The economic crisis led to the Mortgage Loan Modification Act. In a nutshell, if your monthly mortgage is more than 31% of your gross income, you are supposed to be able to lower your mortgage payment. It's good for you because you can keep your house. It's good for the banks because they have too many foreclosed properties. Yet despite this being the law, many people are having trouble getting a loan modification. Almost every call I get about this is the same story. Clients put on hold for hours, phone calls not returned, tons of paperwork, etc. So I asked some Chicago loan modification attorneys what the deal was. They came back with some crazy stories of what banks had done to their clients. Here is a sample.
1. A single mom called her bank for a loan modification. The nice gentleman from the bank told her she didn't have enough income to qualify, but if she was receiving $400 - $500 a month in child support, she probably would qualify. She said "Oh, yeah, I am getting child support... about $500 per month, but there is no court order and it is always in cash." The banker said to include that in her application. Several months later she
received a letter denying her for the loan modification. Her income was too high. Had she not included the child support, which need not be disclosed, she would have qualified.
2. A man lost his job and applied for a modification. The banker asked if his financial problems were temporary or permanent. He responded "temporary" because he hoped to get another job soon. He didn't. Months and months went by and the bank started foreclosure. A sale date was set for his home. Just before the sale date, he received a letter from the bank stating he had been denied a modification "because his financial problems were only temporary." Had he answered "permanent" to the banker's question about 6 months earlier, he might have been approved. Nobody really knows if their financial problems are temporary or permanent, but how you answer the question can determine if you will get your modification.
3. During the modification process, banks often begin foreclosure. There are many stories about banks promising not to sell the home at a foreclosure auction, and later selling it without notice. Here are a just a few samples for which I can confirm the authenticity (these are not urban legends) ...
A. A bank says it will not sell a Chicago woman's home at a foreclosure auction while considering the file for a modification. A week later, 2 days before Christmas, the home is sold at a foreclosure auction. A month later, when the borrower called the bank to check on the modification status, she learned the home had been sold. This is not uncommon because the owner is most often not sent notification that the home will be sold at a foreclosure auction.
B. A man called the bank to check on the status of his loan modification. He was told the file had been closed because his Mundelein home had been sold at a foreclosure auction a month earlier. He never knew an auction had been scheduled.
C. A Buffalo Grove man was working on a modification. The bank had started foreclosure and scheduled the home to be sold at auction in March. Fortunately, the bank agreed to cancel the March auction while the home was in review for a modification. The man was told he would be informed if the modification was denied and if a foreclosure sale would be rescheduled. During the following months, he called the bank many times to check on status of his modification. In June, he called the bank and was told he was no longer being considered for a modification because his house had been sold at a foreclosure sale in April.
4. Banking where you pay your mortgage may be hazardous to your financial health. A man had experienced financial difficulty, and so applied to both his first mortgage lender and second mortgage lender for loan modifications. The first mortgage company approved and started him on a Making Home Affordable, aka HAMP, trial modification. The second mortgage lender, we'll call it Bank H, would not approve a modification. Instead, a representative called the borrower and wanted to know when the bank would receive the overdue payments. The borrower explained again he was having financial difficulties, but said things were looking up, as his first mortgage lender had just approved his loan modification request. He said he couldn't pay Bank H right now, but he hoped to get caught up soon and come current with all of his bills.
The next day, the borrower learned that Bank H had emptied his checking account and applied all of his funds to amounts due on his second mortgage. This caused many of the borrower's checks to be dishonored, including his first Trial Period Loan Modification check to his first mortgage lender. That bad check and his inability to replace it on a timely basis caused him to fail the Trial Modification, and therefore become permanently ineligible for a HAMP modification.
If you are behind on your mortgage, the bank may take any money you have on deposit with that bank and apply those funds to the amounts due for your mortgage. This may result in checks bouncing, with penalties and fees, in addition to the personal embarrassment and the difficulty of trying to come up with the unexpected shortage of funds at a time when you're already embroiled in severe financial problems. Is it legal for banks to do this? That is debatable. However, it is important for you to know it is not uncommon for a bank to do this. This is not the only time we've seen this happen.
The good news is that all of these attorneys told me that they were able to save their client's properties. Still, it's crazy and disgusting to see this time of behavior, especially after the greed of banks partially got us in to the whole financial mess.
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