Loan Modification FAQs
Loan modifications are simply changes in the terms of a loan, usually a mortgage, in situations in which the homeowner can no longer afford to make the monthly payments. Changes can be negotiated with the lender regarding the loan's interest rate, principal, monthly payment amount, and duration.
Homeowners seeking loan modifications may not always qualify, or they might agree to terms that could make their situations worse and hasten foreclosure. For these and other reasons, distressed homeowners should consult with a knowledgeable real estate attorney before entering into a modified loan agreement.
There are a number of frequently asked questions that homeowners may have regarding loan modifications.
Can I Qualify for a Loan Modification?
Not every homeowner can obtain a loan modification. You may not qualify if your home is well into foreclosure proceedings, you have no reliable or steady source of income, and your credit score is poor.
What if My Loan Is "Under water?"
If you owe more on the loan than the value of your home, you may still qualify. Many lenders will not want to foreclose on a home if they will lose even more money, so it is in their best interests to keep you in your home so long as you can make payments under a modified plan.
What Makes It More Likely for Me to Get a Loan Modification?
You are probably more attractive to a lender or bank to obtain a loan modification if you can demonstrate a hardship, such as loss of job, medical issues, recent divorce, or deployment for military service. Another situation is if your loan has an adjustable rate or is a sub-prime loan that has onerous terms you cannot meet. You must still, however, have the means to make payments at an agreed rate.
Do I Need an Attorney?
There is no requirement that you retain an attorney, but a skilled legal professional can provide the following benefits to you:
- Attorneys are more skillful at negotiating and are knowledgeable in the laws affecting loans and lending regulations.
- Lawyers can use the Truth in Lending Act and the Real Estate and Settlement Procedures Act (RESPA) to ensure lenders adhere to these laws.
- If violations occurred during the application process, your attorney can see that you receive a full refund of all the interest you paid on the loan.
- Your attorney can ensure that you are not the victim of questionable lending practices.
Can a Loan Modification Stop a Foreclosure?
Generally, the longer you wait and your situation worsens, the less likely you become to get a loan modification. Depending on the lender, the skills of your attorney, and the facts of your situation, however, you may still get a loan modification that will stop a foreclosure. If a reasonable plan is proposed and you have an attorney to present, it could have more credibility in the eyes of the lender who would rather you stay in your home and make payments.
Further, there are a number of federal loan modification programs that you or your attorney can explore if direct negotiations with the lender are not going well.