Attorney Assisted Loan Modifications | Prousalis & Papantonakis, P.C.

Massachusetts homeowners need to be wary of negotiating any foreclosure bailouts directly with their banks without first consulting legal advice. The much touted loan modification programs that were put into place just under a year ago - HAMP among others - have failed to produce permanent results for most homeowners. Per the U.S. Treasury Department’s most recent reports, of the 4 million households that the federal government hoped to target for loan modifications, only about 31,000 have received permanent loan modification results to date nationwide. It is also interesting to note that only about 760,000 of the 4 million have even been granted temporary relief as of yet. The most surprising statistic is that 2010 foreclosures are actually expected to surpass those of 2009, a record-breaking year.

What is the issue with the numbers? My question is why would the servicers, mortgage companies, CDO’s, etcetera all agree to voluntarily reduce interest rates on 4 million households when the mortgages they sold to these people were already securitized or sold to various hedge funds. Now these funds and/or banks owe fiduciary duties to their stock and bondholders owning these securities. Simply put, it is not in the best interest of any of the mortgage companies, or even of their investors, to reduce interest rates voluntarily. Doing this, even if being done by an institution to save economic toppling, may still lead to a class action against it by its stock and bondholders.

The above results in the average homeowner facing mortgage distress spending hour upon frustrating hour contacting their bank for a loan modification, sometimes for 4-6 months, only to find out in the end their bank has denied or even lost their request for a loan modification.

This is also why it is imperative that every homeowner consult legal advice as early in their loan modification process as possible. A qualified attorney specializing in foreclosure prevention should be able to look at a homeowner’s mortgage situation, apply the HAMP guidelines, obtain a rough estimate of what the home is worth, determine what the homeowner’s overall debts are, consider a bankruptcy scenario, give a qualified opinion as to what the homeowner’s best options are and be able to represent the homeowner in the pursuit of whichever option the homeowner opts to go with. The recommended options could be loan modification, short sale, deed in lieu, bankruptcy or even a combination of the above.

The longer a homeowner waits, however, the more limited and costly the options become. For example, if a homeowner contacts an attorney after having received a mortgage loan acceleration letter (a letter from the mortgage company’s foreclosing attorney stating what the total amount of debt owed to their client is), then the attorney representing the homeowner has less time to evaluate the client’s case for a loan modification or short sale scenario. The attorney’s only recommendation to this client may just be to send a debt dispute letter (allowed by the Federal Debt Collection Act under certain circumstances) to the law office handling the foreclosure, which forces the lender to produce the original note before moving forward with the foreclosure, and hope the original promissory note takes enough time to recover, that their client has enough time to get a loan modification, short sale or bankruptcy done. Alternatively if the 30 days to dispute the debt have passed, the attorney’s only recommendation may just be to tell the client to gather their paperwork for the filing of a bankruptcy as soon as possible.

If on the other hand, the client came to their attorney early on in the process - for argument’s sake let’s say when the client first fell behind on payments - the attorney could have gathered the paperwork from the client, applied for the loan modification on behalf of the client and used the initial 4-6 months to apply for a short sale negotiation as well, having done all this for the client prior to any foreclosure pressures being added to the mix. In essence, an attorney could have had a year or more to help the distressed homeowner come to a more suitable settlement.

All of the above may seem like a bunch of jibberish to the average person that has fallen behind on their payments and is scrambling to rescue their life savings. Even further, their instinct may be that hiring an attorney would just require payment to one more creditor they cannot afford to pay. However, to an attorney specializing in real estate and foreclosure prevention, knowledge is power. The banks already have power by having a mortgage on homeowners’ properties. They also hire attorneys to threaten homeowners with foreclosure many times even while the homeowners are simultaneously being evaluated for a loan modification. Doesn’t it therefore make sense for the homeowner to hire an attorney with the needed expertise to level the playing field? It seems to be what most economic analysts have started leaning to in contrast to last year’s leading theories on how to save homes from foreclosure.

Think about it.

-John N. Papantonakis, Esq.

Information in the above article is for educational purposes only and does not create an attorney-client relationship. You should not construe this to be a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel.