Many California residents contemplating Bankruptcy have been frustrated in their attempts to avoid foreclosure. Some of the excuses given are that the lenders cannot convince their investors to sign onto a typical Government Loan Modification Program. Another reason is that lenders may not be motivated by a homeowner who is not far behind in their mortgage payments. This has led to a whole new industry that charges people to pay for the Dream of a Loan Modification and avoid Bankruptcy. Most of the time, they end up not getting the modification, while wasting money on fees.
How about this reason for not getting a loan modification? Delinquent loans bring huge fees to mortgage companies, which are then collected after a home is sold! In other words, homeowners who fall behind are perfect investments for a mortgage company looking to increase their profits. While the Obama administration continues to put pressure on various mortgage companies to process loan modifications and various other foreclosure avoidance programs, it is an uphill battle that fights against the essence of the Capitalist spirit - Increased Profits.
Just think of the various services that benefit from the foreclosure process. Appraisals are needed, more title searches are performed, there is a need for more insurance policies, just to name a few. All of these ancillary services profit from the foreclosure of a home.
The result of all this is a classic example of a conflict of interest that the mortgage companies simply cannot avoid. On the one hand, they have the prospect of collecting exhorbitant fees for a delinquency. On the other hand, they are supposed to look out for the investors who are the true owners of these mortgages to ensure that they are protecting that investment. Just one more of the many reasons why loan modifications are not as easy as people think. In the end, Bankruptcy is often the only realistic option. As a Bankruptcy Attorney, I will not suggest that a client declare Bankruptcy unless it makes sense. Many times, it simply makes sense and actually avoids needless fees and expenses.
Kirk Laron
Law Offices of Frazee/ Laron
