Frequently Asked Questions About Loan Modification
For many people, owning a home is the fulfillment of a lifelong dream, but when life throws unexpected challenges at us, the dream can slip away quickly, resulting in a mountain of debt, uncertainty and financial hardship. However, with the variety of loan modification programs available to struggling homeowners, including HAMP Modifications, CAP Modifications and lenders’ in-house programs it certainly doesn’t have to be that way.
The loan modification process can be overwhelming, time-consuming, and confusing. The California loan modification attorneys at McFarlin LLP provide answers to some of the most frequently asked questions we receive from homeowners considering their loan modification options.
Do I Qualify for Loan Modification?
Nearly all borrowers qualify for a loan modification review through their lender including primary residences, investment properties, and even commercial real estate. Once in the review process, it is difficult to predict the outcome, however as a general guide lenders typically make their decision based primarily on income and the ability of the homeowner to cover the mortgage payment going forward. Lenders are often willing to let the past go, so long as future income looks strong.
Proving future income can be challenging for some borrowers, lenders usually look at current pay-stubs or business profit and loss statements, bank accounts, and tax returns. When income is strong and verifiable, the homeowner has a good chance at a favorable modification.
What Information Do I Need for a Loan Modification?
Proving that you qualify for loan modification will require documentation illustrating your financial circumstances. These include:
- Proof of income including paystubs or P&L if self-employed;
- Proof of residency at the property including utility bills;
- Recent bank statements;
- Tax returns;
- Proof of other sources of income;
- Hardship letter explaining the situation that caused the delinquency.
Often-times even when income is strong and the hardship has passed, lenders still decline loan modification applications. If you feel you have been wrongfully declined, you may have a strong lawsuit against the lender which could result in a favorable modification.
What are Acceptable Hardship Situations?
Some common hardship situations include:
- Loss of job or income
- Death in the family
- Job relocation
- Military service
- Medical bills
It is tempting to blame the lender for your hardship due to their disorganization or mistake in processing payments or adjustment in the loan terms. We caution you to try to take responsibility on yourself rather than blame the lender (even though it’s often truly the lenders fault). In this sense, for a successful modification, you have to play by their rules unfortunately.
What are the Benefits of Loan Modification?
Loan modification success results in your lender agreeing to make a change to your home loan payment in order to create affordable payments. This is meant to prevent foreclosure and help you stay in your home. Loans are modified in three primary ways (Realistically):
- Reducing your interest rate,
- Creating a longer term for your loan, or
- Shifting a large portion of the loan to the end of the loan as a balloon payment.
A successful loan modification will reduce the financial burden of loan payments, and get the homeowner out of foreclosure so they may keep their home in the future.
Why Was My Loan Modification Denied by My Lender?
The most common reason lenders decline loan modifications is based on income. Most commonly insufficient income to support the mortgage payment going forward, or insufficient proof of income to convince the underwriter that you will not default again. In presenting long modification documents (and income documentation) to your lender, income must come in high enough to make a reasonable mortgage payment, but no so high that the lender doesn’t think you need any help. It can be a narrow window of where income needs to fall in order to qualify for your loan modification.
If your income seemed appropriate for you mortgage payment and you were still declined, you may have a good litigation option. Lenders wrongfully decline homeowners every day and without legal representation, homeowners often don’t realize the options they may have to keep their home.
What is Commercial Loan Modification?
Business owners who have taken out commercial real estate loans have the ability to apply for a commercial loan modification as well. Commercial loan modification can be challenging as many of the protections afforded to homeowners do not apply to business loan situations, nonetheless, there are many options to explore with proper legal representation.
A successful commercial loan modification can prevent foreclosure on a business, reduce payments, lower interest rates, extend the terms of a loan, and temporarily suspend loan payments. You may also be able to create a commercial short sale, if this is the only way to prevent foreclosure and severe debt.
Can a Loan Modification Eliminate Fees?
As part of preventing your foreclosure, a successful modification can eliminate many late fees and penalty fees that have accumulated. If not eliminated altogether, these fees can usually be added to the principal of the loan (along with back payments or “arrears”) so that the homeowner or property owner can begin making a reasonable monthly payment again.
Where Can I Find More Information About My Loan Modification?
At McFarlin LLP, our legal team understands how complex and confusing the loan modification process can be to homeowners suffering a financial hardship. That’s why we provide in-depth legal assistance throughout the entire process. To learn more about how we can guide you to the best result possible, call us at (888) 728-0044 and receive a no-cost consultation.