Can a Loan Modification Prevent Foreclosure on Your Home?

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If you are behind in your mortgage payments, a loan modification may be an option to help you prevent foreclosure on your home. But a loan modification has advantages and disadvantages, which you should fully understand before you decide it’s the right approach for you. If you’re considering a loan modification, you should talk with our mortgage foreclosure defense attorneys at Sloan Law Firm. We can help you determine the best way to proceed in your circumstances.

What Is a Loan Modification?

A mortgage loan modification is a change in the terms of your mortgage through an agreement with your lender. Individual lender policies on modifications vary greatly. Depending on the lender, a modification may include:

  • Reducing the monthly payment
  • Modifying the type of loan
  • Changing the interest rate
  • Reducing the principal amount of the loan
  • Changing the term of the mortgage
  • Deferring some payments until the end of the loan term
  • Other adjustments, based on the specific circumstances

Lenders may require a borrower to show evidence of financial hardship to qualify for a loan modification. Examples of hardship may include:

  • A natural disaster
  • Sudden illness or long-term disability
  • Separation or divorce
  • Loss of income due to death of a family member
  • Housing cost increases

A lender may also limit the number of loan modifications for a specific individual. If you’ve had three past loan modifications, you may encounter difficulty getting another one.

A loan modification can benefit both you and the lender and the borrower by enabling you to afford the payments while the lender recovers at least some of the money loaned. However, a loan modification is not always the right solution for someone who is behind in their mortgage payments. Other options may also be available. Talking with a mortgage law and foreclosure defense attorney is the best approach to take when you have problems paying your mortgage.

Beware of Loan Modification Scams

One of the most important things to know about loan modifications is that you should never discuss a loan modification with anyone except your mortgage lender. Sophisticated scammers target homeowners who are behind in payments with schemes that end up putting the homeowner in a much worse position. Even the Kansas Attorney General warns consumers about these harmful scams.

A loan modification scam can start with a phone call, direct mailing, or even a door-to-door solicitation. The fraudulent companies sometimes use official sounding names for their company to deceive homeowners into thinking they are affiliated with the government or mortgage company, when they are not. If you receive any solicitations for loan modification, you should not even respond. If you’re considering loan modification as an option, you should consult with your own lawyer and talk only with your mortgage lender (or have your attorney handle that part of the process for you), not a person who contacts you with a solicitation.

Advantages and Disadvantages of a Loan Modification

The potential benefits of a loan modification include allowing you to prevent foreclosure, so you can stay in your home indefinitely. In some cases, a modification enables you to settle any payment delinquencies, reduce your monthly payments, or affect your credit rating less than a foreclosure would.

The disadvantages of a loan modification include the possibility that you will end up paying more over time to repay the loan. The total you owe may even be more than your house is worth in some cases. In addition, you may pay extra fees to modify a loan or incur tax liability. Your credit score may be impacted if your lender reports the modification as a debt settlement.

If you do negotiate a loan modification, it is essential to make mortgage payments on time. If you don’t make payments, or make payments late, your lender may decide to escalate foreclosure on your home.

Should You Consider a Loan Modification?

A loan modification may be a good solution for some individuals, but it’s not the best solution for everyone. In some cases, the disadvantages outweigh the advantages. Depending on the terms of the modification, it could put you in a position that is even worse than where you started.

To determine whether a loan modification is an option worth considering, you should talk with an experienced mortgage law and foreclosure defense attorney. Your attorney helps you explore all available options and decide whether a loan modification is worth pursuing. If you decide that it is a possibility, your attorney handles the negotiations with your mortgage company, to ensure that you get the best possible loan modification terms.

Schedule a Consultation with our Kansas Mortgage Law and Foreclosure Defense Attorneys

From our Sloan Law Firm offices in Topeka and Lawrence, we assist clients throughout Kansas with mortgage law and foreclosure defense, including loan modifications. We invite you to contact us by calling (785) 357-6311 or using our online contact form.

Categories: Mortgage Issues