“Loan Modification” and the “Trial Modification”

A loan modification simply means to change or modify the terms of your original loan. There are several types of loan modifications that may be available to you depending on the type of loan you have (Conventional, FHA, VA, etc.) and who is holding your loan. In some cases this can mean having payment reduced and/or having some or all of the delinquent payments added on the end of your loan. Loan modifications are not automatic and you will have to qualify to receive one.

You may be contracted by various entities that want to “help” you get a loan modification. Virtually all of them charge an upfront fee that may range to thousands of dollars with no guarantee that you will actually receive the modification. You should avoid dealing with such people at all costs. They are out to take your money and not to help you. This is against the law and can be found in the MARS disclosure.


You can work directly with your lender, but as I mentioned earlier, be very leery of what they tell you. Don’t take anything you are told on faith – get it in writing. If they tell you they are delaying the foreclosure, verify that with the Public Trustee. There have been many instances of people who thought their foreclosure had been delayed or cancelled while they were talking with their lender only to find out after the fact that their home had been sold at auction.

Remember, the loan modification simply means to change or modify your original loan.

Example:

Value of the home…………………………………….. $200,000

What is owed……………………………………………. $185,000

Monthly payments…………………………………….. $1,500

Payments behind………………………………………. 10

What is owed to bank in back payments………. $15,000

Attorney fees……………………………………………… $2,500

Call the bank and tell them you have one or two payments saved and that you want to do a loan modification. This means the bank will put the other eight or nine payments on the end of the loan, increasing your original loan by a few months in length or they will re-modify the loan from an adjustable rate to a fixed rate.

Typically the bank will require 1-2 of the back payments to be made plus, all attorney fees. If you have not saved any of the money that was supposed to be used for mortgage payments, you would not be able to take advantage of this option.

Example:

10 payments behind at $1500 per payment. You pay 1 payment plus attorney fees. Due to the bank is

Monthly Payment…………………………………….. $1,500 x 1 = $1,500

Attorney…………………………………………………… $2,500

Total Due…………………………………………………. $4,000

Note: If you have late payment fees, back real estate taxes, property inspection charges or forced insurance that has been added to your payments, the bank will make you pay this at this time as well. Sometimes they will waive the late fees.

You will end up paying $4,000 to get current and to get out of foreclosure instead of $17,500.


Remember this point

You can only do 1 loan modification per year. You can do a total of 4 over the length of the loan, but no more than one per calendar year. If you refinance with another mortgage company, then the loan modification you did with the current mortgage company won’t count – a new mortgage company equals a clean slate.

With many of the NEW government bills in place the banks may be more lenient at this time.

The bank might ask for “Proof of Funds.” This means you have to prove you have the $4,000 or proof that you are borrowing the funds – if so, where are you getting the money from. The bank may ask for a copy of your last 12 months of bank statements.


What is a Trial Modification?

The bank will put you on a “TRIAL MODIFICATION” this is when the bank put you on Trial bases with the new payments that you qualify for. The trial period will last approx. 5-6 months. If you make all of the payments on time, meaning ON THE DAY DUE OR BEFORE…. NOT ONE DAY LATE… then the bank will put you on a 5 year modification. After the 5 year period the bank will review your situation at that time. You must not miss any payments in the “Trial Period.”

Once this is done, you are one step closer to keeping your home. If you choose this option call me at 210-777-0567 for some FREE advice so I can help you with this process. 


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