications had hurt their credit scores so much that they would be unable to qualify for a traditional refinance because of their participation in the government-sponsored loan modification program.

Recently released statistics indicated that only a small number of people who applied for loan modifications actually received a permanent loan modification.

Those who did not receive a permanent loan modification and were bounced from the trial loan modification received a rude awakening. Their lenders told them they would, at once, have to cough up the money to bring their loans current, even though the borrowers had paid the amounts they were told to pay during the trial loan modification. Now those same borrowers faced a higher chance of foreclosure than before their participation in the loan modification plan.

Decide for yourself whether you should make any more payments to your lender.

You might want to get a copy of your credit history from annualcreditreport.com to see how the loan modification has affected your credit history. You can download a free copy from each of the three major credit reporting bureaus at this site. The site will also offer you a copy of your credit score for about $8.

You might find this information helpful in seeing where you stand now, what impact a foreclosure will have on your future credit history and score, and what you will need to do over the next several years to restore your credit.

Q. I purchased a beach property in North Carolina with a friend a couple of years ago. We put down 10 percent and financed the rest. We thought we could sell the property quickly, but we were wrong. The co-owners have been having financial problems and stopped paying their share of the mortgage, taxes and insurance about two years ago. Since then, they have been paying the utilities and I've paid everything else.

Renting it out covers about 60 percent of the expenses, but we lose money on the whole. Our property is about 20 percent underwater.


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