Tuesday, February 3, 2009

Loan Modifications Help to Avoid Foreclosure

(Source: Jose Montero)

This subject has received a lot of press lately. With the resetting of mortgage rates to higher levels, the foreclosures are bound to go higher. Short sales have not been a good option since the banks at taking forever to respond to any offer that is sent their way. That leaves the loan modification as the first and easy step to follow to avoid foreclosure for the homeowner. But be careful, there are many companies out there right now that claim to be saviors, but are more like predators looking to take what little of your money is left. So what is a loan modification and what can it do to help you avoid foreclosure?

In a loan modification you are asking the bank to help you stay in the home and avoid foreclosure. They can do this by modifying the loan terms to reduce your monthly payments. Sometimes this is done on a temporary basis, and often it is done permanently. The first thing you should do when you are having problems meeting your mortgage obligations is to talk to your bank. I read a recent article that half the number of people that default on their mortgages never talk to their banks. This is inexcusable since the bank can do many things to help the homeowner avoid foreclosure.

Talk to your bank. Let them know you are having, or will soon have, a hard time making payments. Talk to them about your financial status. If you have recently lost, or are in the verge of, losing your job, let them know. Talk to them about anything that is affecting your ability to make the mortage payments. Please always keep in mind that the bank WANTS to talk to you. They might not always help, but this first contact is crucial if you later want to request a short sale on the property.
Document your Loan Modification efforts - Write down who you talk to and when. Document what was said to you and by whom. Talk to several different lenders and mortgage brokers to see if refinancing is an option. This is important since you might be later requested to show that you put some effort into avoiding foreclosure.
What to ask from the Bank- Let your bank to know that you will not be able to continue to make payments on your mortgage and you need assistance. Ask the bank to modify the loan by reducing the interest rate, forgiving part of the principal, extending the maturity of the mortgage (15 years to 30 years), foregoing payments, etc. There are many ways that the bank can help you avoid foreclosure, but you have to initiate the contact.

Most likely you will be speaking to someone in the Collection Department as part of the modification process. If they are not able to help, ask to speak to the Loss Mitigation Department. They are the ones that get involved if the person is on the verge of losing their home. Ask them about the possibility of doing a short sale on the property.

Get Advice!!! Talk to your CPA, attorney, about any impact that a short sale, foreclosure or bankruptcy can have on your financial future. This is important!

Consult with a real estate agent that is knowledgeable about short sales. This is a very complex and time consuming process. Most real estate agents will avoid short sales, and do not want to be bothered with them. Get someone with training and experience to assist you through the entire process.

Back to Foreclosure Help

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