Q: I was going into foreclosure but the bank gave me a loan modification. I agreed to the modification at the beginning, but now I see it was a mistake. Now I feel that foreclosure would be better. What do I have to do, just stop paying?
A: A quick answer to your question is yes. If you stop making your payments the lender will certainly reinstitute the foreclosure proceedings to sell the home and satisfy all or part of the debt you owe the bank.
The whole loan modification process has been a nightmare – not so much for the big box lenders – but for troubled borrowers. The government held out the promise that loan modifications would help people save their homes. But it was far from the truth. At first lenders were overwhelmed by the volume of applications. Lenders took forever to get through the files. In the course of the loan modifications borrowers were given the initial impression that they would be considered for a loan modification if they met a certain minimum standard and were granted a trial loan modification.
That trial loan modification was anything but a trial. Borrowers were told to follow the lenders’ instructions, pay a certain amount and wait for a response from the lender. However, what the borrowers got was months on hold waiting for lenders, lenders that reported those same borrowers – they claimed they wanted to help – to the credit reporting bureaus as either delinquent on their loans or as paying less than required on their loans.
Those same borrowers looking for help were being hurt by the system that was supposed to be helping them. Borrowers that had stellar credit histories and credit scores soon found out that their trial loan modifications had hurt their credit scores so much that they would be unable to qualify for a traditional loan refinance due to their participation in the government sponsored loan modification program.
Recently released statistics indicated that a very small number of people that actually applied for loan modifications actually received a permanent loan modification.
Those that did not receive a loan modification and were bounced from the trial loan modification received a rude awakening when they were told by their lenders that they would now have to cough up at once the money needed to bring their loans current even when they paid the amounts they were told during the trial loan modification. Now those same borrowers that were attempting to keep their homes faced a higher chance of foreclosure than before their participation in the loan modification plan.
You didn’t indicate why your loan modification didn’t work for you and you need to decide for yourself whether you should or should not make any more payments to your lender.
You might want to get a copy of your credit history from www.AnnualCreditReport.com and see how the loan modification has impacted your credit history. You can download a free copy from each of the three major credit reporting bureaus at this site. The site will also offer you a copy of your credit score for about $8.
You might find this information helpful in seeing where you stand now, what the impact of a foreclosure will have on your future credit history and score and what you will need to do the next several years to restore your credit history.