Home Loan Modifications

When the real estate bubble burst, many homeowners found themselves in a perilous position. First, many homeowners found themselves holding onto houses that were severely underwater. In other words, they owed much more on their house than it was worth. These homeowners were making monthly payments which were significantly higher than what the payment should have been for the house. Second, along with the real estate burst came unemployment. A homeowner who is facing a high amount of negative equity who then loses his or her job likely must make tough decisions as to where to spend the remaining amount of money that they had. Oftentimes, this meant that homes payments simply cannot be met.

As a result, foreclosures increased and homeowners lost their homes. In response, the US government created the Home Affordable Modification Plan (“HAMP”) …..which was a disaster. In the beginning months and years of the HAMP program a few thousand mortgages were modified while millions of homeowners were rejected. Thereafter, many of the large lenders started in-house modification programs resembling the federal program but run much more efficiently. In our experience, we have seen many more homeowners receive a modification of their home mortgage in recent years as result. This is good news for the homeowner, because for many homeowners that are behind on their mortgage, their options are very limited.

Home loan modification generally works in this way: the missed monthly payments are tacked onto the end of the mortgage loan and the interest rate is lowered to allow for the debtor to make affordable payments. This is a tremendous opportunity because it essentially deems the mortgage current and at the same time, reduces a homeowner’s monthly payment. The process is long and daunting as it requires the debtor to provide significant financial paperwork. This process is also frustrating for the homeowner as he or she will have to mail those documents to the lender multiple times, since much of the paperwork can be lost in transition. However, we routinely advise clients that the benefits of modification greatly outweigh the burden. The terrifying thing for homeowners in the midst of a modification process is that oftentimes, the bank will be conducting foreclosure at the same time as negotiations of the modification. This is startling to many homeowners since the bank is telling them on one hand that they are moving forward with the modification and that everything looks good while with the other hand they are filing the necessary paperwork to repossess the home via a foreclosure. In fact, we have had clients who have received their modification mere days before the foreclosure.

Unfortunately, not every modification is approved. The decision is based on ability to pay and other criteria of the bank and government, which inherently means that some will get approved and some will get rejected. If you are rejected, then you may have to face the only two viable alternatives: letting the house go to foreclosure or filing for a chapter 13 bankruptcy in order to save your home. In our experience, a home loan modification is by far the best result for an unfortunate situation that in some circumstances has been going on for years. A modification often requires a trial period of three months for the bank to test your ability to make the modified payments. If you are successful and timely in making these payments, the bank will then grant your permanent modification and your payments will be set until the end of the loan or until you default again.

If a modification fails, then a homeowner has certain defenses in the foreclosure process. While these defenses may not necessarily allow the homeowner to keep the home, it certainly may allow additional time in the home. The experience attorneys and Arnold & Smith, PLLC can help you negotiate with the bank for a modification and defend against foreclosure. We invite you to contact us to set up an initial consultation discuss your rights and your opportunities to save your home.