Using a Loan Modification to Avoid Foreclosure
If you lose your job, incur costly medical bills, or otherwise find yourself in a dire financial situation, you might find it difficult to keep up with your mortgage payments. If you can’t make some or all of your payments, your mortgage could go into default, potentially resulting in foreclosure on your home. Fortunately, an experienced foreclosure defense attorney can advise you on your legal options so you can get your finances on track and avoid ruining your credit.
A mortgage loan modification might be right for you if you’re facing financial hardships and can’t afford part or all of your monthly mortgage payment. Adjusting the amount you pay could prevent your loan from going to collections or the bank repossessing your home. A loan modification lawyer can help review the options available to you.
Don’t hesitate to talk to a compassionate and skilled foreclosure defense attorney at Amourgis & Associates, Attorneys at Law to understand your options for protecting your home and your financial stability.
What Is a Loan Modification?
When you apply for a loan, the contract outlines your monthly payments and the term (how long you have to pay off the money you owe on your property). The lender places a lien on the property, and if you decide to sell your home before paying off the mortgage, the lender will receive the remaining balance to release the lien. A modification is any change made to a mortgage.
A loan modification adjusts the original terms of the loan with the lender. The new terms you and the lender agree to could result in a temporary or permanent change to the monthly payment, term, and/or rate.
The goal of the loan modification process is to reduce your monthly payments to a more manageable amount. You want to avoid a collection lawsuit, damaged credit score, and foreclosure. Asking your lender to modify the terms of your agreement could prevent those unfortunate events from happening.
The loan modification process can be confusing to go through alone. It’s critical that you seek loan modification legal help to guide you through this process.
Mortgage Loan Modification Options
Federal laws regulate loan services and foreclosure procedures. Specifically, 12 C.F.R. § 1024.41 states that a servicer can’t initiate foreclosure unless the borrower is over 120 days past due on their mortgage payments. Before the foreclosure can even happen, your bank or lender must send you a breach letter informing you that your loan went into default. They must also include information about how you can resolve the issue, including options for modifying your mortgage.
Can a loan modification stop foreclosure? Yes, but you must submit your application to the lender at least 45 days before the scheduled foreclosure sale of your home. Additionally, your lender must approve the new terms of the contract, and you can’t miss additional payments.
You have multiple options for modifying your loan, so you don’t face foreclosure and lose your home. These options include:
- Lower interest rates – You might be eligible for a lower interest rate if you have enough equity in your home. If you refinance your mortgage with a lower interest rate, you can reduce the amount of your payments.
- Principal reduction – You could also decrease your monthly payments by reducing the remaining principal on your mortgage.
- Switch from adjustable to fixed rates – Many people choose adjustable-rate mortgages when they first apply for a loan. It seems like the better option because of the low-interest rates and payments. However, these interest rates often increase over time, leaving the borrower unable to afford their payments. If you refinance or convert your mortgage to a fixed-rate mortgage, your monthly payments might be more manageable.
- Extended loan terms – You could negotiate with the lender to extend the term of your loan. Spreading out your unpaid balance over a longer payment period could reduce your monthly payments. However, you’ll likely also pay higher interest rates and more money over the life of the loan.
- Postpone payments – You could temporarily defer or postpone your mortgage payments if you or someone in your family faces temporary hardships, such as a medical emergency, temporary disability, unemployment, or requirement to serve military duties.
A qualified attorney can help determine the right options for you.
How to Get a Mortgage Loan Modification
Eligibility for a mortgage loan modification will vary, but it usually depends on being able to show the following three factors:
- The home on your mortgage is your primary residence;
- You’re experiencing financial hardship; and
- You have enough income to afford payments under the modified terms of the loan.
To begin the process of modifying your mortgage loan, reach out to your lender and explain your situation. Ask them if you can change the terms of your contract and provide your proposed adjustments. Usually, you must be delinquent on your payments or facing imminent default to qualify for a loan modification.
Next, you must submit a completed loss mitigation application. Some lenders will also require documentation, such as:
- Income – Your source of income and how much you make
- Expenses – A list of your monthly expenses, including housing, transportation, food, and other costs
- Hardship letter – Detailed letter explaining why you can no longer afford your mortgage payments and your plan to resolve the issue
- IRS Form 4506-T – If you can’t provide your tax information to the lender, providing this form grants them access
- Documents – Proof of your financial standing, such as tax returns, loan statements, bank statements, and pay stubs
The loan modification process is complicated to handle alone. A loan modification lawyer can help you determine the best options for your circumstances and assist you so you don’t make a mistake on the application or leave out any documentation that’s necessary for the loan modification to move forward.
Talk to an Experienced Foreclosure Defense Lawyer
At Amourgis & Associates, Attorneys at Law, we serve the needs of clients throughout Ohio. With six office locations, you won’t have to travel far to see us. When you’re facing foreclosure on your home, you need a dependable foreclosure defense attorney.
We know this is an overwhelming and stressful time in your life. You can count on our legal team to protect your rights and remain by your side from start to finish. Learn more about how we can help with your mortgage loan modification by calling or filling out our online form for a free case evaluation.