The Basics of Loan Modifications

The National Foreclosure Moratorium Ended: The Basics of Loan Modifications

Last Month, our blog prepared our clients and readers for the end of many COVID-19 financial assistance programs – one of those being the ending of the national moratorium on foreclosures and evictions. Beginning July 2021, many financial institutions and experts are expecting record numbers of foreclosures and evictions – and Eric Wilson Law, LLC is here to help. If you or your homestead are located in the Tuscaloosa, Jasper, Fayette, Walker, Winston, Marion, Lamar, Bibb, Pickens, Greene, or Sumter counties of Alabama and are behind on your mortgage payments – call our office at 205-349-1280 as soon as possible to keep your family and your property protected. 

If you’re one of millions of Americans who are struggling to make their monthly mortgage payments or have fallen behind – you are not alone and there are options available to you. In order to best serve our clients and readers, we’ll be going in depth on these different options and their relationships with filing bankruptcy this month. If you have further questions after reading this, call our office and our staff will be glad to schedule a free consultation with Attorney Eric Wilson for you! 

One of the multiple options we discuss with our clients who are behind on mortgage payments and thus, at risk of losing their home is a loan modification. Two things we want to make very clear when discussing loan modifications:

  1. You do not have to be in bankruptcy to request a loan modification [yes, you can also pursue loan modifications while in bankruptcy and many clients have success with doing so] & our office does have fee options for helping with this process. 
  2. Going through a loan modification process is completely different from refinancing your mortgage. A loan modification is allowing you to keep similar details of your current mortgage but simply changing and usually extending the terms of your existing loan and payment history. Meanwhile, refinancing is completely replacing your current loan with a new mortgage, with new terms, details, interest rates, etc. Check out this helpful blog for more information on refinancing. 

Who do we recommend pursue a loan modification? 

Getting a loan modification is an extensive process and one you should be confident in making and absolutely consult with your mortgage company on. In terms of recommendations – we make those on a case by case basis with our clients and in our free consultations. In general though, not everyone that is struggling to make a mortgage payment can qualify for a loan modification – this is where bankruptcy can help with opening up more options that we will continue to discuss this month. Homeowners must either be significantly behind on their mortgage payments or have proof that they are facing imminent default (meaning that you’re not behind yet but you have proof or strong reasons that you will be in the coming months). Commonly accepted reasons for “imminent default” are job loss, layoffs, the passing of a spouse of co-financier of the mortgage loan, or a disability, illness, or significant medical event that has inhibited your ability to make your timely mortgage payments within the terms of the original loan. 

How to apply for a Mortgage Loan Modification

Call your mortgage company. If you’re struggling with making your payments – we almost always recommend answering the phone and discussing your options with your lenders. Foreclosure, eviction, etc. are time-consuming and expensive processes. Generally, your lenders want to help keep you in your home and keep their payments consistently coming in and are willing to work with you, to an extent. When applying for loan modifications, the process is different with every mortgage company but generally speaking – you must start with a hardship letter, explaining the reason why you got behind in the first place, then will need to provide documentation and fill out extensive paperwork – similar to when you first applied for your mortgage. Then, you’ll usually go through a period of “trial payments” where they ensure the new loan modification is actually feasible for you and you’ll be able to make payments on time from here on out. Of course, the details of the process are different with every lender and are something your mortgage company will walk you through during the process. 

Potential Negatives to Loan Modifications 

A potential negative to a loan modification is that it may be added on to your credit report which could cause a downward drop on your credit score. However, the potential drop from a loan modification won’t be nearly as severe as the absolute drop coming from a foreclosure process or history of missed payments. 

Also, depending on the terms of your mortgage loan modification, your term length could be extended – which means it will take you longer to pay off your mortgage and you’ll be paying more in interest in the long run. However, for many homeowners, this additional interest is well worth the peace of mind to not risk losing their homes. 

Again, if you’re stressed and your head is spinning just reading this blog- call our office. This is what we’re here to help with and can make the bankruptcy and loan modification process simple and straightforward. If you’re located in Tuscaloosa, Jasper, Fayette, Walker, Winston, Marion, Lamar, Bibb, Pickens, Greene, or Sumter counties of Alabama and are either behind on your mortgage or considering filing Chapter 7 bankruptcy or Chapter 13 bankruptcy – call or text our office today at 205-349-1280 and schedule a free consultation with our attorney, Mr. Eric Wilson. We’re here to help!