Loan Modification Fact and Fiction – Who Qualifies and What Can Be Modified

Loan Modification Fact and Fiction - Who Qualifies and What Can Be Modified
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  • Do you owe more than your home is worth?
  • Is your rate adjusted so high that you can’t make your monthly payments?
  • Have you received calls or mail offering loan modification services?

This article explains who qualifies for a loan modification. It describes what can be negotiated with the lender and provides advice on how to decide whether to pursue a loan modification alone or hire an expert.

Should you hire someone to help you modify a loan?

The answer is maybe, maybe not. Before you hire a company to negotiate on your behalf, understand that you can negotiate on your own. There is no “magic” that lawyers, mortgage brokers, or anyone else can bring to a loan modification negotiation. Homeowners can take advantage of the free information available from HUD and the California Department of Real Estate and try to negotiate a loan modification themselves. A lawyer or broker can communicate on your behalf and try to negotiate to modify the terms of the loan, so can you. Recently, the state of California enacted Senate Bill 94 banning advance fees for home loan modification services. As a result, most loan modification service providers have stopped providing services.

Should a homeowner use an attorney or firm that “specializes” in loan modification?

Homeowners who are behind on mortgage payments are often approached by individuals or companies who will offer loan modification assistance. But California law now prohibits anyone from accepting an advance fee. Any person or company seeking an advance fee is breaking the law now that SB 94 has been introduced. The loan modification industry used to be fraught with deceptive practices. Many companies in California have tried to take advantage of desperate homeowners by offering to help them save their homes. Much more than promised and short on delivery. Brokers cannot provide legal advice and may no longer have more knowledge of real estate law than a homeowner can obtain from HUD and the California Real Estate Department.

What can a lawyer do that a homeowner can’t do for themselves?

A lawyer can review the loan for legal flaws that can be used as a bargaining chip with the lender, but the most important thing a lawyer can do is act as an unemotional advocate and try to convince the lender that the loan modification is in the best interests of both parties. In other words, the lender will make more money by agreeing to a loan modification rather than foreclosure on the property. Most attorneys prepare a report that highlights the homeowner’s financial situation and describes why a loan modification makes sense for both the homeowner and the lender.

What can be negotiated with the lender?

Reinstatement: The lender may agree to let you pay the total amount you defaulted on, in a lump sum payment and on a set date. This is often combined with forbearance when you can show that money from a reward, tax refund, or other source will be available at a specific time in the future.

Patience: Your lender may offer a temporary reduction or hold on your mortgage payments while you get back on your feet. Patience is often combined with a reinstatement or repayment plan to make up for lost or reduced mortgage payments.

Payment Plan: This is an agreement that gives you a set period of time to pay off the overdue amount by combining a portion of what is past due with your regular monthly payment. At the end of the payment period, you have gradually paid off the amount of your delinquent mortgage.

Loan Term Changes: This is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your note to make payments more affordable. This is the goal of most homeowners who have problems with home loans. A loan modification agreement changes the terms of your loan—a lower interest rate may be implemented, the loan term extended, and an adjustable-rate loan converted to a fixed-rate loan.

What are the problems with loan modification?

Many people will not qualify. Good candidates are homeowners who have a clear reason for being left behind, such as a change in their income or loan amount, and can prove they have enough income to make the payments if the terms of the loan are changed. Mortgage is a business. A loan holder will not consider a loan modification unless the homeowner is able to make the new payments. If he’s a current homeowner, and pays on time, he’s less likely to get an adjustment. Loan servicing companies are less likely to negotiate than banks because they often lack the ability to modify loans.

If you’re considering loan modification, check out all the free information available. Think twice about trying to do it yourself. If you decide to get help, a qualified attorney can explain the law, review your situation, and guide you toward the most appropriate options.

Source by Galen Gentry

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