Everything You Need to Know About Loan Modifications.
- How does a loan modification work?
- What are the loan modification requirements?
- What can a homeowner expect from a loan modification?
- Can the bank foreclose during a loan modification?
- Can a loan modification stop the foreclosure process?
- Can you sell your house if you have a loan modification?
- How does a loan modification affect my credit score?
- What do I need to apply for a loan modification?
- How much do loan modification lawyers charge in fees?
- Is there a loan modification lawyer near me?
How does a loan modification work?
A loan modification works by lowering your monthly mortgage payments so your loan is more affordable. It is a process where your mortgage lender voluntarily agrees to accept less money from you over the course of the loan. Why would it do that? Because otherwise you may not be able to pay your mortgage back at all. If you cannot pay your mortgage, then the mortgage company may – may – take a loss in a foreclosure.
Your mortgage company does not want to hand out loan modifications like candy because everyone would want one. Thus, there are generally some requirements before you can get one. Read the next section down for those.
What are the loan modification requirements?
The primary loan modification requirement is a decrease in income. We generally see a decreased income from job loss, pay cut, divorce, or an illness or injury that caused you to miss work. This primary requirement for a loan modifications mean something that happened that makes your current mortgage payments no longer affordable.
If the loss in income is longer-term, then the mortgage company may try to shape some kind of deal that makes the loan more affordable. Back when the federal government had a loan modification program, the goal was to get your payments to 31% of your gross income. That’s before taxes and insurance. So if you made $1,000 a month pre-tax, then the goal was to get your mortgage payment to $310. Now that the HAMP program has expired, each mortgage company may do things a little different.
Whatever the loan modification requirements for your lender, there is one thing that should be standard across the board. That one requirement is that the loan modification make the bank more money in the long-run than if your home went into foreclosure. If its more profitable to foreclose than modify, expect the run around and a foreclosure filing. It would be wise to get an attorney to help because you will need a loan modification that is out of the box – something our firm regularly accomplishes. See our availability for your free consultation.
What can a homeowner expect from a loan modification?
A homeowner can expect to save their home from foreclosure with a loan modification. That is usually the primary objective of most homeowners. Most homeowners who we see are in need of a loan modification due to tough times. Most can’t make the original loan payments because their income dropped so much. Thus, a loan modification that saves the home is a great first step.
Beyond that basic expectation, a homeowner’s experience will vary greatly in trying to obtain a loan modification. A homeowner should expect not to know what kind of modification they will be offered until it is offered. The modifications will also vary greatly. This will depend on the loan owner, the servicer, the lawyers (if involved), and even the particular underwriter looking at the file.
Some mortgage companies will offer a reduced interest rate. Other loan modifications will reduce the fees/costs added since default. Few will wipe away part of the principle, but others will structure the loan modifications so some of the balance is deferred to the end of the loan. That is called a balloon.
You should also expect that the loan modification process can be time consuming and take months to complete.
At our firm, we pay more attention to what the client wants versus what the bank has to offer. If the first loan modification offer isn’t good enough, then we wait a little. We have found that usually another offer is around the corner after we give the bank a little beating in court. Find a good attorney that deals with loan modifications a lot, and they can help shape your expectations with regard to your own loan modification. See our availability for your free consultation today.
Can the bank foreclose during a loan modification?
The bank is not allowed to foreclose while it is processing a completed loan application. The bank cannot foreclose during the period that you are paying on a loan modification, either. This is prohibited by federal law under RESPA.
Although RESPA prohibits this activity, lots of mortgage companies do it anyway. Many mortgage companies and their lawyers are too big or too busy to ensure you don’t lose your home during a loan modification request.
The law surrounding RESPA is a bit technical, and not too many foreclosure defense lawyers know how to employ it. However, we do. We even created some major caselaw at the federal court of appeals regarding RESPA. Give us a call if your home was sold while a loan application was pending. Even if we cannot reverse the sale, we might be able to get you some significant damages. See our results page here. See our availability for your free consultation today.
Can a loan modification stop the foreclosure process?
Yes! A loan modification can stop the foreclosure process. At least it is supposed to under federal law.
If you get a completed loan application into your mortgage company at least 45 days before the scheduled sheriff sale, the lender must pull the sale and first underwrite your loan for a loan modification. You cannot have requested a prior loan modification within the past 12 months.
Although this is the law, as referenced above, many mortgage companies do not follow the law here. Thus, you may need to involve a knowledgeable foreclosure attorney to either unwind the sale (harder at the sale stage), or sue for damages. Contact us via phone, or see our availability for your free consultation.
Can you sell your house if you have a loan modification?
Yes! You are allowed to sell your house if you have a loan modification. We have a detailed page that talks about selling your home in this kind of situation. Click here to visit that page.
How does a loan modification affect my credit score?
A loan modification may or may not affect your credit score, depending on how the bank reports your loan. If the bank reports the loan modification as “settled less than full amount” or “paying less than agreed,” then it will negatively impact your credit.
However, if your lender simply reports the change in payment and balance, then it may not affect your credit score. You may want to talk to your mortgage company during the process to ask them how they report loan modifications to the credit scoring agencies. Just make sure you get their response in writing! That way we can enforce their representation later, if needed.
Do keep in mind that if you get behind on your payments, that will show up on your credit report and late. A loan modification does not erase past negative history. Also, if you enter into a temporary payment plan (while waiting for the final modification), then you may find your credit takes a hit during the months that you are paying less than your regular payment.
What do I need to apply for a loan modification?
The following are a list of documents you will probably need (courtesy MHA):
- Your monthly mortgage statement
- Information about any other mortgages on your home or other property
- For salaried employees or hourly wage earners, 2 recent pay stubs (not more than 90 days old) that reflect year-to-date income
- For self-employed homeowners, your most recent signed and dated quarterly or year-to-date profit and loss statement
- Documentation of additional income received from other sources (tips, commissions, bonuses, housing allowances, overtime, etc.)
- Documentation of any benefits received (Social Security, disability, death benefits, pension, public assistance, or adoption assistance, etc.)
- Documentation of any other income you want considered (alimony, child support, separation maintenance payments, etc.)
- Two most recent bank statements
- A utility bill showing your name and property address
- Unemployment benefits letter, if applicable Information about your savings and other assets
- Your two most recent federal tax return with all schedules, including Schedule E
- A letter describing the circumstances causing your hardship
Our law firm handles all the loan modification paperwork and documents for you. Let's talk about how we can help. See our availability for your free consultation today.
How much do loan modification lawyers charge in fees?
Our law firm does not charge for this service if you have retained us to defend foreclosure. Here is our fee information.
Is there a loan modification lawyer near me?
If you are located within the state of Ohio, there is a loan modification lawyer near you! Our firm would be happy to discuss helping you get a loan modification, as we can help anywhere in the state of Ohio. See our availability for your free consultation today!
What makes our law firm unique is our ability to fight for you in court if the mortgage company refuses to help. We can also give you a good idea of what to expect. Based on our experience, we can estimate the likelihood of securing a loan modification with your particular mortgage company. We might be able to ballpark terms, and also what kind of effort will be necessary to accomplish those terms. In any event, or experience and ability in this area enables us to develop a comprehensive game plan for you.
If you are outside Ohio, we recommend hiring a lawyer licensed in your state who knows foreclosure defense. They should be able to help you with your loan modification, and be there in case foreclosure is filed. We do not recommend hiring a modification company out of state. We have found that many non-lawyer modification companies charge homeowners significant amounts of money while not providing much help. Some of these companies have been the target of Attorney General or other lawsuits, so do an internet search before you sign. Also check with the BBB and your state's Attorney General before hiring one of these companies. If you are scammed by a loan modification company, it can be very hard to recover your funds. It can be even harder to reopen a foreclosure case if your property was sold as you waited on the loan modification. For this reason, hire a local lawyer rather than trust foreign promises.