WHO SHOULD NOT DO THEIR OWN LOAN MODIFICATION?

There are some situations in which I recommend you seek legal assistance. The first such situation is if you are more than 2 months late on your mortgage and have not already applied for a modification. Consider the following:

Could my home be sold at a foreclosure auction while the bank is reviewing my Loan Modification request? YES!

I’m not trying to sensationalize this issue. It is a serious risk, and you must be aware of it in order to prevent it! Below are two important examples, and they are not hypothetical. They are real examples of Chicago area homeowners who came to me this year, and they are not rare occurrences.
Today, most lenders and servicers continue foreclosure proceedings while they are evaluating a request for a loan modification. The reason being if the loan modification is not approved, foreclosure can follow quickly. Lenders tell borrowers that although foreclosure proceedings will continue, any foreclosure sale will be postponed until the loan modification decision has been made. However, I’ve not seen any lender put that in writing.

Example 1 - In December, 2008, a young man was trying to help his mother get a loan modification. As a former loan officer, he had considerable experience with mortgages and banks. The bank had already filed a foreclosure lawsuit, but repeatedly assured the young man that the December foreclosure auction would be postponed until after a decision was made on the loan modification, which looked promising. In January, the man and his mother learned the foreclosure auction had not been postponed, and his mother’s home had been sold on December 23, two days before Christmas.

Example 2 - A man qualified for a loan modification under the new Home Affordable Modification Program, HAMP. The lender had filed a foreclosure lawsuit before HAMP was announced, but stated repeatedly it would not allow the home to be sold at a foreclosure auction before a decision had been made on the loan modification. Days before the auction, the lender had not yet approved the modification and had not yet postponed the foreclosure sale. Two business days before the auction, I learned after a multitude of calls, that the bank had intended to go forward with the foreclosure auction with no advance notice to the borrower. One of the bank’s inspectors said a neighbor said that nobody lived at the property. The property appeared to be abandoned, and along with the neighbor’s comment, the bank felt it had sufficient evidence to determine the property was ABANDONED. Since the property was vacant, the owner no longer qualified for the HAMP loan modification. Therefore, the foreclosure sale was on. One business day before the foreclosure auction, I was able to prove to the bank’s satisfaction, with emailed pictures from a cell phone, and faxed copies of utility bills, that the owner still lived in the home. The bank cancelled the foreclosure auction and the borrower got his loan modification. The result might have been much different. Even with a lawyer representing you, your home can be sold out from under you through foreclosure.

A few words about abandonment… If you abandon your home, you will not qualify for a HAMP loan modification; and why would a lender give you a modification anyway? It wouldn’t. Unfortunately, for various reasons, homes in foreclosure often appear abandoned when they are not.
Following are characteristics of a typical home in foreclosure, but not yet sold at auction:
- All the drapes, upstairs and down, are tightly closed
- The lawn and bushes are overgrown and neglected
- There are numerous old newspapers on the front door step
- No lights are on inside the home at night
- Nobody answers the front or back door when you knock
- The paint is peeling, some windows are broken, and the home is the eyesore of the neighborhood
If you knew nothing about homes in foreclosure, and visited a typical one, you would think it was abandoned. That’s what the occupants want you and bill collectors and neighbors and the rest of the world to think. However, most likely, it’s not abandoned, even if the neighbors think it is. If you spent just one day with an investor looking at foreclosure properties, you would know this well. People with financial problems don’t leave “free accommodations” to go and pay rent elsewhere. Also, they’re often too embarrassed and/or depressed to face the outside world. The very last thing these people want to do is mow their lawn or paint the trim, so they don’t.

The point of this discussion is that if your home resembles the typical foreclosure home, you should find a way to let the lender know you still occupy the property, and you want to keep your home. Send the lender letters with your return address. Send utility bills showing you’re still using gas or water at the home. Don’t allow the lender to label your home as abandoned, if it is not.

How often does this happen? The above examples relate to 2 of my first 8 clients this year. Another of those first 8 clients was locked out of a home by the bank for months because a neighbor told a bank inspector that nobody lived there. The bank quickly boarded up the windows, changed the locks, and proceeded with foreclosure on the basis that the home had been abandoned. We later regained occupancy of the home, and proceeded with the loan modification. It is not a rare occurrence for a bank to proceed with a foreclosure sale when it should not, or when it is mandated to provide a loan modification under HAMP. For about half of my clients, I must keep a close eye on the lender’s foreclosure activities because I know what might happen if I don’t.

I doubt that inappropriate foreclosure sales are due to intentional misdeeds of the lender, but that makes little difference to the homeowners. However, as a homeowner, you must be aware that these incidents do occur, and that your options will be limited after a foreclosure sale.