With a loan modification, the lender or bank modifies the terms of a promissory note; often by reducing the interest rate and increasing the term of the loan. A loan modification may also include an increase or decrease in the principal balance. For a struggling homeowner who wants to keep their property, a loan modification is frequently the only way to do so.
However, if a foreclosure lawsuit has not yet been filed and you’re not in possession of a permanent loan modification contract and you have met with a lawyer to help you develop strategy and a back-up plan, I would suggest that hiring a lawyer or a so-called loan modification expert to deal with the bank is likely a waste of money. Prior to the filing a foreclosure lawsuit, the lender is going to modify your loan, or refrain from modifying your loan based on the lender’s own internal criteria and how frequently you follow up on your loan modification application – not who hands the lender your loan modification application.
Additionally, if you have significant cash assets, you should speak to a lawyer prior to making the financial disclosures the lender will require in the loan modification application. The lender may see significant cash assets and decide that it wants your upside-down house and the money instead modifying your loan. You also may want to have an experienced lawyer look at the loan modification application. While an attorney may be able to develop a great deal of legal leverage by defending a foreclosure suit, if no foreclosure suit exists, an attorney pushing a loan mod application typically does not give a borrower any meaningful advantage. In fact, I would go far as to suggest that a motivated borrower will follow up with the lender more effectively than almost any representative, lawyer or otherwise.
That being said, after a lawsuit is filed and you have “lawyered-up” to defend the foreclosure lawsuit, the lender now has an additional incentive to go forward with a loan modification. In the event you receive a formal permanent written loan modification contract, before signing it, go over it with a lawyer. A few of the loan modification contracts we have reviewed contain provisions that could be misinterpreted. Therefore, seek advice.
Here are some general considerations concerning attempting to get a loan modification.
As a former mortgage banker and principal of Castle Law Group, Ben advises clients on their chances of receiving a loan modification and helps establish expectations regarding the likely terms of a loan modification agreement. Ben also advises clients concerning possible options for getting out from under their upside-down mortgage entirely and helps clients develop and implement strategy concerning the same.
Many borrowers who are seeking a loan modification do not presently qualify for loan modification – either due to unemployment or conversely, because their income is significantly greater today than when they received the loan in the first place. Again, legal leverage may be helpful here. Borrowers who contest a foreclosure suit have a much higher likelihood of securing a loan modification than those who ignore the lawsuit. Ignoring the lawsuit could be a decision with lasting negative repercussions.
Loan modification is not the only option. Ben educates clients on other options for getting out from under an upside-down mortgage and avoiding deficiency judgment. Because Loan Modification, Deed-in-Lieu, Short Sale, and Foreclosure through Strategic Default are not mutually exclusive strategies, it is often beneficial to have a multi-faceted strategic approach. In general, Ben lends his insider’s perspective on the loan modification process to help homeowners make good decisions.
What is a loan modification or loan mod?
A loan modification is a formal written agreement to modify the terms of a loan. A loan modification will often include a reduction in the interest rate, an increasing the term or length of the loan. A loan modification may also include a principal balance reduction.
Do I need to be delinquent for the lender to work with me?
The short answer is yes. However, some lenders do work with borrowers who are not delinquent. Additionally, some government-sponsored programs require borrowers to be current on their payments. It is also important to understand the implications of failing to make payments under a promissory note. Failure to make payments is breach of contract and will likely have significant negative consequences to a borrower’s credit rating. Speak with a lawyer who can walk you through the risks of becoming delinquent.
How long does a loan modification take?
Loan modification can be a long process, taking anywhere from two to eight months or possibly several years if you are denied and re-apply repeatedly.
What is a HAMP loan modification?
HAMP®, or the Home Affordable Modification Program is designed for those who are employed but still struggling to make their monthly mortgage payments. It may lower your monthly mortgage payments. Many large lenders “participate” in HAMP, however, many large lenders also have their own loan modification programs.
Defending a foreclosure suit can provide not only legal leverage but also time to get a loan modification, to conduct a short sale or to avoid a deficiency.Learn More
A deficiency judgment can last up to 20-years unless paid or otherwise resolved. A deficiency judgment can be a lien on all non-homestead real estate and other assets.Learn More
Even if you perfectly “qualify” the lender does not have to modify your particular loan. Lenders cannot modify everyone’s loan; it’s simply not economically feasible.Learn More
Short Sale Consulting
Castle Law Group helps clients decide if a short sale is right for them by explaining the risks and potential rewards relative to our clients’ unique financial situation.Learn More
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