UPDATE - JANUARY 2010:  The very first thing you should do if you are behind on your mortgage is talk to your lender.  Conversely, the worst thing you can do is not talk to your lender.  The reason is that mortgage lenders are awash in houses that are behind in payments!  If they foreclosed on all of them, they would take a tremendous loss.  They would much rather renegotiate your loan rather than foreclose.

          Ask your lender to reduce your interest rate, give you a fixed interest rate (if your rate is adjustable), and to take your arrears and roll them into the modified loan.  That way when you begin your new payment under the modified mortgage you will be current on the loan and will not have to worry about catching up the arrears.

          You would be surprised at what kind of deals mortgage lenders are willing to give.  Some of my clients have had their interest rates reduced to 4%.  (One actually got 2%!)  If you don't ask, your chances are zero, so ask!

          A mortgage modification is absolutely the best way to deal with a problem mortgage.  A year ago, when President Obama took office, he proposed changes in the bankruptcy code that would let mortgages be modified by the bankruptcy court.  Those changes went nowhere in Congress.  So you have to ask your mortgage lender. 

          Sometimes, for whatever reason, the mortgage lender will not agree to a modification and wants to proceed with foreclosure.  In that case, you have two options: reach some agreement with the lender on how you are going to catch up your arrears or file Chapter 13.

          Chapter 13 will stop your foreclosure, but because Congress did not act on the President's proposals, Chapter 13 will not change your interest rate.  So your regular monthly payment will stay the same, but Chapter 13 can allow you to pay your arrears over a period as long as five years.  This can be a satisfactory solution if you can afford your monthly payment, but just had a temporary problem that got you behind in your payments.

          Many times I advise my clients to pursue a mortgage modification, and then after the mortgage modification is completed, we file either Chapter 13 or Chapter 7 to deal with their other debts.  In that way, they get the maximum possible relief!  However, if you file Chapter 13 it doesn't mean your mortgage will never be modified.  Sometimes all we need to do is wait.  We file Chapter 13 to stop the foreclosure, wait six months or a year and ask again to have the loan modified.  Many of my current Chapter 13 clients have successfully gotten their mortgages modified while they are in Chapter 13.

          WARNING:  There are many businesses who will offer to "represent" you in a mortgage modification for a fee.  There is absolutely no need for you to hire one of these so-called "representatives" to do your mortgage modification for you.  Often they ask for thousands of dollars, and that is money you do not need to spend.  I believe the average person can get as good a loan modification by contacting the mortgage company themself.  You don't need to pay the money.  If you are having problems getting your loan modified, there are many organizations which will help you and do not charge a fee.  Call the N.C. Attorney General's office in Raleigh and ask for help.   The State has a mortgage retention program, and they also have the names or organizations which can help you and not rip you off.

          WHERE DO I COME IN?  Well, as I said above, if your lender will not modify your mortgage and is going to foreclose on you, call me.  Or, if it turns out that you really cannot afford your
 monthly mortgage payment (or payments, if you have a second or third mortgage) on your house, even if your other payments are reduced, then the wisest course of action may be to let the house go.  If that happens, don't worry that you still may owe money if the house does not sell at foreclosure for enough to cover the balance owed on the mortgage(s).  Filing Chapter 7 will discharge any balances you may owe on your house and give you a fresh start.  Or if you have other property that you want to protect and save from repossession, Chapter 13 may be the way to go.

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