Loan Modification Under HAMP During Bankruptcy

On June 1, 2010, new Home Affordable Modification Program (“HAMP”) guidelines take effect under Supplemental Directive 10-02.  In addition to providing delinquent borrowers more help while being evaluated for a first lien mortgage modification under HAMP, the guideline provides more help to delinquent borrowers in active bankruptcy who qualify under HAMP guidelines.  See Supplemental Directive 10-02 for more details.

If a delinquent borrower who is in Chapter 7 or Chapter 13 bankruptcy protection requests, or the attorney or bankruptcy trustee requests, evaluation under HAMP, then the servicer must review the borrower under Making Home Affordable rather than deny the request under "proper exercise of discretion".

In addition, the servicer may not deny a borrower a permanent modification merely because the borrower files a Chapter 7 or Chapter 13 if the borrower already was approved for trial loan modification.

If a borrower chose not to reaffirm a first lien mortgage debt under Chapter 7, the borrower may still qualify under HAMP, and the servicer must add the following terms in the permanent modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the Loan Documents. Based on this representation, Lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”

Homeowners who struggle making their mortgage payments or feel that their lenders or servicers have given them the run around for a loan modification could call a bankruptcy attorney for assistance.  Many lawyers are happy to offer prospective clients a free consultation for a loan modification.