The Trap of Mortgage Company “Loss Mitigation.”
Posted By Steven J. Richardson on January 11, 2010
No one wants to file bankruptcy unless they have to do so. This then often leads many to try (and rely) on alternatives that can lead to further problems. One prime example of this is the “mortgage workout” with the bank’s loss mitigation department during a foreclosure action. If they can just modify their mortgage terms, they can get current and not need to file bankruptcy. I have always been wary of this and advise my clients to be so as well.
The way I explain it is: the mortgage company is schizophrenic. One side of the brain (the collections department, which is pushing the foreclosure) does not communicate with the other side (loss mitigation, which at least has the good sense to know that the bank would really rather have your money than your house, especially in in this real estate market). This leads to the foreclosure proceeding full speed ahead towards sheriff’s sale while the homeowners spend months discussing a modification. Too often the outcome is a sheriff’s sale tomorrow, and a modification commitment that is a month away. This is also not something that only occurs in New Jersey; homeowners in other parts of the country experience it as well.
For this reason I advise people to stay on top of the process and, if loss mitigation says that the bank will hold off on foreclosure in the meantime, make sure they get it in writing from the bank’s foreclosure attorney. They should also have a backup plan, i.e. a chapter 13 bankruptcy filing waiting in the wings. Anther good reason for the latter is that homeowners that get behind on their mortgage payments are also behind on other debt as well, including credit cards and medical bills. A chapter 13 reorganization can take a more holistic approach to the situation and address all of the homeowner’s financial problems. If you find yourself in a situation such as this, and are considering a loan modification, you should, at the very least, consult with a bankruptcy attorney to see what your options are. You wll be glad you did.
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