If your loan modification has been denied, be assured: you're not the first person to experience denial, and you certainly won't be the last. Loan modifications may be one of the hardest things to get approved without an experienced attorney's assistance. After denial, your next step depends on the reason why you were denied and where your home is in the foreclosure process.
If you don't know the reason already, then call your lender and ask their representative to explain why you were denied. Most of the time, the lenders' notes are incomplete and don't give a concise explanation of the situation, and will require a higher-up to explain the situation better. Some denials are easier to remedy than others.
Re-submission may be your best option if your loan modification has been denied for one of the following reasons:
- Insufficient or missing documentation
- You fell behind on updating your paperwork with your lender every month
- You didn't resubmit documents that were "lost" by your lender
- Missing signatures
- Missing loan numbers
- Incorrectly verified income
- Incorrect NPV (net present value)
If you fall into one of these categories, then information will need to be gathered and updated prior to resubmitting for a loan modification.
Was Your Ratio Correct?
If you believe you were eligible for a HAMP loan modification, but didn't know your DTI (debt to income ratio) or NPV and the optimal way to structure these ratios for your lender, then you were setting yourself up for failure from the get-go. If you're unsure about how to structure these figures, then it's best for you to hand your loan modification over to an attorney who can handle the process for you. An experienced loan modification attorney can help you restructure the way your financial situation is presented to give you your best chance at a great loan modification.
Denied for HAMP? Go In-House
If you have been denied for a HAMP modification because you're simply ineligible, then it's time to apply for an in-house modification.Many major lenders offer in-house loan modification programs that allow borrowers to modify their loans. Every lender has their own guidelines for in-house modifications, and you will need to present a loan modification package that is structured toward these guidelines.
Also, if were denied for a HAMP loan modification before June 2012, you may be eligible for HAMP Tier 2. In June 2012, HAMP was expanded to include more homeowners, such as people who own rental properties and those who were denied a loan modification because they couldn't keep up with their trial loan modification payments.
Consider Your Other Alternatives to Modification
If your lender determines that you wouldn't be able to afford your loan regardless of what kind of modification you would get, then it's time for you to consider another option. There are other options that will allow you to sell your home instead of going through foreclosure.
If your home is worth less than what you owe, then short sale may be your best option. In a short sale, the bank will agree to release you from your mortgage in exchange for the money made from selling the house. Short sale is not automatic or mandated, though- it requires negotiation and approval from a mortgage lender first. Be warned: a lender is still free to pursue a deficiency judgment after short sale; a foreclosure attorney can negotiate a waiver of deficiency judgment during the short sale process for you.
Another option is a deed-in-lieu of foreclosure. With this option, you agree to give up the deed to your property, and the bank agrees to release you from your mortgage debt in exchange for the money they'll make from selling the house. This option can only be pursued if your home has been on the market for 3 months. As with a loan modification or short sale, a homeowner must complete an approval process before this can be used as an option. Take heed: just as with a short sale, a lender can pursue a deficiency judgment after a deed-in-lieu, unless a foreclosure attorney negotiates a waiver for you.
What's the Best Thing to Do If Your Loan Modification Is Denied?
If your loan modification has been denied, then your overall best option is to consult with an experienced loan modification attorney before taking any other step to understand what your options are. There are a select group of law firms that combine foreclosure defense and loan modification services, and their insight will be invaluable in helping you choose the right direction.