What is a loan modification?
A loan modification is a change to the existing terms of a mortgage loan. It is typically used to lower a monthly mortgage payment or to cure a mortgage payment delinquency. A loan modification often lowers an existing interest rate, extends the term of the loan, or places mortgage arrears at the end of the loan.
Why would someone need a loan modification?
Many people experience a financial hardship due to job loss, illness, divorce or other change in their financial circumstances. Regardless of the reason for the hardship, a loan modification is appropriate if a homeowner has fallen behind on mortgage payments or is struggling to make mortgage payments due to a financial hardship.
Why do mortgage lenders offer loan modifications?
The number one reason lenders offer loan modifications is financial. It is common knowledge that if a homeowner falls behind on mortgage payments, the mortgage lender can file a foreclosure action to take ownership of the home. But a mortgage foreclosure is expensive for a lender – they have to pay thousands of dollars in legal fees and costs, they have to maintain the property if the homeowner fails to do so, and oftentimes they have to pay the property taxes and hazard insurance on the property. After the foreclosure process is complete, the mortgage lender has to market and sell the property. The mortgage company would much rather be receiving regular payments on a loan than foreclosing. It is much cheaper and easier for a lender to enter into a loan modification than to go through the foreclosure process.
What documents and information are required to apply for a loan modification?
The chances of success with a loan modification are improved if the homeowner is organized. Some of the basic information and documents which will have to be supplied to the mortgage servicer are:
- Proof of all income from all sources. This includes paystubs, 1099 forms, pension statements, etc.
- A list of monthly expenses
- Bank statements
Is a loan modification still possible if the mortgage company already filed a foreclosure action?
Yes, a homeowner can apply for a loan modification at any time, whether a foreclosure action has been started or not. However, even if a loan modification application is submitted, the lender can still proceed with the foreclosure process. A homeowner seeking a loan modification must pay attention to any legal notices received, especially a notice of Sheriff’s sale. A homeowner may want to talk to a bankruptcy attorney about their options if a Sheriff’s sale of the property is scheduled before a decision has been made regarding the loan modification.
Does it make sense to hire an attorney to help with the loan modification process?
The loan modification process can be stressful, time-consuming and often complex. If you are a homeowner seeking a loan modification, you may not have enough time to devote to the loan modification process; or you may simply want the process to be handled by an expert who is familiar with the procedure. If that is your situation, you should consider hiring an attorney who specializes in helping people get a financial fresh start and has a record of success obtaining modifications for borrowers.
At the Law Offices of Lee M. Perlman, our goal is to get our clients relief from their financial distress through bankruptcy and non-bankruptcy options. We help individuals and small businesses handle issues with foreclosure, loan modifications, IRS debt, property tax issues, credit card debt, and collection agencies. If you need help with a loan modification application, or any other type of financial distress, contact us today for a free consultation.