Loan modification during foreclosure
Article by Hayley Harrison, Former Branch Manager and lending officer for a community bank
A loan modification changes the terms of your mortgage to make your payments more affordable. When you fall behind on your mortgage, the best time to start talking about a loan modification is before the foreclosure process begins, though this is not always possible. If you’re already in the midst of foreclosure, there still may be hope for a modification.
Impact of Geography
Where you live has a huge impact on how you approach a loan modification during the foreclosure process. Each state has its own set of laws governing how lenders can seize property to collect on a debt. To help you determine your options, enlist the help of an expert. HUD-certified housing counselors, state housing departments, licensed attorneys and public accounts can assist you in evaluating your individual circumstances.
Impact of Timing
Whether or not you can benefit from a loan modification will vary based on how far along the foreclosure proceedings are.
· Right to Cure – Some states entitle homeowners to a “right to cure,” a specific number of days during which the lender cannot take foreclosure actions. If you are in the midst of the right to cure time period, a loan modification is usually possible.
· Initiation – Found in some states, the initiation time period occurs when the lender serves the borrower with papers summoning them to appear in court to determine whether or not the lender has a right to foreclose. During initiation, you may be able to enter into a loan modification agreement.
· Notice – The notice of foreclosure is a legal document that describes how much is owed on a home and advises the homeowner of when the house will be sold to recoup the debt. Whether or not you can modify your loan after receiving a notice of foreclosure varies greatly based upon your individual circumstances.
Other Considerations
Once the date of the sale is advertised, it may not be possible to enter into a loan modification agreement. Some states do allow for reinstatement, which enables borrowers to stop the foreclosure process by paying the monies owed to the lender. In some cases, your lender may allow you to modify the terms of your mortgage as a part of reinstatement.
Prepare Yourself
If you are legally able to pursue a loan modification during the foreclosure process, you should prepare yourself prior to approaching your lender by doing the following:
1. Have your home appraised to determine how much it’s worth. This will give you some idea of how much your lender will make from the sale.
2. Compile a list of your debts and determine the total that you owe per month.
3. Determine how much you can afford to pay for all of your bills each month. Make sure you allot some money for food, gasoline and other expenses.
4. Subtract your total debts from the amount that you can afford. This number will help your lender see how much your payments need lowering in the modification.
