A lot of my clients or potential clients ask about whether or not they can get a loan modification. Loan modifications are sometimes difficult to get depending on the lender you have. The requirements according to the Freddie Mac website are on this link but I will summarize the main ones.

1. The borrower must be in default

2. mortgages that are vacant or unoccupied are ineligible

3. and the home must be a single family as defined on the above website link

4. and most important a borrowers must currently have a monthly housing expense-to-income ratio greater than 31 percent of their verified gross monthly income

The income issue is the most common problem for most of my clients in obtaining a loan modification. If ones income and expenses are greatly negative then even if the mortgage payment was reduced with a loan modification the borrower would still end up in default again. The other problem is that the borrower must prove their income and send their income and taxes to the lender. The mortage companies get a lot of requests for loan modifications and a borrower must keep in contact with them to find out what progress if any has been made with the lender and if they received documents. Very few mortgage modifications are taking place according to this article in the Huffington Post.

Generally for a client to file a Chapter 13 and repay arrears on their home and make to the end of the plan I will generally tell them that they need net income of approximately 2.5 times their mortgage payment at a minimum or ideally greater than 3 times their mortgage payment. The same is generally true for a loan modification. The borrower must have enough income to pay a mortgage payment after expenses if it is going to be reduced.

If the borrower or client is significantly in default and has no equity or the property is significantly is underwater it generally makes more sense for the client to do a Chapter 7 and discharge their liabilities on the mortgage or mortgages. In some cases, the mortgage lender will then want to speak with the borrower about loss mitigation, but watch out because if you sign a loan modification after a bankruptcy then you are generally liable on the note mortgage as a bankruptcy only affects pre filing debt. It is important to note that foreclosures in Illinois take a long time for a residential piece of property generally the borrower is around a year in default before a sherrif sale takes place.

All the while if the person files a Chapter 7 then they may live in the property until the foreclosure sale or after. I recommend that the person only pay for insurance on the property in case there are gaps in coverage, any condo association or homeowners dues, and keep the property from getting any City Fines or penalties which are not dischargeable in a bankruptcy. The borrower of course does not have to pay the mortgage payment or real estate taxes. Presently, the Internal Revenue is forgiving tax implications until 2012 if your primary residence is foreclosed.

However, generally if a person has significant mortgage debts and especially if they have a second mortgage then they should consider filing a bankruptcy. I have now even seen second mortgage companies suing a borrower on the note and ignoring the foreclosure which is rather new in this state. If you are having trouble paying your mortgage payments please call my office today and speak with me. I would be more than happy to speak with you. I want you to lose your debt and keep your dignity! I am an experienced Chicago bankruptcy attorney who offers free consultations call 312-489-8182 to schedule an appointment.