WHAT ARE THE BENEFITS OF LOAN MODIFICATIONS?
A loan modification is a solution for people who have missed at least three mortgage payments, but would like to remain in their home. If remaining in their home is not an option, a loan modification would not be their best course, unless they wanted to rent to someone else. If they want to remain in the home, there are two options. One is the full reinstatement of the loan, which means you make up all of the missed payments, plus any other fees that may have accrued, such as the filing of the lawsuit and attorney's fees. If you don't have a lump sum amount to pay all of that at once, then the loan modification is the preferred solution. You don't have to come up with a large down payment. You can basically just resume making mortgage payments, once it's been negotiated.
CAN A LOAN MODIFICATION STOP A FORECLOSURE? IF SO, HOW?
Once the contract is in place and the parties have signed that contract for a loan modification, it's supposed to prevent a foreclosure. There is a federal law that says if you get a complete package into the lender at least 37 days prior to them filing the foreclosure, the lender is required to stop the foreclosure while they evaluate your package. The trick is to get a lender to admit that they have a complete package. When people are applying for loan modifications on their own, a lender will constantly tell them that the package is incomplete. When you have an experienced attorney who has done many loan modifications, a lender is unable to consistently state that the package is incomplete.
Once the package is approved and the lender has agreed to provide for a loan modification, they're supposed to dismiss the foreclosure. In our experience of having completed over 3,000 loan modifications, we have seen a lender voluntarily dismiss without our intervention maybe a dozen times, at the most. Typically, we must remain engaged as a law firm. We must follow up with a lender and we must make sure that they actually dismissed the foreclosure action and that the loan modification is made permanent.
DO LOAN MODIFICATIONS AFFECT YOUR CREDIT?
If you're thinking about a loan modification, chances are your credit has already taken a hit. When you proceed with a loan modification, a comment code will appear on your credit report that says something like "paying by modified terms”. But getting back on track with payments could have enough of a positive effect on your credit over time to make up for this derogatory remark.