Over the past few years a set of never before seen circumstances have conspired to create a trap for people who get behind on their mortgages and reach out to a bank for help. That set of circumstances mandates that banks accept mortgage modification packages from pretty much anyone who asks. It further requires that banks thoroughly process those applications without saying “no” and without proceeding to foreclosure until the final “t” is crossed.
The trap comes when the bank says “no” and the customer has not banked, saved, all the interim mortgage payments. The usual next step is that the bank proceeds with foreclosure and the customer must either loose their home or file for bankruptcy in less than optimal circumstances. Sometimes, this trap is set during the foreclosure process and the customer, thinking the foreclosure is “off” is shocked to learn that the foreclosure was only delayed while the paper work was flying back and forth. The result is surprise, anger, resentment and disappointment.
The Fifth Circuit Court of appeals has recently issued a decision, the practical result of which is that the customer in this circumstance has no real recourse. That is to say, the mortgage is still in default, the bank can still take action, and the customer should have read every word on every page much more thoroughly. The real sad part of all of this is that most homeowners in the south Texas area around Houston, where real estate values have held pretty steady, will not qualify for mortgage modification programs. But, the bank can’t just say that, they are required to let everyone try. A person late on their mortgage is late for a reason. Attending to that reason with an insolvency professional is the key to success. Grasping at anything that looks like an easy out is usually not the right solution.