Loan Modifications & Negotiations of Unpaid Debts

In cases where homeowners suffer an economic hardship, such as the loss of a job or a family hardship, they can find themselves in a situation where they can no longer afford to make their mortgage payments. In other cases, homeowners may take out loans with low introductory rates that only last for a limited time. When the rates increase after the introductory period, homeowners may find themselves in a situation where the payments are more than they can afford. Under circumstances like these, loan modifications and negotiations may provide the homeowner with a more feasible mortgage payment and allow them to stay in their homes and keep their credit scores from suffering. Additionally, loan modifications benefit the lender by allowing them to receive a substantial monthly payment from borrowers who may otherwise forego paying their unaffordable mortgage altogether.

When Do You Need a Loan Modification? Are You Qualified?

In order to qualify for a loan modification, the homeowner generally needs to have had an economic hardship that has made them unable to make their monthly payments. A homeowner needs a loan modification when they are unable to keep up with their monthly payments and they do not see any chance of recovery within the immediate future. The economic hardship that the homeowner suffered must be documented in some way in order to show proof to the lender that the homeowner qualifies for a loan modification or negotiation of terms.

Will Your Lender Allow You to Negotiate a Loan Modification?

Every lender has specific guidelines for allowing loan modifications and negotiations. The policies of each individual lender are available in print form, and it is a very good idea for borrowers to request the terms and conditions of loan modifications from each lender before starting the negotiation process. Being familiar with the specific rules of each lender will help the borrower understand the qualifications for loan modifications. Additionally, having knowledge about the policies of a lender can be a powerful tool during the negotiation process and can drastically improve the chances of a lender allowing a borrower to modify their loan.

Guidelines for Negotiating a Loan Modification

Loan modifications are available to individuals who have suffered a hardship and need to negotiate terms that are feasible based on their current economic situation. The general guidelines for loan modifications are that the lender may be willing to negotiate to lower the monthly payment to offer the homeowner some relief, but they are not will to drastically reduce the payments or make dramatic changes to the terms. If the borrower makes a reasonable offer, the lender is usually willing to negotiate to a certain point. The key is having the right documentation of the hardship and being proactive about contacting the lender as soon as the economic hardship occurs.

One loan modification program currently available to U.S. homeowners is the Obama Loan Modification Plan. The guidelines for the Obama Loan Modification Plan include the following requirements:

• The home loan seeking modification must have originated prior to January 1, 2009;
• The homeowner must actually live in the property for which a modification is being sought;
• The home for which the modification is being sought must be a single family home or a multi-family home (up to a maximum of 4 units);
• The home must be habitable at the time the modification is sought (i.e. the home cannot be condemned or otherwise destroyed);
• A maximum of one loan at a time may be modified by the Obama Loan Modification Plan.

The End Result

The end result of successfully negotiating a loan modification is that a homeowner's mortgage payments will be restructured so that they are more affordable. Additionally, the lender will benefit by establishing terms that the borrower can actually afford to pay. While the resulting monthly payment may be easy for the homeowner to pay, there is a good chance that the payment amount will be noticeably less than it was before the modification. Even though less money is paid, the lender benefits because a substantial portion of the mortgage paid by the borrower is much better than having nothing paid and foreclosing on the house. The end result is that the homeowner will be in a better position to make their payments, keep their home and maintain their credit.

Getting Legal Help

If used properly, a loan modification can be a valuable tool for homeowners who have suffered an economic hardship and can help individuals and families avoid foreclosure. In order to expedite the process and negotiate the best possible terms, homeowners considering a loan modification should contact an attorney for assistance. While an attorney is negotiating the loan modification process, any pending foreclosure actions are halted. The assistance of an experienced attorney can help make the loan modification process a success for households who have suffered an economic hardship.