What Is A Loan Modification?
A loan modification is a mutual agreement between the borrower and the lender to
restructure the terms of the loan. The primary reason most individuals consider a loan
modification is because they cannot afford their current mortgage payment, or because they are paying for a mortgage where the value of their house has decreased dramatically.
If your only reason for considering a bankruptcy filing is because of your mortgage, you should consult with a debt relief attorney who is experienced with loan modifications first. The loan modification process can sometimes be difficult and time consuming when dealing with banks.
Steps to a Successful Loan Modification:
- A debt relief lawyer handling loan modifications should first analyze the mortgage and note to determine whether any provisions of the mortgage are in violation of any relevant consumer laws designed to protect consumers. In addition to confirming that the loan was not approved or funded via fraudulent means on behalf of the lender, it must also comply with consumer laws such as the Truth in Lending Act (TILA) and Real Estate Settlement and Procedure Act (RESPA). To the extent any violations exist, your debt relief attorney can use this as leverage to negotiate the best loan modification terms possible.
- The second step in the loan modification process is to obtain a “life of the loan” history including all applicable codes. The life of the loan history will detail whether any inappropriate charges have been added to the account. It is critical for borrowers and their debt relief attorney to carefully review the loan history to ensure there are no improper charges.
- Items that should be reviewed and checked thoroughly include: the monthly payment amount, any prepayment penalty if applicable, your impound account and the APR. Pay close attention to late charges or suspense accounts! Ask questions about anything you do not understand.
- Additionally, if the loan in question was a result of a refinance on a borrower’s residence, then borrowers should receive a “Notice of Right to Cancel” in writing from the mortgage lender. This right to cancel is sometimes referred to as a “Three Day Right of Rescission.” If the mortgage lender neglected or failed to provide written notice of this important consumer right, the rescission period can be postponed and last up to three years.
- In the unlikely event that all consumer rules and regulations have been followed closely by the mortgage lender, the consumer should seek out the lenders Loss Mitigation Department. This department will ask the consumer for detailed financial information, including pay stubs, bank statements and tax returns. The specific documents requested are required to supplement details of any financial hardship and will go a long way with your lender in having the modification approved.
- As part of the loan modification process, the lender may require a “good faith” or trial period before the final modification is approved. It is critical for borrowers to make these payments on time, or the lender could decide to reject the modification.
This information is simply a small overview of the loan modification process. Since this
process can be physically and emotionally draining, it is highly advisable that you seek an experienced debt relief attorney to help guide you through the process.
Be cautious of Loan Modification Schemes!
Under new laws recently enacted in California, a consumer should never pay a non attorney upfront fees for a loan modification. Only licensed attorneys can accept funds upfront. If any non attorney asks you for money before providing loan modification services tell them no way and consult with a debt relief lawyer to assist you instead.