Last updated May 17, 2018.
Falling behind on your mortgage? It’s a scary thing to deal with, especially with the looming specter of foreclosure. While that is an option, most lenders use foreclosure as a last resort. It’s time-consuming and expensive and they’d much rather work with you to modify your loan than foreclose on your home.
Modification of your mortgage can lower your payments and give you the time you need to get back on track. Check out these five tips for making the modification process as smooth and simple as possible.
Article at a Glance
- When you fall behind on mortgage payments, don’t wait to call your lender. They may be able to work with you on a mortgage modification.
- Be sure to gather all your financial information ahead of seeking a mortgage modification. What are your lender’s policies on mortgage modification? Do they have trial periods? Do your research.
- Some groups are ready and waiting to try to scam you when you miss a mortgage payment. Be careful of anyone who approaches you about a loan modification that is not your actual lender or a government organization.
- An attorney may be able to help you with your loan modification, or exploring other options to save your home, such as bankruptcy.
1. Don’t wait to call your lender
When you start to fall behind on your mortgage payments, call your lender. It’s much easier to work out a modification program when you’re two payments behind than when you’re six or seven or 10 payments behind.
Whether you seek help from your lender or from a state or federal program, you have more options earlier in the process. The longer you wait, the more restricted your options are. Seeking help early will also demonstrate that you’re acting in good faith; you’ll show the bank or the government that you truly want to keep your home and that you’re doing everything you can to make that happen. If you wait for the bank to come after you, it looks like you’re trying to take advantage of the bank by refusing to pay for as long as possible.
2. Gather your financial information ahead of time
Get all of your loan documents and other financial information together before you seek to modify your loan. Make sure you’re very familiar with everything and that it’s organized so that someone else can understand it, too. You’ll need to show why you’ve missed payments in order to qualify for loan modification programs. Collecting unemployment? Bring the records. Serious changes in the home such as divorce or death? Bring the records for that, too. The better the bank or government agency understands your situation, the easier they’ll be able to find an option that can work for you.
3. Learn your options
Take a look at your lender’s policies on loan modification. Familiarize yourself with any programs they have available and with the application process for those programs. If you have questions, write them down and take them with you when you meet with your bank. You’ll want to be very certain that you understand the requirements and terms of a loan modification. Information about eligibility requirements and modification options is available on your bank’s website or over the phone.
Your lender may not offer loan modifications or may require you to seek help from government programs first, so you should also take a look at the different federal and state loan modification programs. California is one of the states hardest hit by the housing crisis, so it receives special funding to help struggling homeowners. Look at the different programs available and get in contact with their housing counselors to get a sense of which program is best for you and for which programs you qualify. For information on government programs, you can start here or call 888-995-HOPE.
4. Beware of scams and trial periods
Your name goes on the Notice of Default list once you miss mortgage payments, and that list is public. Anyone can look you up and offer you a loan modification. Do a background check; make sure you’re talking to your actual lender or a genuine government-approved organization. Many groups claim government approval or pretend to be lawyers in order to lure unsuspecting homeowners into scams. Do your research; get online and make sure they are who they say they are. Check with the Better Business Bureau and the Department of Housing and Urban Development.
The housing crisis has provided ample opportunity for unscrupulous individuals to take advantage of homeowners struggling with mortgage payments. Take the time to learn your rights so that no one takes advantage of you. For example, charging an up-front fee for a loan modification is against the law in California. You should also beware of scams that offer to purchase your house and rent it back to you until you can afford to buy it back. That may be a way for the purchaser to evict you and sell your home for a profit. As a general rule of thumb, remember that if it seems too good to be true, it probably is. For basic information on your rights and how to avoid mortgage loan modification fraud, check out the California Department of Justice website.
Scams aren’t the only thing homeowners need to worry about when seeking a mortgage modification. Trial periods can also be a concern. Some lenders will offer trial periods, in which the borrower makes reduced payments for a few months. When the permanent modification is later turned down, the borrower owes the difference between the trial amount and the regular payment. This can actually push some families closer to foreclosure.
5. Talk to an attorney
Attorneys deal with mortgages, loan modifications, and foreclosures all the time. They’re familiar with the process and have contacts in the banks and in the government. Your attorney can help you with the difficult process of applying for a loan modification and can help mediate contact between you and your lender. Your attorney will also be familiar not only with many loan modification options but also with other options, such as bankruptcy. Your attorney also knows your rights inside and out and can make sure you’re not being taken in by a scam. Even though you’re struggling to make your mortgage payments, it’s worth the cost if it means keeping your home.
Bottom Line: A Mortgage Modification May Help You, But May Not
A loan modification can help you save your home from foreclosure. The bank would rather work with you than foreclose on your home. Make the process easy for them and for you by following these tips. With a loan modification, you may be well on the way to getting your finances back on track, but remember, there are other options. To learn more, contact Borowitz & Clark today for a free consultation.
Barry Edward Borowitz is the founding partner of Borowitz & Clark, LLP, a leading bankruptcy law firm that represents clients petitioning for bankruptcy protection under Chapter 7 and Chapter 13 of the bankruptcy code. Mr. Borowitz has been practicing bankruptcy law exclusively for more than 15 years. View his full profile here.