Debt Settlement Blog

Debt settlement plans, chapter 7 bankruptcies and loan modifications continue to implode as unemployment rates rise and home equity decreases.  Borrowers are modifying their second mortgages in high volumes as well.  Second mortgage lenders are typically quick to renegotiate terms, because bankruptcy and foreclosures yield huge losses.

A sudden, drastic drop in income last year had Bob and Roxanne Curry fearing they would become another foreclosure statistic.  He works at a brokerage firm and she runs a child care business out of their Queen Creek home. In mid-2008, her weekly income fell from $1,000 to $300 as fewer parents could afford day care.“I was robbing Peter to pay Paul to make ends meet,” Bob Curry said. “I started charging up credit cards and taking money from my 401(k), and then, in November, there was finally no more money to rob Peter from. That’s when we started to get behind on our mortgage.”  

The couple’s loan servicer wasn’t interested in working with them until they were at least two months behind on the home loan. Bob Curry then compiled a 39-page document requesting a loan modification, with advice from Jeff Underwood, vice president for the Central Chapter of the Arizona Association of Mortgage Brokers. Underwood is also with AmeriFirst Financial in Mesa.  “It took two months from the time that we first faxed in the paperwork for it to finally come to a close,” Curry said. “We did all that we could do. We didn’t get into a home we couldn’t afford.”  The couple was able to get their mortgage interest rate cut from 7.45% to 5%, and all late fees and charges were moved to the end of the loan.“Basically we saved about $700 a month,” Curry said. “The mortgage loan is fixed for five years, and so hopefully when that time comes we’ll be able to do what we need to do.”

The Currys are part of a growing trend of distressed homeowners reaching deals with their lenders to get back on track with their mortgage payments and remain in their homes. “We’re seeing more (mortgage) modifications and we’re also seeing for the first time … balance write-downs as part of a modification to avoid any sort of foreclosure,” said Andrew Loubert, vice chairman of the Arizona Foreclosure Prevention Task Force. “What didn’t work six months ago is working today. We are seeing the lenders more proactive in their understanding that the market has substantially dropped and as a result they need to be more flexible with how they handle balances and things like that.”

In April, 270,000 modified mortgages and repayment plans were completed nationally, according to Hope Now, a private sector alliance of mortgage servicers, nonprofit counselors and investors. It was the largest number in any month since Hope Now began compiling data in July 2007. It has not yet released any 2009 figures for Arizona.  In the Valley, President Barack Obama’s Homeowner Affordability and Stability Plan prompted some increase in mortgage loan modifications, Underwood said. “I do think that banks have opened up a little bit to the reality that if we don’t work with these folks, it’s most likely going to go to a foreclosure process and that’s not what the housing market obviously needs,” he said.

Serious “bottle necks” are being reported where properties are significantly delinquent, meaning loan payments are over 90 days past due. Potentially, this could make the foreclosure inventory explode, according to the data. About 6.3% of mortgage loans were seriously delinquent during the fourth quarter, compared with 3.62% during the same period a year earlier. The administration aims to help up to 9 million homeowners either refinance mortgages or attain a loan modification that keeps them out of foreclosure. 

The states that took the biggest losses continue to be California, Florida and Nevada, but Louisiana, New York and Georgia have also seen sharp increases in delinquencies, indicating that the recession is spreading, the group said.  On a related note, the House voted for legislation that enables bankruptcy judges to modify and restructure the home loans of distressed borrowers seeking mortgage relief for their owner-occupied property. The See the complete article > Obama Team Announces Loan Modification and Housing Relief Plan

The increase in debt settlement and home loan delinquencies and foreclosure actions in the state came as no surprise to Joe Cox, a community organizer for housing advocate group Maryland ACORN.  “Mortgage service companies and home loan lenders have been avoiding meaningful loan modification at every step of the way,” Cox said yesterday.

Chris Traczyk, a real estate agent with Long & Foster in Elkridge, said most of the listings he has been showing to new home buyers recently have been foreclosed properties.  With several of his clients, “that’s all they’re requesting to see because they’re thinking they’ll get a great deal,” despite knowing the house must be bought in as-is condition, and the bank must approve the price.  But the competition from home foreclosures makes it tough for sellers of other homes, who often have to settle for reducing their sales prices, Traczyk said.

Banks have said they are taking steps such as Citigroup’s plan, announced earlier this week, to lower mortgage payments for some borrowers to an average $500 a month for three months if they lost their job. But ACORN contends banks are just offering short-term solutions, such as tacking a missed loan payment to the end of the mortgage balance, that do little to help borrowers.  Many homeowners come to ACORN fearing they will become late on payments but say their lending company will not consider a mortgage modification unless their payments become delinquent, Cox said. The group says it wants to see mortgage loan modification programs offered more with terms like lowering the mortgage rate or reducing the monthly payments simply by extending the amortization schedule of the mortgage.  “The message people are getting is ‘Don’t try to work this out ahead of time. Wait until you have a problem,’” Cox said.   Sun reporter Jamie Smith Hopkins and the Los Angeles Times contributed to this article

Debtors who find themselves in serious financial trouble may have or will soon have several liens placed on them. A lien is a recorded document that states that the Debtor owes the creditor a certain amount of money. Once recorded, the lien will attach to any real property owned by the debtor in the County it was recorded. By recording this obligation, the creditor reserves the right to collect their money if the Debtors ever sells the property before the debtor gets the money. This lien is very similar to a First Deed of Trust or Second Deed of Trust that a standard mortgage lender might file before they lend additional funds.  Many borrowers with combination mortgages are making efforts to negotiate a loan modification agreement on the 1^st mortgage while attempting to settle the 2^nd mortgage.  Second mortgage settlements are being reported from lenders holding notes on properties that have declined so significantly that the lender is willing to settle on the 2^nd mortgage for a small percentage of the outstanding balance.  The mortgage lenders have decided that in these cases nobody wins with a foreclosure or bankruptcy.  Debt settlement and forgiveness remains a separate issue when attempting negotiate credit card debts for less than agreed.

The creation of a lien is a very powerful tool for the creditors. Specifically, this lien may survive the Debtor’s bankruptcy. This means that the Debtor may discharge the debt during bankruptcy but if the Debtor ever sells property, the lien will still be paid because it is attached to the property and not to the debtor.

It may be even possible, under the right conditions, that a second mortgage can be stripped from the property.  Read the original article> http://www.californiabankruptcylawyerblog.com/2009/01/san_jose_attorney_talks_about.html