Having your application for a mortgage loan modification accepted typically means being required to make a series of trial modification payments to prove you're able to pay your mortgage again. Passing that test means you're most of the way to your goal to a permanently modified loan.
But, even after making trial modification payments, some homeowners are still denied a permanently modified mortgage.
Here are some reasons that could happen:
If you were never promised a permanent loan modification
Check the language in the letter asking you to make trial modification payments. Your lender might have only promised to consider you for a permanent modification upon successfully making trial payments.
A letter from OneWest Bank to a homeowner in Florida congratulates him on being approved to enter into a trial plan under the Home Affordable Modification Plan (HAMP). It gives details on when the payments are to be made, for how much, and where to send them. The third paragraph of the letter gives some very important information:
“Why is there a trial period? The trial period offers you immediate payment relief while we process the paperwork to determine if we can offer you a permanent loan modification. It also gives you time to make sure that you can manage the lower monthly mortgage payment.”
Notice that the lender didn't promise to give that homeowner a permanent loan modification. It said the trial modification plan was intended to offer “immediate relief” while the lender evaluates him for a permanent mod. If your lender sends you a letter with similar language, they're not promising you'll get what you want. They could determine that you don't qualify even after making the trial payments.
If you don't make trial modification payments on time
Trial modification payments are just that, a trial period in which you have to perform well in order to be given a chance in the long-term. Your lender is giving you an opportunity to get your mortgage back on track after you've fallen behind, usually by making three trial payments. If you can't even pay three months on time, they're not going to think you'll be able to pay on time each month for the next 30 or 40 years, and you will fail the trial period. Denied.
If you fail to send in the required documents
The HAMP trial plan letter referenced above also told the homeowner the following:
“In addition to making your trial period payments on time, you must send copies of all the documents that are checked below...If the documents are not received by (this date), this offer will end and your loan will not be modified.”
Included in the list of required documents are an MHA Hardship Affidavit (also called a hardship letter), IRS form 4506-T (request for transcript of tax returns), and documentation to prove the income of each borrower. Without those documents, you can't even be evaluated for a permanent loan modification, much less approved.
If you have unresolved liens on your property
A lien is a notification attached to your title stating that you owe money to a creditor. You have to resolve any liens on your property before getting a permanent modification.
Homeowners are sometimes surprised to learn that there's a lien on their property. They can be a result of a mistake, but no matter how they happen, they have to be removed before a permanent modification can be approved.
If you didn't send in the final agreement on time
When you do everything right with the paperwork and trial payments, and your lender wants to offer you a final modification, they will send you an agreement that needs to be signed, notarized, and returned to them. Make sure you follow all the instructions carefully and keep a fully signed copy for your records to avoid any problems.
Three Months Isn't Always Three Months
Most trial modification plans are three months long, but sometimes a homeowner will make their three payments on time and the bank doesn't have an answer for them yet. They could ask to see more of your financial documents or they may need more time to process your application. If that's the case, they will probably tell you to continue making trial payments until a decision is made.
Three months could turn into 8 months or more. Don't stop making those payments out of frustration. That won't help. Stay in touch with your lender and keep making the trial payments until a permanent agreement is reached.
Getting a loan modification is difficult. The banks have been known to do all sorts of unethical things to homeowners in default, from fabricating documents to foreclose to wrongly denying loan modification applications. You need a qualified attorney on your side to make sure you don't get taken advantage of and do get every chance to save your home that you're entitled to.
A foreclosure defense lawyer may be more affordable than you think, and their experience can help you get the best deal possible and ease some of the stress and uncertainty that comes with fighting foreclosure.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net
