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Loan Mods Often Easier in Bankruptcy – Ch 7 or Ch 13

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We are still doing loan mods for our clients – three alone this week – one in a Chapter 13 bankruptcy and two outside of bankruptcy.  One has the docs to sign, another was presented with options including a principal reduction, and the other should be finished with underwriting and accepted in less than 30 days.

The June 2015 MHA Handbook Ver.4.5, revised on January 6, 2015 to Ver. 5.0, covers some of the procedures to be followed for borrowers who have filed bankruptcy and are seeking a loan mod to keep their home:

8.5 Borrower in Bankruptcy Borrowers who are currently in a TPP and subsequently file for bankruptcy may not be denied a permanent modification on the basis of the bankruptcy filing. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. Servicers should extend the TPP as necessary to accommodate delays in obtaining court approvals or receiving a full remittance of the borrower’s trial period payments when they are made to a trustee, but they are not required to extend the trial period beyond two months, resulting in a total five-month trial period. In the event of a trial period extension, the borrower shall make a trial period payment for each month of the trial period including any extension month.

Sometimes our clients get hung up on the documentation required for a loan mod and some of the new rules that apply may help:

5 Verification

Servicers must develop and adhere to a written policy and procedures (Verification Policy) that describe the basis on which the servicer will determine a borrower’s monthly gross income (or, in the case of co-borrowers, the combined monthly gross income). The Verification Policy must:

  • Be compliant with the requirements set forth in this Handbook;
  • Identify what form of verification the servicer will require for various components of borrower’s income (which verification cannot be based solely on the borrower’s stated income);
  • Reflect the business judgment employed by the servicer when modifying loans held in its own portfolio;
  • Be consistent with investor guidelines, when applicable; and Chapter II: HAMP MHA Handbook v4.5 90
  • Contain a level of detail similar to the underwriting guidelines published by Freddie Mac and Fannie Mae.

5.1.11 Verification Policy Documentation

…In no event can a servicer’s requirements be more onerous than the documentation requirements set forth in such Sections. Furthermore, as to such components of income, if the borrower submits verification documentation described in such Sections rather than the verification documentation set forth in the servicer’s Verification Policy, the servicer must accept the borrower’s documentation. …..

and

5.6 Document Perfection

Servicers must use good business judgment when determining the level of perfection of the verification documents. Servicers may elect to accept documents with imperfections (blank fields,erasures, use of correction tape, inaccurate dates, etc.) if the servicer determines that the imperfections are immaterial to the business decision, are not indicative of fraud and do not impact the servicer’s ability to verify the completeness and accuracy of the borrower’s financial representations.

In the event that the bank becomes too difficult to work with on their document requests, sometimes an attorney can help. Besides making legal arguments as to what the rules do and don’t require, we have other tools at our disposal including CFPB complaints, or motions to compel or for sanctions in state or bankruptcy court.  Often dealing with them attorney to attorney gains an advantage over you having to deal directly with a customer service rep at the bank or servicer.  So if you are in need of a loan mod under any circumstances, please contact Christie D. Arkovich, P.A. for further information on how we can help.

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