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LOAN MODIFICATION

Many of our clients have been encouraged by their lender to miss payments so they can apply for a loan modification so they can keep their home. This usually results in the property going to foreclosure. 

In many cases the loan modfication process follows this pattern:

  • Lender reaches out to homeowner to offer a modification.
  • Homeowner provides lender with financial documentation to apply for modification.
  • Lender informs homeowner that paperwork is in review and to follow up in 30 days for the results.
  • 30 Days pass, and homeowner contacts lender for results.
  • Lender informs homeowner that paperwork is expired and new paperwork is needed.
  • Homeowner provides lender with new financial documentation.
  • Lender informs homeowner that paperwork is in review and to follow up in 30 days for the results.
  • Homeowner provides lender with new financial documentation.
  • 30 Days pass, and homeowner contacts lender for results.
  • Lender informs homeowner that paperwork is expired and new paperwork is needed.
  • This cycle can repeat many times, in some cases for up 2 to 3 years.
  • In some cases lenders will even instruct a homeowner who is current, to miss payments, or theymay not qualify for a modification.
  • Once a payment has been missed, the clock begins ticking on foreclosure timelines.

A common question we are asked is:

“Why would the lender want to force a homeowner into foreclosure or short sale?”

If the lender allows a modification, they will collect a small monthly payment from a borrower who usually has a hardship.

If they sell the property (foreclosure or short sale) they will receive a lump sum, often hundreds of thousands of dollars, when the sale closes.

They will also remove an “upside-down” loan from their portfolio by selling the property instead of keeping it on their books indefinitely.

Occasionally lenders do approve a loan modification, which usually temporarily lowers the intesrest rate on the loan, often for 3 months or up to several years,  but does not address the principal balance, which is the real problem for most homeowners.  It usually only delays the homeowner from short sale or foreclosure for a period of time.

It is strongly recommended that any homeowner considering a loan modification consult with a real etsate attorney before beginning the process.

If you would like a recommendation for an experienced real estate attorney, please contact us.

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