If you want to keep your home after falling behind on your mortgage, your goal should be to find a solution, such as a loan modification, that will return your loan to “normal servicing” and allow you to avoid foreclosure.
What Is Loan Servicing
Loan servicing is the process by which a company collects money from a borrower and manages their loan. Your mortgage loan servicer is the company you send your mortgage payments to. They're like an accounts receivable department that collects your payments and distributes the funds to the investor that owns your loan, collecting a fee for themselves in the process.
You have no say in who services your mortgage, and servicing rights can transfer. One month you're making mortgage payments to Cenlar, the next it's to Ocwen. If you don't like it, too bad. You have no say in the matter.
If you always make your mortgage payments on time and in full, your loan is in good standing and you're in normal servicing. Though there are cases of servicers making errors or putting people who haven't missed a payment into foreclosure.
When you miss mortgage payments, that's when the normal servicing ends. Your loan is in delinquent status, late fees will be added to your account balance, and new payments won't be accepted until you pay the amount of all your missed payments plus fees or reach another solution that “cures the default”.
There will be negative entries on your credit report as long as you're delinquent and if you can't get your mortgage back on track, your home will eventually be foreclosed.
One of the only ways to keep your home and avoid foreclosure is to get a loan modification. A loan modification is a permanent change to one or more of the terms of your mortgage. Getting a permanent one will return your mortgage to normal servicing, but it won't happen overnight.
To get a loan modification you have to submit a thorough application, which includes documentation of all your finances. If your application is approved you'll probably be required to complete a few trial payments to prove that you're capable of paying your mortgage again. Once the trial payments are successfully made, you should be offered a permanent loan mod. But you're still not back to normal servicing.
You have to sign and notarize the final modification agreement and send it to your servicer, which will probably be to a different address than where you send your payments. After that it will take about 30-60 days for the modification to be recorded. Until that happens, your mortgage is still delinquent and you could still have negative entries on your credit report.
Once the modification is officially recorded, your mortgage is permanently modified and returned to normal servicing. You'll start getting mortgage statements with your modified terms, which could include a different monthly payment, lower principal balance, and different interest rate. There won't be any more negative entries on your credit report. If you were in foreclosure, the foreclosure case will be dismissed.
A loan modification makes it like your default never happened.
Don't Go It Alone
If you fall behind on your mortgage, you should seriously consider hiring a qualified attorney to represent you. Unless you happen to be an expert on foreclosure defense and loan modifications, you're going to have a hard time fighting the bank's attorneys, asserting all of your rights, and getting the best results.
There are a million things that can go wrong when you're trying to avoid foreclosure. For example, you could get approved for a trial modification and your servicer changes in the middle of the trial period, throwing a wrench into the process. An attorney can help to hold the servicer accountable and get you what you deserve.
Falling behind on your mortgage doesn't necessarily mean that you have to lose your home to foreclosure. You may be able to return your mortgage to normal servicing like nothing ever happened.
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