The loan modification program is intended to lower a borrower's monthly payments and allow the borrower to stay in the house. The monthly payments are based upon 31% of your gross monthly income. If you were made an offer for a loan modification, the lender or servicer determined that you had a hardship and that you had sufficient income under the 31% test to make the reduced payments. If you are looking to escape your underwater mortgage, a loan modification will not help you. You can file for bankruptcy but there are other less drastic measures available to you to escape your underwater mortgage, such as a short sale with a waiver of deficiency or a deed in lieu of foreclosure. You need to meet with an attorney experienced in foreclosure and short sales to determine what is the best course of action for you. Good luck.
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There is no way to get the sort if individual, specific advice you are asking for on a web site. The best options for you will depend on the exact details of your finances, your property and debt profile, and your objectives. No two people or situations are exactly the same.
You need to consult an attorney who is knowledgable in foreclosure litigation and bankruptcy to analyze your situation and then bases on that analysis to give you advice.
Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.
Bankruptcy may be an option for you. If you qualify for a Chapter 7, you can give up the house and the entire loan amount will be discharged along with other debts you may have. If you do not qualify for a Chapter 7 or you want to keep your home, you may file for a Chapter 13. In the Middle District of Florida, the bankruptcy courts are offering modifications that seem to be a little more debtor friendly. Also, if you have a second mortgage, you may be able to have that second mortgage "stripped." As with a Chapter 7, you may also give up your home in a Chapter 13. However, whether you are able to have the entire amount of the mortgage discharged depends upon whether the mortgage company files a proof of claim for the deficiency (difference between the fair market value at the time of the sale and the mortgage amount). In any event, you should consult with a bankruptcy attorney to explore this possibility.
In answering this questions, the attorney is not establishing an attorney client relationship. This is a response to a general legal question.
100% you should not file bankruptcy at this time. Many people file bankruptcy way too fast. I would advise hiring a GOOD foreclosure attorney who focuses on litigation (not just buying you time). There is a time and place for a bankruptcy and it is not now. While many bankruptcy attorneys will try to talk you into leaving your property, it may be time to fight for it. If you want a free phone consultation with no strings attached, please give me a call and I would be happy to give you specific free advice.
The first thing that should be done is to see if your lender correctly calculated your income to determine a 31% of gross income mortgage payment for you (including taxes and insurance.) I agree, reducing your interest rate to 5% and extending the loan to 40 years is typically not enough to entice a borrower to accept a loan modification, especially if you have negative equity on the property.
I agree with the other answers, very often bankruptcy is not the best solution, especially when there are so many other good options out there, including strategic default and short sale (with a deficiency waiver.) However, if you have other debt to deal with, a bankrupcy at the beginning of a strategic default might make sense.