What is a Loan or Mortgage Modification?
Loan modification is a topic we get asked about in almost every case involving someone who is behind on his or her mortgage. Essentially, it is an agreement between the homeowner and the mortgage servicer or lender to permanently change one or more of the terms of the mortgage contract and/or promissory note securing the home. In most instances, it is utilized by borrowers to get caught back up on their mortgage payments instead of going into a Chapter 13 Bankruptcy to get caught back up.
In order to make your home loan modification work, the mortgage company will have to rewrite the terms of the loan such as the payments, interest rates, loan length and almost every other aspect of the loan. They do this to accommodate the borrower so that he or she can start making regular monthly payments again while deferring the amount behind to be paid throughout the modified loan or a(balloon Payment) at the end of the loan.
A Chapter 13 Bankruptcy also allows you to get caught back up on your mortgage. However, in Chapter 13, you will only have a 3 or 5 year period to get caught back up on how far you are behind as well as start paying the regular monthly mortgage payments and a portion, if not all, of your other debts. Depending on the situation, this payment may likely be much more than a loan modification. This is why it is important to review the entire situation and make a calculated decision before deciding how best to go forward.
Loan Modification Process
If you have ever applied for a mortgage modification before or have tried to Google it, you probably know how frustrating of a process it is. The inability to get straight answers from your mortgage company, receiving all of the correct forms and keeping the bank from losing your documents can be stressful and mind-boggling, to say the least. This coupled with the fact that the mortgage will continually ask for documents you already previously provided leads many people to quit. However, all that work will be worth it in the end because many of the loan modifications received are great and make your payments go down monthly, even though you may be severely behind. For instance, we have seen and helped people with many loan modifications from Wells Fargo, Nation Star, Bank of America, Mr. Cooper, and countless others and have been surprised by how much the banks are willing to defer and still keep the payments the same or lower.
To qualify for a mortgage loan modification agreement, typically the borrower must show a short-term change in circumstances that have created financial hardship and in turn the inability to pay. As part of the loan modification process, your lender will likely request a hardship letter in which you will need to when and how your hardship occurred. Some hardships that have been deemed acceptable by some lenders include:
Loss of Job
Death of Family Member
Reduction of Income
Divorce or Marital Separation
In addition to the hardship affidavit, a borrower must also fill out a loan or mortgage modification packet supplied by the lender as well as supply a specified number of bank statements, pay stubs or profit/losses, tax returns, copies of utility bills, a tax form known as a 4506T, a Dodd-Frank affidavit and anything else the bank specifically asks for. This list frequently changes and varies from bank to bank.
It's a process of working hard and following up with your lender weekly to make sure they have all of the needed documents, that the documents are in the form the lender needs and the lender is not claiming you are missing anything. It is extremely common for lenders to claim that they haven't received documents that were specifically sent by fax or in a certified mailing.
In order to be approved for a loan or mortgage modification program, your income, expenses and other debts need to be at certain levels. There are also additional factors and things that can prevent someone from qualifying but are much too lengthy to list here. But all too often there are situations where someone has applied and is getting the runaround or wrongfully denied after doing everything the bank has asked. In these situations, it is best that the borrower contact an experienced attorney who actually understands the process and litigates cases to review the situation and help out with the loan modification.
Alex Tuttle has been recognized and rated as a Top Attorney and Distinguished Attorney in the area of Civil Litigation, as well as a Client Choice and Top Contributor by Avvo and regularly, represents clients in Bucks, Chester, Delaware, Montgomery, Lehigh, and Northampton Counties. If you are in need of any assistance or have any questions, please contact us to go over your situation. We would love the opportunity to help you and get your life back to normal.