3 Steps for Getting a Loan Modification
Updated: Jan 20
This post provides North Carolina homeowners with 3 simple steps that they can take to stop foreclosure and get a loan modification.
As you may know, a loan modification is a change to one or more of your mortgage terms. This usually involves your interest rate, principal balance, the repayment term, and your monthly payment. With a loan modification the past-due amounts are typically added to the back of the loan so that they can be repaid over time.
Do you need a loan modification? Because of the novel coronavirus (COVID-19) pandemic, many homeowners suffered acute financial distress, loss of income, and inability to pay their mortgage bill. This was through no fault of their own. Rather, the forced shutdown of huge sectors of the economy for the purpose of saving lives has had the unfortunate side effect of causing many otherwise solvent people to need to save their homes from foreclosure with a loan modification. Here are three steps that you can take to get a loan modification.
Step 1: Be Proactive.
Our office has handled hundreds if not thousands of loan modifications. A common misstep we have seen many homeowners make is to stick their proverbial heads in the sand. It’s distressing if your mortgage falls behind, and it’s often hard to know what to do. But the price of inaction is almost always worse than the price of taking action.
What does it mean to be proactive when it comes to getting a loan modification? First, become knowledgeable. You don’t have to know everything about every loan modification program, but you should make sure you know what your mortgage terms are, what your payment is, and what the amount of your escrow or impound payment is (for taxes and insurance). Do you know when your last full mortgage payment was? You should make sure you know that, too.
Something else you can be proactive about is finding out who owns your mortgage. The company sending your monthly mortgage statement very well might not be the company who actually owns your mortgage. You can find out if your mortgage is owned by Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Veterans Administration (VA), or a private investor. There may be different loan modification options depending on who owns it.
Another way to be proactive about a loan modification is to keep track of all communications with your mortgage servicer. This means all phone calls, emails, and letters. Keep a notebook (or a file on your phone) with an entry for each call with your mortgage servicer, including the date, the representative’s name, and a summary of what you each said. Save every email to and from them in a separate folder in case you need to refer to it later. And, keep a file with all your mortgage statements, letters, or written notices. If you need an attorney later, this will make his or her job immensely easier.
Step 2: Assemble All Your Financial Information.
A second step to getting a loan modification is to assemble your financial information. A loan modification is similar to getting a new mortgage. Even if you are behind on your payments, your mortgage servicer will need proof of your financial situation such as bank statements, tax returns, paystubs, and W-2’s. There is also typically a written application the mortgage servicer will have you complete.
Make sure all the financial information in support of your loan modification is current and complete. A common problem is that people will use old or incomplete documents, leading to delays or even rejection of their applications. Using last year’s paystubs or an incomplete tax return will only create problems.
Another issue with financial documentation is to make sure that you’re including all your accounts. You might have a savings account, a retirement account, or stocks. The loan modification application will probably ask for a complete listing of all financial accounts. If you only include your checking account, you run the risk of inadvertently running afoul of federal criminal law, which prohibits making false statements (which may include incomplete statements) on any financial application.
If you are diligent about promptly preparing your financial information, you will have a running start on your loan modification.
Step 3: Be Persistent.
The third step to getting a loan modification is to be persistent. Banks and mortgage servicers make money by servicing mortgages – not by issuing loan modifications. They are usually under-staffed and under-resourced when it comes to the modification process. This is expected to get even worse if there is a glut of modification applications as a result of COVID-19. They won’t apologize if they don’t call you back or if they leave your application sitting there for weeks or months.
Once your loan modification application is under review, you should make a habit of calling your mortgage servicer at least once a week to check the status. Does this mean you might need to wait on the phone? Absolutely. In the long run, persistence pays when it comes to modifications.
What if your mortgage servicer asks for you to do something like resubmit information you already provided? Unfortunately, that is a common problem. The most efficient choice is probably to resubmit it. The process often involves persistence, judgment calls, and picking your battles.
Conclusion: Don’t Give Up!
If your modification isn’t approved, or even if you are having trouble getting started with the loan modification process, don’t give up. Loan modifications are often inappropriately denied, or homeowners may have difficulty knowing where to start. It may be worth having a licensed attorney review what you have submitted or simply handle the submission process for you. Banks and mortgage servicers sometimes give attorneys a higher level of attention than they do homeowners.
In some cases, if your mortgage company has committed unfair or deceptive acts or practices, they may have broken the law. Under the North Carolina Unfair Trade Practices Act, G.S. § 75-1.1, any business who acts unfairly or deceptively in trade or commerce may have violated the law. In many cases, this applies to mortgage companies and to the loan modification process.
Culik Law has helped hundreds of homeowners over the past ten years obtain loan modifications from their banks and mortgage servicers. If your mortgage is in trouble and you’re interested in how to avoid foreclosure and get a modification, contact us at 980-999-3511 to see how we can help.