In the wake of the recent economic downturn, more homeowners than ever are still facing foreclosure. If you and your family are struggling to keep up with mortgage payments and fear being served a notice of foreclosure, or if you have already been served a notice of default, and are searching for a way to keep your home, loan modification might be your best opportunity for a new beginning. If you have contacted your lender and they have offered a loan modification package, depending on your situation you may either be denied, offered a trial loan modification package, or be approved for a permanent loan modification package.
What is loan modification and trial loan modification?
Loan modification (also known as mortgage modification) is a program that helps homeowners who are struggling with mortgage payments avoid foreclosure proceedings. A loan modification is a permanent change to one or more of the term's of a borrower's loan, this allows the loan to be reinstated on terms affordable by the borrower. A trial loan modification is generally offered only after a homeowner has been served a notice of foreclosure. Its terms are generally for only a three to four-month period in which the foreclosure process is temporarily suspended while your lender or mortgage provider evaluates your paperwork and ability to pay a renegotiated payment.
How important is proving financial hardship?
In order to be eligible for loan modification and avoid denial, it is critical for the homeowner to document the exact circumstances causing him or her to fall behind on mortgage payments. This documentation is often referred to as a hardship letter and details economic mishaps such as unexpected unemployment, medical bills, or family emergencies (death, divorce, incarceration, etc.) that have created the situation in which the homeowner is no longer able to make payments. A mortgage lender can change their mind about a loan modification package if it is deemed that the homeowner is financially capable of continuing to make payments under the original mortgage payment.
In trial loan modification, the homeowner is given a three-month period to test their commitment and ability to pay a modified loan amount. During this period, banks and loan servicers will not push the foreclosure proceedings, but if the homeowner is unable to meet the new payments, all bets are off. Additionally, following the trial period, the loan servicer does hold the rights to change the terms of the mortgage modification for the final modified payment.
It's more than a monthly payment.
If you are offered a loan modification, pay close attention to the new terms of your loan. Mortgage lenders write loan modification repayment plans in their favor and it is important for you to look beyond the new monthly payment and ask the following questions:
- What is the new principal?
- Will the interest rate change during the life of the loan?
- If so, when is the interest rate raised?
- Many loan modifications are only for an established 3 to 5 year period. After this period what will the new payment be?
- Is there a stipulation for a large balloon payment after an established number of years? Balloon payments are when a huge lump sum is expected following a fixed period. For example, your loan modification may reduce your monthly payment for ten years and demand a balloon payment of $100,000 at the end.
- Will this loan modification solve your overall financial problems, or is just delaying them? In the case of balloon payments, if you do not have that final lump sum, you are just delaying the foreclosure process.
Navigating the loan and trial loan modification process and avoiding being served foreclosure can be tricky, time-consuming, and emotionally draining. If you are struggling to meet your current mortgage payments, contact a legal professional at Amerihope Alliance Legal Services. Our experienced and result-oriented team is well-equipped to help you avoid foreclosure on your terms.