Loan Modification to Avoid Foreclosure

If for some genuine reason a borrower is not able to pay the monthly dues against their mortgaged property, they might consider negotiating with the lender for a Loan Modification process.

The Loan Modification process involves one or both of the following –

  1. Convincing the bank to lower their interest rates so that their monthly payments would come down.
  2. Convincing the bank to extend the term of the loan over a longer period so that their monthly payments would come down.

To achieve a successful Loan Modification with Banks, it is necessary to convince them of the borrowers ability to pay the renegotiated monthly payments. This might entail providing them with a hardship letter explaining the reasons for not being able to pay the monthly dues temporarily (like loss of job, damage to the property, etc) and how one is planning to pay up the reduced mortgage amount every month without defaulting.

Banks may require a lot of financial information to be provided to them like other debt/ credit details, tax returns statement, bank statements, etc. Based on the information provided by the borrower, the bank may decide to go ahead with Loan modification negotiations. But they might reject the loan modification request if they are not convinced about the borrowers ability to re-pay the renegotiated settlements.

Some banks will allow all the current dues (along with interest) to be added to the principal mortgage amount which is then spread over a longer period of time hopefully with reduced interest rates.

The loan modification negotiation process may take anywhere between 6 weeks to 6 months or even more, in specific cases. Some banks may agree to stall the foreclosure proceedings when the loan modification process is underway. So, if a borrower is facing temporary difficulties, they can get more time to organize funds to pay back their loans.

There maybe additional fees associated with loan modification process. The borrower can also appoint foreclosure firms to negotiate the loan modification process on their behalf in order to get better terms and present their case more convincingly.