Loan Modification Process

A loan modification is where your lender agrees to change the terms of your existing loan.  It is just one of several Foreclosure Alternatives.  It is similar to a refinance, but does not involve a new lender or loan and typically involves a reduction in the interest rate on your existing loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.  In addition, the current federal programs, including HOPE for Homeowners and the Homeowner Affordability Plan give lenders incentives for modifying existing mortgages to keep people in their homes.  Some of the results are:

*  Reduced interest rate to lower payments

*  Extend loan from 30 years to 40 years to lower payments

*  Temporary avoidance of monthly payments

*  Reduction of principal
 

Each lender has its own criteria for eligibility for a loan modification and the terms of the modified loan often vary by lender as well.  An experienced attorney can assist in determining whether you qualify for an eligible program and can more effectively negotiate the best possible result for the homeowner.

The most important point about a loan modification is that the lender will be unlikely to agree to a modification without evidence to show that the borrower will be able to make the future payments.  We prepare a package for our clients that is sent to the lender to provide evidence of the reason for the modification, proof of ability to pay, and a requested result.    Often if there are violations of laws, such as the Truth in Lending Act (TILA) or the Real Estate Settlement Procedures Act (RESPA) that occurred during your loan process, those can be used in negotiations.  If the lender violated these federal laws, the lender could be sued for all principal and interest paid during the life of your loan and other damages.