Avoiding Foreclosure Through Loan Modification

Millions of Americans are struggling to make ends meet. Unemployment and rising fuel prices are putting more and more pressure on people struggling to meet their basic needs. The result is that many people are defaulting on their mortgages and losing their homes to foreclosure.

Because lenders also want to avoid foreclosure, they are often willing to work with borrowers to modify the mortgage terms to avoid default. However, this requires a borrower to approach the lender early, at the first signs of financial trouble.

The Process

A loan modification can take many forms; most common are interest rate reductions or changes to a fixed rate (from an adjustable rate mortgage) over a certain time period. Less often a lender will reduce the loan's principal balance. However, each case is unique and individually analyzed.

Most lenders have a formalized loan modification application process. The application generally requires documentation such as W-2 forms, tax returns and bank statements to verify the borrower's claimed financial hardship. The lender may also require additional information from appraisers and insurers.

Some lenders will then start a trial period with an agreed-upon change to the mortgage. This allows the lender to see if the borrower will make sustainable payments with the change. If all goes well, the changes will be made permanent and foreclosure will be avoided.

The Advantages

A loan modification is desirable over a foreclosure for many reasons. In a foreclosure, the borrower loses the house and all the invested equity. Some states hold the borrower accountable for any loss the lender suffers on the foreclosure. On the flip side, the IRS may see a foreclosure or deed-in-lieu of foreclosure as debt forgiveness and may tax the amount. That could mean double trouble in some states.

Foreclosure also appears on credit reports, which can make securing future mortgages very difficult. It can even negatively impact renting a home or apartment and buying a car. The bottom line is that a foreclosure should be avoided if at all possible.

Get Help

The loan modification process is complex and a thorough understanding of it is crucial to maximizing its full potential benefits. Because the internet is filled with both good and bad information about modification, seeking the help of an experienced loan modification attorney is a vital step in ensuring that your rights are protected during the modification process. If you are considering a loan modification, contact an experienced loan modification attorney to discuss your options and do whatever it takes to avoid foreclosure.