Should I Try to Negotiate a Mortgage Modification or Should I Just Go Ahead With Chapter 13?

29 Jan Should I Try to Negotiate a Mortgage Modification or Should I Just Go Ahead With Chapter 13?

I wish that question had an easy answer.  I wish we could say if you have this mortgage, yes, if your situation is that, don’t bother.  But the fact of the matter is that every day I hear a different story.

There are some common themes: it’s hard to get to the right person; when you do it takes a long time to get an answer; you get conflicting information from different people within the same company.  One rather disturbing development I have seen in several cases recently is that although a modification has been agreed to, the paperwork arrives and is way out of date–as if there is a delay of several months in processing.  Another frustrating trend is that loss mitigation departments are running waiting lists.

If your mortgage payments are already behind, additional fees and costs may be accumulating while you wait.  In some cases foreclosure may be going forward.  In some states, foreclosure can be completed in a very short time.  There may be a risk in negotiating with a lender under those circumstances.

Unfortunately, you may have just as many questions if your mortgage payments are current.  If you know that you can’t afford to keep your home without a modification, how long to you continue to sacrifice other things to keep up the payments?  Will you have a better shot at negotiating a modification if your payments are behind?  Many people are told that modification is not available unless payments are delinquent.

I can tell you a couple of things for certain if you try to negotiate a modification.  The process will be frustrating.  You will have to be persistent.  It will pay to keep a record of who you talked to, when, and what you said.

But the real answer to the negotiate or file Chapter 13 dilemma is to do both.  You may not need to actually file a Chapter 13 case, but you need to be prepared to do so if necessary.  Even if you decide to try to negotiate a modification, you should put yourself in a position to file a Chapter 13 on short notice.

Go ahead and see an attorney.  He can tell you the time-frame for foreclosure so you’ll know how long you have to negotiate.  He can also advise you of the requirements to file a Chapter 13, including the credit counseling requirement.  You also need to plan to cover the costs of a Chapter 13 if one becomes necessary.

Frankly, if Congress passes the Helping Families Save Their Homes in Bankruptcy Act of 2009, giving bankruptcy judges the authority to modify home mortgages, my advice might be to go ahead with the Chapter 13, and save yourself the aggravation of trying to negotiate with dysfunctional lenders.

But until that happens, take a shot at negotiating, at least for as long as your budget and your patience can hold out.  But be a boy scout–be prepared to go another direction on very short notice.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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