Eight Mortgage Modification Tips

As you may have heard, the U.S. government's mortgage relief programs -- including the Home Affordable Modification Program, or "HAMP" -- have been extended through 2015. Applications made ahead of the December 31, 2015 deadline can help distressed homeowners save money on their monthly mortgage payments and extend the due date for balances that are past due. Just make sure to apply well before that deadline so your application can be processed in time.

There have been many complaints about the program. I've heard a bunch of them myself. Folks tell me their banks are not cooperating and are demanding a mountain of paperwork before they'll even get consideration. People are also frustrated by the delays. It can take months for a simple application to be approved or denied. Meanwhile, folks are left in the dark to worry about whether they may lose their home.

And sadly, most people who apply do not qualify for a mortgage modification. But if you need help it is definitely worth trying. Here are a few tips to help with the process:

1. It's generally a bad idea to pay anyone to help you with a loan modification application. There are companies out there that will take an up-front fee to assist you with the process. This is tempting, partly because you may think an "expert" can increase your odds. But as the Minnesota Attorney General's Office has warned, many of these are scams. If they ask you to pay up front, it's probably best to steer clear.

2. Instead, try getting help from a non-profit or governmental agency. The Attorney General has provided some links for places to start.

3. When trying to figure out who to call at your bank, it usually makes the most sense to start with the phone number on your mortgage bill. Even if you have received past-due notices from a collection agency or a law firm, it is still probably best to start with the phone number on your mortgage statement if your goal is to try for a mortgage modification. Note, however, that if you have already received a foreclosure notice it may be too late to work with the bank, in which case you may want to contact a debt relief attorney (like me) right away to find out about your options. There are things that can be done, including applying for foreclosure extensions or for Chapter 13 relief.

4. When you make the call to the bank, be prepared. Tell whoever answers that you're having trouble paying your mortgage and would like to apply for "any relief I am eligible for under the Making Home Affordable program." Making Home Affordable is the current umbrella term for all of the various mortgage-relief programs, including HAMP. By asking for this you are more likely to be directed down the application funnel correctly. Confusing? Yes. Sadly, the government isn't always so good at coming up with names for its programs.

5. Have a notepad and a working pen or pencil ready to go to take notes. It's also a good idea to have your financial paperwork in front of you. The bank's agent will be able to look up your payment history but having things like your most recent tax return and a recent paystub for each wage earner in your household may help streamline the first call, in case they ask for monthly income information. Write down the names of anyone you speak with and the date and time of the call. In fact, it's a good idea to do this for all calls that you make so you have a record of your efforts in case there is any misunderstanding later on.

6. A HAMP application -- or, possibly, a "Streamlined Modification Initiative" if your loan is guaranteed by Freddie Mac or Fannie Mae -- will involve you providing your bank with paperwork. Lots of it. Try not to get overwhelmed. Take it one step at a time. You may feel frustrated but keep telling yourself that it's worth the effort (because it is).

7. Whenever you send documents to the bank, it's a good idea to follow that up with a phone call to make sure they got everything they need. Do not be surprised if you need to re-send something.

8. The entire application process can take weeks. While you are waiting to hear back it will not hurt to call every so often to check up on your application. Once or twice a week is probably enough.

Will following these tips guarantee success? Absolutely not. The odds are stacked against you. But if you qualify for help you will see a significant benefit. In rare cases some of the principal owed on the home loan can be forgiven.

Don't give up if the application is denied. You are entitled to ask why you were denied and you can re-apply if your circumstances change later. For instance, people can be denied for having too much or too little income. Your income may change down the road and you can reapply if that happens.

If all else fails, there are legal options available. That is where my office fits in. And you're welcome to call me anytime for a free consultation about those options.

About the author: Dan Cooke

Image credit: Chris Scott

Don't Fear the Mailbox

When people file for bankruptcy relief, one of the most dramatic changes is what happens to their mail. On the one hand, pulling mail out of the box is a lot less stressful because the bills and collection notices for past-due debts are no longer there. This can take a few weeks to a month after the date of filing. It takes a week or so for your creditors to receive the official, mailed notice of filing. And there may be collection agencies out there that also need to be notified. But your lawyer can help you with any creditors or bill collectors who may have fallen through the cracks.

The good news is that the collection letters and bills will stop. And most folks assume this means their mail will go back to "normal". Not true.

Bankruptcy is a matter of public record. No one will know that you filed unless they check the public records, assuming they even know how to access them. Unless you owed them money, it's very unlikely that any friends, family, employers or associates will ever know that you filed. But there are companies that check the bankruptcy filing records regularly because they see recent filers as a source of business.

What kind of business? Lending, mostly. That's right, some lenders believe folks who recently filed are a great lending risk. This is partly because they know you don't have much (if any) older debt hanging over your head anymore. They also know you cannot file for bankruptcy relief again, at least not for many years (and hopefully never).

This is mostly fine. We live in a free-market economy after all and most of us are used to receiving junk mail and solicitations, even if we don't have unpaid debts. The problem is that some of these lenders send confusing letters that can look like official bankruptcy notices from a Court or a judicial office of some kind. I have seen letters sent directly to my clients from for-profit companies that tell them they need to sign up for "official bankruptcy notices" in their case, suggesting that they need to pay for this service (you don't). Receiving a letter like this can be very stressful and, worse, can draw you into signing up for something you don't need and don't really want.

I try to warn all of my clients about this and encourage them to contact me if they ever receive a letter they do not understand, even if they receive it months after their case was commenced. The good news is that even though some unusual mail may arrive after filing, none of it should have anything at all to do with paying older, discharged debts. And you really can start to breath easier when you reach for your mail.

About the author: Dan Cooke

Image credit: Wikimedia Commons (Steevven1)

How Bank Overdraft Fees can hurt you post-bankruptcy

Banks have changed over the past 30 years. Banks today earn a significant percentage of their profits from the "service" fees they charge. This is different from the good old days when banks focussed on what they were invented to do, which was to use our deposits to make loans and earn money on the interest (they still do that too, and in increasingly risky ways, but that's a subject for another article).

These days it's all about the fees. Economic research shows that banks made $32 billion from overdraft fees alone last year, up $400 million from 2011. Yep, that's billion with a "B". And most of the people I talk to who were charged these fees had no idea how fast they would pile up, even if they tried to call the bank to ask before incurring the charges. Congress is considering legislation to regulate these fees but given the snail's pace in Washington you can't wait for Congress to protect you.

It's not uncommon for folks to walk into my office with hundreds of dollars in overdraft fees on top of all of their other debts, sometimes from multiple banks. The good news is that those fees are almost always dischargeable.

But here's the rub: if you're not careful the fees can continue to accumulate after your bankruptcy is filed. And fees you incur after your case is filed -- even the day after -- can still be your responsibility. When you're dealing with a mountain of debt, including payday loans and overdraft charges, careful bank account planning is critical. Otherwise you can come out of bankruptcy with yet another big bill to pay.

An experienced bankruptcy attorney can help you plan for this and avoid the problem entirely. Your bank probably isn't making their fee-charging rules easy for you to understand. Many banks seem to make it confusing on purpose. But a good lawyer can help you sort all of that out before your case is filed.

People have enough on their plate when they're dealing with bankruptcy. The last thing they need is another bill.

About the author: Dan Cooke

Image credit: 401(k) 2013

Top 10 Foreclosure States

In the US, new foreclosure filings fell from February to March, but only by 1%. According to the latest RealityTrac data, one out of every 856 housing units nationwide received a foreclosure notice last month. But as you might expect, some states did much worse than others. Can you guess which?

Here they are, listed by the highest foreclosure rate:

• Nevada - 1 in every 306 housing units

• Florida - 1 in 317

• Illinois - 1 in 441

• Ohio - 1 in 447

• Maryland - 1 in 630

• Georgia - 1 in 649

• Arizona - 1 in 662

• South Carolina - 1 in 673

• Washington - 1 in 687

• Indiana - 1 in 733

Times are still tough for real estate investors in Nevada and Florida, and they aren't much better in Illinois or Ohio. Comparing data this way can obviously be deceptive, as some States have areas with widely divergent foreclosure rates (here's looking at you, California). But the data can highlight general trends to be aware of.

What about us? In Minnesota the rate stands at 1 in every 1,228 housing units for the month of March, 2013. Experts see signs of an improving market here -- marked primarily by stabilizing home prices -- despite the frosty Spring we're having. In terms of foreclosure filings, we're seeing up and down months but the overall trend in Minnesota is positive.

The reality though is that many of us, or our friends and neighbors, are grappling with late payments, underwater assets, and the threat of foreclosure. There is relief out there, whether through a foreclosure avoidance program or a Chapter 13 restructuring of mortgage debt, including a possible lien strip of junior mortgage debts. It's a good time to speak with a professional about options. The trending downticks in foreclosures and uptick in prices means now is a great time to sort out those real estate issues.

About the author: Dan Cooke

Image credit: Jeffrey Turner

How to Dispute a Credit Card Charge

Ever buy something online that broke a day or two after you pulled it out of the box? Or maybe it wasn't even close to what the seller said you were going to get on its website?

If you paid with a credit card and the goods were truly shoddy or, worse yet, you were billed twice for it on your statement -- which is not all that uncommon -- fear not. The law is on your side.

That law is the Fair Credit Billing Act (1975) and its primary goal is to help you when there is an improper charge on your credit card bill. There's a lot to the law but here's the normal procedure for disputing a credit card charge:

1. Although you could start by calling your bank the best first step is usually to contact the merchant directly to explain what happened. The merchant's phone number is often listed right on your credit card statement. Merchants know about your dispute rights so they often want to resolve the issue directly.

2. If that doesn't work, contact the bank that issued your credit card and ask for a "charge-back". The bank's number will be printed on the back of your card. How much help you get will depend on your bank's internal policies but your bank will often act as an ally in your fight. But all banks legally doing business in the US are required to have a dispute procedure.

3. Some card issuers will remove the charge from your bill while the dispute is pending but this may depend on the transaction processor (Visa or MasterCard, e.g.).

It will help if you can keep written records of what you do, especially any contact you had with the merchant. These days it's pretty easy to send an email to a seller outlining your side of the story and that email is proof that you had a genuine complaint. Merchants and their banks will often not even fight over a small amount ($40 or less) but don't assume you can make a frivolous claim over any small charge on your bill. First, it's fraud to make a false dispute and even if you get away with it it's not good for the soul. Second, merchants have to deal with charge-backs enough that they sometimes use services to track folks who abuse the dispute process, which might hurt you later.

If your dispute is unsuccessful, your only resort may be to hire a lawyer, assuming the amount at stake is worth that expense. But unless your complaint is over something relatively minor -- such as a slightly bent cover on a book shipped to you or an electrician who took an extra day to do the work -- exercising your rights to dispute a bill is likely to get results.

The laws surrounding "charge-backs" are somewhat complex but you don't need to be a legal expert to take advantage of your legal rights. As with most things in life, you'll learn by doing.

About the author: Dan Cooke

Means Testing: How many people live in your house?

If you are trying to determine what kind of bankruptcy relief you qualify for, figuring out how many people live in your house can make a world of difference. The lawmakers have unfortunately made this a difficult question to answer. And a recent decision by the Fourth Circuit Court of Appeals has further complicated the issue.

First, some background. Regular folks filing for bankruptcy protection -- meaning people with primarily consumer debts like credit cards, medical bills, car loans and mortgages -- have to submit to "means testing" to qualify for relief. The means test compares your household income over a recent time period with the median income levels in your State for your household size. There are plenty of complexities in the income calculation (which is just one reason why it is essential to have the assistance of a competent bankruptcy attorney when running the test).

But the household size part of the calculation should be easy, right? If you live alone then your household size is one. And if you are married and have two kids then your household size is four, right? Unfortunately, it's often not that simple.

The biggest problem is that the bankruptcy laws passed by Congress do not define what "household size" means. They've essentially left it to the courts to figure that one out. There are three ways that courts have calculated the household size in a bankruptcy case: (1) The "income tax dependent" approach where the court looks at how many dependents are claimed on the filer's tax return (which can be problematic after a divorce where one spouse has custody but the parents agree to split or alternate the tax dependent claims for the kids), (2) the "heads on a bed" approach where the court simply counts how many people live and sleep in the home, and (3) the more complex "economic unit" approach which attempts to add up the people in the home who are a factor in the household economy.

Minnesota cases filed since the means test went into effect have largely followed the "heads on a bed" approach. The test has the advantage of being relatively simple: if grandchild lives with you or if you have a renter that shares your home, you count those people as part of your household size.

But until we have nationwide agreement or a Supreme Court decision resolving the issue, bankruptcy filers should be aware of the risks of relying on "heads on a bed" counting method. The Fourth Circuit Court of Appeals, in a case that was filed in North Carolina, adopted a very complex "economic unit" approach where they calculated exactly how long each person lived in the home. In that case, there were children and stepchildren who did not live in the house year-round. The calculation only counted a fraction of each child to determine the "household size," which meant that the bankruptcy filer ended up flunking the means test.

Commentators have already criticized the complexity of the court's calculations in that case. But if you live in Minnesota, the important thing to take away from the decision is knowing that "household size" is not a settled issue and you cannot necessarily rely on the "heads on a bed" counting method. Laws and their interpretations change and this is an unsettled area. Having an experienced bankruptcy attorney go over these issues for you is your best bet, particularly when courts cannot agree on how to count up the number of people in your household.

About the author: Dan Cooke