Banks Freeze Foreclosures and Re-Start Loan Modifications

Four of the biggest mortgage lenders have halted foreclosures on delinquent homeowners due to improper filing of legal documents and this presents a unique opportunity for borrowers who wish to stay in their home. Angry lawmakers have put the brakes on these lenders noting that there is evidence suggesting that many loans were not reviewed properly and that borrowers were kicked out of their home without due process. Most homeowners would agree that their bank showed bad faith in dealing with their defaulted loan and in many cases moved the mortgage to foreclosure while a loan modification was being negotiated.

How does this foreclosure freeze help borrowers who have delinquent loans with Bank of America, Chase, GMAC and Ally? Well, now that the loans are in limbo, the lenders will not be able to sell the home and that means a lot of toxic assets just sitting on the books for who-knows-how-long. Suddenly a loan modification starts looking like a pretty good way to get some revenue flowing again. At least receiving a reduced payment from delinquent homeowners is better than getting nothing at all.

The fed has been pushing, demanding, cajoling and even paying banks to offer loan modifications to eligible homeowners in order to help them avoid foreclosure. However, only a very small percentage of applicants have been granted a loan workout to date. This is partly because the borrowers do not qualify for whatever reason, but also because the banks have not been able to get their act together to actually review and process the applications correctly. Ask any homeowner how their loan modification was handled and you will hear story after story of a nightmare that lasted many, many months-and at the end they were declined anyway.

Well, this bad news for the banks is actually good news for delinquent borrowers-for more than one reason. Yes, this will provide a delay for homeowners before they lose their home, but more importantly it presents a unique opportunity to finally get their banks cooperation to help them with a permanent loan modification so they don't ever have to deal with the possibility of foreclosure again. Smart homeowners will take this time to prepare and submit another loan modification application instead of just waiting for the freeze to end.

Foreclosures may be suspended-but not forever and so why not take advantage of this window of opportunity to again ask the bank to give you a loan modification? The timing could not be better-they are much more willing to listen and if you take the time to prepare your application correctly you will have a very good chance of getting a loan workout. It is up to the borrower to make certain that they send in an acceptable loan modification application this time-don't miss out on this second chance-it could be the last chance for home retention.