If you've experienced financial hardship, and you're thinking about asking your mortgage lender for a loan modification, you have two options. You can either go it alone and work directly with your mortgage provider, or you can pay an attorney to help you. There are some instances when it's a good idea to hire an attorney, which we'll discuss in this article.
Defining a Loan Modification
First, let's make sure you understand what a loan modification actually does for you. Mortgage loan modifications permanently restructure your mortgage loan by changing one or more terms from the original agreement. In essence, you're negotiating with your mortgage company to help lower your payments in some way.
There are three specific terms that lenders can change. The first is the interest rate. Lenders may offer to lower your interest rate or change your loan from a variable interest rate to a fixed interest rate. This option reduces the money they make, so it's not a favorite option for most lenders. This is where knowing your financial situation and your legal rights come in handy, especially if the lender is not offering a fair modification.
The next term a lender might change is the length of the loan. Most mortgages are set up for a 30-year repayment period, but a lender may agree to extend the length to 35- or 40-years in certain circumstances. This option isn't always the best for you because it adds another 5-10 years interest to your loan, costing you more in the long run. It's also a risky move if you don't plan to stay in the house for the length of the loan as it will eat at your profits when you decide to sell it.
Finally, a lender may also agree to alter the principal amount in some way. This option is rare as it doesn't benefit the lender. But, in certain cases, a lender may be willing to lower the principal balance to help homeowner's catch up on their mortgage payments.
It's important to understand that most lenders don't want to foreclose on a property because it's expensive and time-consuming for them; however, they also want to ensure any deals they make are financially beneficial for them. It's not uncommon for lenders to help steer homeowners toward the option that is best for the mortgage company, which is why you might need to hire an attorney if you're not familiar with loan modifications or your legal rights.
When You Should Hire an Attorney
If you've fallen behind on your mortgage, you may be stressed enough about finances. The last thing you want to worry about is hiring an attorney. However, loan modifications are a negotiation, and if you don't know how to negotiate, you could end up paying more in the long run. Here are situations in which it's a good idea to hire, or at least consult with, an attorney.
You Don't Know What to Do in Your Situation
When you fall behind on your mortgage payments, foreclosure is always a possibility. But, you have several options to help you avoid foreclosure, and an attorney can ensure you choose the one that's right for you.
In addition to loan modifications, there are also forbearance agreements, repayment plans, fighting foreclosure in court, and giving up your home in a short sale. Determining which one is best for you depends on your financial situation, and a lender may not be the most objective party to discuss it with. An attorney will ask the right questions, and help you make the best decision for your situation.
Attorneys can also help you understand your legal rights, and what you can expect during each phase of the process. Most attorneys offer a free consultation. If you don't know the first thing about loan modifications or any of the other options available to you, it is worth your time to sit with an attorney and at least discuss your situation to get a recommendation. You can decide from there to secure their services or not, but at least you'll know more about the process.
You Don't Understand the Loan Modification Paperwork
If you decide loan modification is the route you want to take, then you'll have to apply with your mortgage lender. There is a detailed application, and the lender will also require financial documentation to prove your financial hardship. It's a good idea to hire an attorney if you have specific questions about the loan application, the required documentation, or if you're struggling to explain your financial situation.
An attorney will guide you through filling out the paperwork and gathering the required documentation, but they will also help you present your situation in the best light. An attorney can't guarantee your mortgage company will approve your modification with their help, but they can certainly increase the likelihood that you'll get it because they know what lenders are looking for on those applications.
Your Mortgage Lender is Violating Your Rights
Thanks to recent federal, and some state, laws, mortgage lenders can no longer engage in dual tracking practices. In the past, it was common for lenders to accept loan modification applications for consideration while simultaneously pursuing foreclosure, which is known as dual tracking. If the modification process took longer than the foreclosure process—which was often the case—homeowners were left without any recourse as there were no laws against it.
However, homeowners have some protection against dual tracking now. According to the laws enacted in January 2014, mortgage lenders must halt foreclosure procedures once homeowners submit a complete application. The problem is, not all homeowners know their rights in this matter, and some financial institutions continue the foreclosure process anyway.
Under the new law, mortgage lenders cannot start a foreclosure until you are more than 120 days past due on your loan. The intent is to provide you time to find an alternative to foreclosure, such as loan modification, forbearance, or repayment plans. These laws also prohibit a lender from starting foreclosure proceedings while your alternative applications are pending. If they do, an attorney can help stop it.
Despite the laws in place, it is difficult to get your home back once the foreclosure is completed. This is why it's important to know your rights, and to have an attorney deal with the violations before the sale of your home is completed. If you've submitted a loan modification application, but still received notice of foreclosure, contact an attorney to help you as soon as possible.
Deciding to hire an attorney can be an extra expense, but it can also help ensure you get a fair loan modification that allows you and your family to remain in your home, too. If you don't understand how alternative foreclosure options work, what you should do, how to prepare your application, or if your mortgage lender has violated your rights, an attorney can help you. It's a good idea to meet with one and figure out your next steps before negotiating with a lender on your own.