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Can I Modify the Loan of a Vacation or Rental Property?

Many people invest in real estate as a way to make money, while others just want a place to relax during the winter months. No matter the reason for investing in a second property, no investment is guaranteed, and many investors face the same dangers of foreclosure as traditional homeowners.

Under most federal and private programs, borrowers may not qualify for home loan modifications of rental or vacation properties. Guidelines usually stipulate that in order for a loan to be considered for modification, the property attached to the loan must be the primary residence of the applicant. Since a rental property is only the primary residence of the tenant occupying the property, and since a vacation home is not a primary residence at all, most lenders will not approve a request to modify these loans when the owner faces foreclosure, which is especially unfortunate for the tenants of rental properties.

Some lenders may allow home loan modifications of properties that only house a certain number of units, but lenders that do so are few and far between. The number of units allowed on a property for the purpose of approving a loan modification request is set by the lender, but the number is often low, usually in the ballpark of ten units or less.
Homeowners who rent out a portion of their primary residence do not have to worry about being denied for a modification request on the grounds that a portion of the property is rented out. So long as the address in question is the primary residence of the owner requesting the modification, it doesn’t matter how much of the property is rented out. This is good news for owners of duplex properties and individuals who rent out the spare bedrooms in their homes.

Owners of rental properties are urged to consider how their actions will affect the tenants of the unit. Owners should keep their tenants in the loop about financial troubles so that they aren’t taken by surprise if the property is foreclosed on and they are forced to move. Some owners may be surprised to find that their renters are more than willing to throw in some extra cash every month if it will help them stay in their unit, but don’t expect such kindness from everybody.

As for owners of rental properties, maybe it’s time to let go. Spending time in the sun is great for those that can afford it, but individuals facing foreclosure need to step back into reality. The benefits of owning a vacation home do not outweigh the benefits of avoiding foreclosure, plain and simple. Attempting to save a rental property can be justified by the potential profit that can be made from the renters, but little justification exists for maintaining a vacation home that sits unoccupied for months at a time.

While most lenders and administrators of government loan modification programs are unwilling to bend when it comes to their policies regarding vacation and rental properties, some borrowers may be surprised to learn that certain lenders will entertain loan modification requests for rental and vacation properties on a case by case basis. Contact a local real estate / finance attorney for more guidance on determining the specific policies of the lender in question with regards to how the lender handles requests to modify the loans of vacation and rental properties and for advice on how to increase the chances of being approved for such a request.