Step 2. Applying for a loan modification
Loan Modification Definition
Loan Modification - In simple terms, a loan modification is much like it sounds, It is a negotiation between you and your mortgage lender to create a new agreement that modifies the original terms of your mortgage.
Recapitalization- If you have arrears on your mortgage, a loan modification could also lengthen the loan, add the arrears and past-due amounts out over time.
Re-amortization- Some loan modification programs will allow borrowers to artificially lengthen the repayment for the loan, thereby reducing the monthly payment. The actual amount of the loan amount does not change, and the balance of the unpaid mortgage is put at the end of the mortgage.
Contacting your bank immediately is extremely important.
When do I make contact to apply for a loan modification? And who should I call?
Immediately contact your lender or mortgage company once you know that you will not be able to make the payment to keep your home from foreclosure. You can find this information usually on your monthly mortgage statements that you receive in the mail or through email.
If you have been receiving phone calls, messages or emails about being in default, contact that number, department and person.
Do not avoid taking their calls. Usually if they know that you are reaching out and contacting them, they sometimes are more likely to be willing to entertain the modification of your loan because they know that you are intentional. This is not always the case but many employees who are paid to collect debt sometimes take it personal when you avoid their phone calls. It is imperative that you do not wait on this step and do not avoid calls from the bank. Most of all, be honest about your situation. Lenders know that situations change and circumstances can sometimes place borrowers in financial struggles.
Loan Modification Requirements (Depending on your state)
a. Some states require a minimum of 37 days to review your application for Loan Modification and some can take up to 3-6 months to approve. DO NOT WAIT!
b. You may need to show up to 2 times their mortgage payment in income per month.
c. Your lender may very well require that you are 100% caught up and current on all taxes.
d. You cannot have filed for a loan modification more than 2 times per year.
e. Your lender will likely require a "Letter of Hardship" describing why your payments got behind and why there is no longer a financial issue.
Be aware of scammers
There are people who will try to contact you and will try to convince you that if you pay them they will guarantee to get your loan modification approved. In most cases these individuals are scammers and should not be trusted. Loan Modifications should not cost you any money.
If you are concerned contact your lender or hire a local attorney directly.