We have received countless emails at the law firm that are just like this one:
My name is [John Doe]. A couple of years ago I had to retire from 30 years of ... service due to my wife having [major medical problems]. We tried to modify our loan ... [The process] dragged on for a year and a half. It was a nightmare. They [increased] our payment by adding ... without telling us. In the end [what] they actually gave is an offer with a higher payment than when we started.
[We then did a] short sale and our realtor had a buyer. [Our lender] approved the short sale. But the day before final approval they foreclosed. ...... I have had to withdraw 90 percent of [my retirement savings so my wife and I could] survive.
If you think your first loan was bad, if you modify it, it will be worse!
It has also been said that if you think you were swindled by your lender on your mortgage, just wait until they modify it for you!
While this may not always be true, sadly, it is important to note that in the Las Vegas market we have found that this seems to be often true.
Our experiences dealing with loan modifications have led us to the view that lenders "engage" borrowers and suggest loan modifications knowing that it is likely you will lose your home anyway.
A.) Banks Promote Loan Modifications.
Banks have many reasons they promote loan modifications. Here are two main reasons:
1. Working on a loan modification will delay many inevitable foreclosures, reducing the number of foreclosed homes in their inventory, and therefore causing their accounting and financial reports to indicate they are in a stronger position than they really are. 2. If a borrower is behind in their mortgage payments, it is highly likely that a foreclosure is inevitable. By giving a borrower false hopes of saving their home by initiating a trial-period loan modification, the lender is able to induce a borrower to at least send some money to the bank while the lender waits for a more convenient time to foreclose anyway. Otherwise, a lender knows they will likely get no money at all.
B.) "The Trial Period"
If you are told you qualify for a loan modification and that there is a trial period, the realty is you have not fully qualified. At this point, the lender has not determinatively verified whether or not you "in fact" qualify for a loan modification. Equally as important, the servicer who supposedly qualified you for a loan modification and started you on a trial period has not obtained final approval from the investor or owner of your mortgage. All too often, six to ten months later, once the lender and their servicer has tricked you out of several thousand dollars in "trial period payments" and other related expenses, you will be notified that your modification has been rejected by the lender/investor/owner of your loan, and very quickly afterward your home will be sold in a foreclosure sale-sometimes with little or no notice.
C.) When are Loan Modifications Useful?
Loan modifications are useful when you use the modification process for your benefit as opposed to doing a loan modification that benefits the lender.
Some clients, for various personal reasons, simply need to "kick the can down the road" for a few years.
Generally speaking, the ONLY persons receiving assistance from the government are the banks! If property owners are waiting for government to come up with some plan to assist property owners in the Las Vegas market, we are fairly sure that you are going to be sorely disappointed. Consider this: when, in the history of our country, has the government really been able to assist citizens with private contracts they have made with banks and other parties?
However, a borrower can benefit some by taking advantage of the trickle-down effect of benefits bestowed upon the banks by the government; but in most cases, only if you are willing to do a short sale, deed-in-lieu, or allow foreclosure. Some loan modification assistance may be available to property owners in the Las Vegas area, but it is very unlikely.
A homeowner is unable to pay their mortgage of $1800 per month. The homeowner hears that there are all kinds of government programs out there to "help them", and that supposedly many people are getting loan modifications and their monthly payment can be reduced by as much as 50%, or better yet, the principal balance may be reduced. A loan modification "expert" invites them to their office where they are bombarded with all kinds of great news and testimonials and the property owner is sold on the idea of giving the loan modification "expert" a substantial fee from $2000 to $5000 dollars.
Once the process is underway, the homeowner is often sent a notice indicating that the lender is willing to accept, "on a trial basis", a payment of $900 per month. After several months, the lender forecloses on the home anyway. The end result is that the lender gets $900 per month more than they would have received had they and the loan modification "expert" been honest at the beginning; plus, the servicer is able to charge the "investor" their fee to "engage the borrower". It's quite disturbing, and many families are harmed by this conduct.
In many cases, this is little more than a crafty claim used as a marketing strategy that in some instances can seem true, but in reality is often not true. If there is a so-called reduction in principal, it usually occurs when you obtain a loan modification (actually, in most cases, this is a loan forbearance, not a modification). If your principal is reduced on your original loan, it is often because the amount of the principal reduction, and other losses to the bank caused by the "modification", are extracted from that loan and you are required to take on an additional "balloon payment" loan that has to be paid sometime in the future. So, surprise, you have a principal reduction on your first mortgage; but, the new mortgage more than makes up for it.
Sometimes there is truly a principal reduction. In most cases here in Las Vegas, this reduction of principal is substantially less than the reduction you actually need in order to actually improve your overall financial condition.
First of all, in most cases, it is NOT a "loan modification" but a "forbearance", meaning the lender is forbearing you (putting up with your inability to pay) for a few years, but the lender will darn-well make up for it, and more, after a few years. This is why many loan modifications only reduce your payment for five (5) years. What many do NOT know is that the amount the lender would have received had you paid your full monthly note is tacked on to the end of your loan, plus 30 years of interest, with the end result being you are paying even more for your home than originally!
Another problem with loan modifications is they usually are based upon the premise that the housing market will make a full recovery within five (5) years, which according to most, is wishful thinking at best.
Another problem with most loan modifications is that even though the property is worth substantially less than the amount owed on the property, sometimes that amount (the principal balance) is NOT decreased but rather INCREASED!
In the Las Vegas market, if loan modification experts were honest, they would tell you that there are only a few instances when a loan modification will be formally accepted by the lender AND has terms that will actually help the borrower. An honest consultation from a loan modification "expert" would include a reality check on whether a lender will actually approve a loan modification, and if so, whether the new terms will likely be favorable enough to justify the loan modification expert fees and to justify the risk of bad-faith lender conduct. REMEMBER, it is VERY COMMON for this law firm to receive the type of email reprinted above.
Another problem with Loan Modifications is what appears to be bad-faith conduct by the lender (or loan servicer) and often the loan modification "experts". Few people know that a "servicer", such as Bank of America, receives a fee from the "investor" (the owner or insurer of the loan, such as a mortgage insurance company, Fannie Mae, or other investor/buyer of mortgage paper) to "engage the borrower". A servicer "engages the borrower" by dragging the borrower through the loan modification process (or other process), and then receiving a fee for their "efforts". This is why many borrowers are dragged through the loan modification process for several months before finding out the investor was NEVER going to approve a loan modification; but, the servicer went through the process anyway in order to receive fees from the investor. Such conduct jeopardizes a borrower's ability to utilize other methods in dealing with their debt problem and causes much harm and emotional distress to struggling property owners.
There are many advertisers who claim they can "stop foreclosure". A more honest claim would be that they can "postpone" foreclosure. There are some exceptions, but only under limited and unusual circumstances.
The only reliable way to Stop Foreclosure is to "cure the default" and keep current on the monthly note from that day forward. A borrower usually has the right to "cure the default" by paying all past due monthly payments, plus reasonable penalties, fees, and attorney's costs, on or before five (5) days prior to the Trustee's Sale date.
There are many ways to Postpone Foreclosure. The most reliable method is to file for bankruptcy protection. However, the expenses involved are often more than the cost to move to another property.
A property owner may be able to use administrative and procedural methods, but those methods are not totally reliable, though often can provide some delay.
We have found that a lender is usually agreeable to postponing the Trustee's Sale if the owner makes a good-faith attempt to sell the house short (commonly called a short sale). This is because the lender would prefer to transfer ownership of the property directly from the borrower/present owner to another owner as opposed to taking title to the property, placing it on the market themselves, and selling it as a foreclosed property or REO (real estate owned property).
Due to the substantial number of hours applying for a loan modification requires, it can cost thousands of dollars to have an attorney handle this for you. There are no guarantees, as loan modifications are voluntary-banks do not have to modify a loan.
While we believe we can be of assistance to you if you really feel a loan modification is best for you and notwithstanding the many problems you wish to apply for a loan modification, if you have the time and patience, you probably should apply for a loan modification on your own. We do recommend that you have a professional review the terms of any modification to be certain you understand how it affects you and your finances.
If you are certain that a loan modification is what is best for you, contact us at the law firm. We will objectively and fairly evaluate your circumstances to make certain you understand what may occur and what other options you may have.
The number one criterion your lender is looking at is your ability to make the new modified payment now and in the future. You need to supply the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses to show them that if granted the loan modification, you will be able to afford the new, lower payment.
Do I have to be late on my payments to get a loan modification?
Most lenders are now accepting loan modification applications from homeowners who are not currently delinquent, but who are able to prove to their bank that due to imminent interest rate increases, they will no longer be able to afford the loan payment under the terms of their loan. It is advisable to contact your lender as soon as possible to start the loan modification process, regardless of whether you are delinquent.
Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce or separation, loss of income, death of spouse, death of co-borrower or family member, illness, job relocation, military service to be acceptable reasons to consider a loan modification. A compelling loan modification letter included in your loan modification application is a very important part of a successful loan modification.
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