Despite your best efforts, you’ve missed months of mortgage payments. You’re getting large packets of mail from your lender and don’t understand what they mean. By now you may have gotten a notice of intent to foreclose. Somewhere in the mess of letters and papers, you start to see the words “loss mitigation” and “loan modification.” You begin to look at the massive amount of paperwork required in the loan modification process, but it looks complicated and confusing. You’re not sure what is the best way to save your home.
Loan modification is a powerful tool that you can use to avoid foreclosure, without having to file for bankruptcy. But the loan modification process is complex and can be overwhelming. If you are trying to modify your home loan on your own, you are likely to run into all sorts of problems. That’s why it’s crucial to hire an experienced attorney who specializes in this area. By working with an experienced professional, you can rest assured that the process will go as smoothly as possible-and that you have the best chance of getting approved for the right loan modification.
Steiner Law Group has extensive experience with the loan modification process. We know the hurdles involved in the loan modification process-and have experience with overcoming them.
Modifying a home loan may be your best option to save your home, but once a certain point in time is passed, it is highly likely your only solution will be to file for bankruptcy. That is why the time to act is now. In this article, we are going to break down the 6 stages involved in the loan modification process and explain, in each stage, how the right attorney can help.
Getting approved for a mortgage loan modification can be a huge relief for struggling homeowners. But the process doesn’t end there. Here’s what to expect after your loan mod is approved, from finalizing the paperwork to successfully making your new monthly payments.
Overview of the Loan Modification Process
First let’s quickly recap what happens before loan mod approval
-
You experience a financial hardship that makes it difficult to pay your mortgage, such as job loss, reduced income, major medical expenses, etc
-
You contact your mortgage lender/servicer to explain your situation and request mortgage relief options
-
The lender reviews your application and documentation to verify your hardship.
-
If approved, the lender offers you a loan modification agreement with new loan terms to make your payments more affordable.
Once you accept the loan mod offer, here are the next steps:
You’ll Receive Final Loan Modification Paperwork
After agreeing to the loan modification terms, your servicer will send final paperwork to make the changes official. This package is typically sent within 1-2 weeks after you accept the offer.
The documents will include your modified mortgage note outlining the new loan terms, which you’ll need to sign and return. Carefully review all paperwork before signing to ensure the terms match what you already agreed to.
In addition to signing the modified note, the package may include:
-
Disclosure forms with details about your new loan terms, monthly payment, interest rate, loan balance, payment due dates, etc.
-
A cover letter explaining next steps.
-
Instructions for returning documents by a specified deadline, often 10-14 days.
-
Contact information if you have any questions about the paperwork.
-
Other servicing notices mandated by law.
Be sure to promptly sign, date and return the loan modification documents by the deadline given. Your lender can withdraw the offer if you don’t return completed paperwork on time.
You’ll Start a Trial Period with Your New Payment
Before the loan modification fully kicks in, you’ll go through a trial period, typically lasting 3-4 months.
During the trial period, you’ll make monthly payments at the new modified amount established in your loan mod agreement. This allows the lender to verify you can handle the new payment.
It’s extremely important to successfully make all trial payments on time. If you miss a payment, your loan mod could be denied and canceled. Contact your servicer immediately if you anticipate any issues making a trial payment.
At the end of the trial period, assuming you’ve made the new payments as agreed, the mortgage modification will be permanently applied and take full effect.
The Modification Will Be Formally Finalized
After you successfully complete the trial period by making on-time payments, your mortgage servicer will formally finalize the permanent loan modification.
You’ll receive a final set of loan documents to sign in order to complete the process. This paperwork will cement the agreed-upon modification terms into your loan for the long-term.
As before, promptly sign and return the final loan modification documents by the specified deadline. Your new monthly mortgage payment and modified loan terms will then be in place going forward.
Your Credit Report Will Be Updated
When your loan modification is finalized, details will be reported to the national credit bureaus. The account status will show as “modified” on your credit reports going forward.
Unfortunately, a loan modification can ding your credit score. The specific impact varies, but score drops of 50-100 points are common.
Your score should begin to recover after about a year of consistently making on-time payments at the modified amount. Bringing accounts current and keeping credit card balances low will also help.
Expect Changes at Tax Time
Modifying your mortgage can potentially impact your tax situation. Here are some key points on how a loan mod may change your tax deductions:
-
Interest may no longer be fully deductible if your loan balance increased.
-
Total interest paid will change due to the modified rate and term length.
-
If principal was reduced, your deduction for mortgage insurance premiums may be affected.
-
New closing costs are typically deductible for the year they were paid.
Consult a tax pro to determine how your specific mortgage modification will impact your tax situation. You may lose some deductions but also gain others.
Refinancing the Modified Loan Will Take Time
Since your credit score will drop initially after a loan mod, it will likely take about 12 months before refinancing makes sense.
Most lenders want to see you make timely payments for a year after a significant credit event before approving new financing. This proves you can manage the modified mortgage.
Refinancing the modified loan sooner is possible but will mean higher rates and costly points. Be patient and focus on repairing your credit first.
You May Regain Home Equity Gradually
One disadvantage of loan modifications that add missed payments to the loan balance is that it reduces your equity in the home.
But over time as you make payments at the lower amount, you can start to slowly rebuild equity again. Consistently making on-time payments is key.
You’ll also benefit from any home value appreciation over the years. Maximizing your payments when possible helps accelerate equity recovery.
Options If You Struggle with New Payment
Hopefully the reduced payment after a loan modification will be sustainable for you. But if you still struggle with the new amount during or after the trial period, you may have options including:
-
Requesting an additional modification.
-
Seeking a different relief program like forbearance.
-
Listing the home for a short sale.
-
Voluntarily starting the foreclosure process.
Your lender may allow multiple modifications over the life of your loan. Keep communicating with them about any continued hardships so they can suggest alternatives.
Celebrate Getting Back on Track
Although it takes some time for a loan modification’s benefits to be fully felt, celebrate the initial accomplishment of getting your mortgage back on track and avoiding foreclosure.
You’ve proactively taken control of a difficult situation through the power of communication. Now you can look ahead to rebuilding your credit, equity and financial health over time.
With your new affordable payment in place, try to “pay yourself first” by saving any extra money each month for emergencies and goals. Even small amounts add up.
If you continue making on-time modified payments, your lender will see you as a low risk borrower again down the road when you eventually look to refinance or buy a new home.
Recap of the Post-Approval Loan Modification Process
To recap, here are the key things to expect and keep in mind after your mortgage loan modification is approved:
-
Carefully review and return final loan modification paperwork sent by your servicer.
-
Make all trial period payments for 3-4 months in full and on time.
-
Final documents will be sent after successfully completing the trial period.
-
Your credit score will drop initially but recover over time.
-
Consult a tax pro to understand how your taxes will be impacted.
-
Wait at least 12 months before refinancing the modified mortgage.
-
Gradually start to rebuild home equity by making consistent payments.
-
Communicate any continued struggles to the lender.
-
Celebrate getting your mortgage back on solid ground!
With a lower monthly payment in place, stay diligent about making on-time payments while slowly repairing your credit. Your lender will reward your commitment by supporting new financing options when the time is right.
Talk to Your Servicer and Request Application Materials
The first step in the loan modification process is to contact your servicer. Specifically, you will have to ask for the “loss mitigation department.” This department is sometimes also called “home retention.” You will need to do this to obtain the loan modification application materials.
You will also have to look over all the various, inconsistent pieces of mail sent by your lender.
At this stage, a qualified loan modification attorney can help you decipher all the letters and packets of mail sent by your lender. It is important to note that once the application process has started, your mail will increase twofold.
While involved with the loan modification process, you will likely be given all sorts of dates and deadlines-ALL of which you will have to keep track of. You will need to record the various dates of foreclosure activity, and all sorts of deadlines when different options are due.
You will be told things like this – You can request a modification 90 days or more before a foreclosure sale, but a servicer may require you to accept or reject the modification offer within 14 days. But if you apply less than 90 days before a foreclosure sale, your servicer may require you to accept or reject the offer within 7 days.
That’s a lot to keep track of! And missing a critical step could cost you your home.
A competent loan modification attorney will help you keep track of these dates and ensure all the right information is submitted at exactly the right time.
A Good Lawyer Will Iron Out the Best Deal
An experienced loan modification attorney will work with you throughout the entire loan modification process, to ensure that you are prepared if your lender throws you any curve balls.
They will also iron out the best deal possible for you. They will speak with your lender on your behalf and negotiate the right deal so you can get that much-needed relief to save your home.
Once you have signed and resubmitted the loan modification offer, you will enter into a trial period or Trial Payment Plan (TPP). This is a period (usually 3 months) where you essentially prove to your servicer that you can make the modified loan payments. During this stage in the loan modification process, your lender cannot foreclose on your home-provided you make the payments.
This is where having the right loan modification is vital-if you get a deal that does not actually help you, you will be unable to complete the trial period and you will be back to square one.
Loan Modification Secrets| Loan Modification Explained
What is a home loan modification?
A home loan or mortgage modification is a relief plan for homeowners who are having difficulty affording their mortgage payments. Borrowers who qualify for loan modifications often have missed monthly mortgage payments or are at risk of missing a payment. Here’s what you need to know to get a mortgage loan modification and stay in your home.
What happens after I’m approved for a loan modification?
Lenders find ways to complicate the process up until the very end so – it is important that you understand what you can expect once you’re approved so you can complete your modification without any issues. Once approved for a loan modification, your lender will: Notify you that you got approved (in writing) and offer you a Trial Payment Plan (TPP)
Can you get a mortgage loan modification?
But depending on the circumstances, you may be eligible for a loan modification, which can make it easier to stay on top of mortgage payments and avoid foreclosure. If you’re in this position, here’s what to know about getting a mortgage loan modification.
Can a loan modification lower your monthly mortgage payment?
Though the terms of your modification are up to the lender, the outcome is lower, more affordable monthly mortgage payments. Foreclosure is a costly process for lenders, so many are willing to consider loan modification as a way to avoid it. » MORE: How to lower your monthly mortgage payment Who qualifies for a loan modification?