LOAN MODIFICATION LAW
What is Loan Modification?
A loan modification is a change of the original payment agreement between a borrower and a lender. This happens usually when the borrower is having trouble making the agreed upon monthly payments on time. Banks make money when borrowers pay them back the borrowed money, plus interest. When a loan goes into default, they not only lose the money they loaned out but they lose on all that interest they would have gotten. Bankruptcy or foreclosure means the bank only receives a portion of the money they loaned out and no interest. Loan modification is the bank’s way of working with a borrower so that you can afford to pay them back and they can make a good profit.
Who needs a Loan Modification?
If you are having difficulties making your required loan or mortgage payments each month, then you may benefit from a modification to your loan. A loan modification is a change to original agreement on the loan between you and your bank. There are several different ways to modify your loan, including reducing monthly payments by allowing you to pay off the loan over a longer period of time, or skipping a month or two and still being considered current on your payments, or reduced interest rates which will lower your monthly payment. If you are struggling to make a payment each month, you should contact a Miami foreclosure attorney who can advise you if Florida loan modification may benefit you. There are many different situations that may warrant a loan modification. Here are a few examples of when should consider loan modification.
- You and your family are “upside down” on your home mortgage. The crash of the housing market means that many people have mortgages that are two or three times larger than what their home is now worth. Loan modification might be able to lower the amount you owe on your home, allowing you to pay less each month or pay off your home in a shorter period of time.
- The home you live in is facing foreclosure in Miami. If you file for bankruptcy, the bank will only get a portion of the money they loaned to you back. And they will not receive the interest you would have paid them over the 15 or 30 year life of your loan. Banks want to see a return on the money they lend. This puts you in a position of power to negotiate with them and try to lower your monthly payments to an affordable rate.
- You have filed for bankruptcy or are considering doing so. Just like in foreclosure, if you file for bankruptcy your creditors will most likely lose money. That makes them want to work with you to find a solution that benefits both parties. Do not try to file bankruptcy to push your creditors to work with you. It rarely works, and you may not be able to back out of bankruptcy.
- You were laid off and are now in a different career, but making a much lower salary. If you have changed careers and taken a pay cut, loan modifications might help you keep your good credit score by lowering your monthly payments to a rate that you can afford.
- You are experiencing financial stress due to large medical bills or other unexpected expenses. Perhaps you were careful, you bought a home within your means and saved up money “just in case” but it just is not enough to help you pay all your bills. Contact your lender to see if they can help ease your stress.
Not everyone will be eligible for a loan modification. While it makes financial sense for banks to do as much as they can to help you afford your payment, it is not always the case. Contact your lender or a foreclosure attorney to find out if you are eligible.
Steps to a Loan Modification
A loan modification in Miami means changing the original agreement between lender and borrower. You are telling your lender that you cannot afford the original payments, and asking for different terms. Keep in mind that you are asking for a favor from them. The Florida loan modifications process can be very long and stressful. It can take several months. While every loan modification is different, here are the basic steps.
- Create a finance sheet with all your expenses. You need to show the bank where your money is going. If you do not know how to create a financial spread sheet, consider hiring a Miami foreclosure attorney. You should include all your expenses and bills, including bills you have not been able to pay in the last few months. Your income may end up being less than your monthly bills, and that is fine. The entire point is to show you are under severe financial stress. Above all, be honest. If you have documentation where you have cut back financially, include it. You need to show that you really have been trying to up hold your end of the original agreement.
- Determine the current value of your home. Search for online for CMA– comparative market analysis. Or check at your county court house or ask a realtor if they can help. This step should not cost you any money. The purpose of this step is to show that there is a difference between what you owe on your home and what it is now worth. If you are facing foreclosure in Miami, this process may help you keep your home by lowering what you still owe.
- The next step is to write a hardship letter. You will send this letter along with paycheck stubs, your expense sheet and the comparative market value requesting a change in the terms of your mortgage. This letter should be around a page and personal but also direct. A few points you want to include: Why you can no longer pay your mortgage (a salary cut, for example), that you have been trying to hold up your end of the deal, and that you want to pay your mortgage. You are asking for a favor, keep that in mind.
- Once you have all the paperwork together, call your lender and ask for the Loss Mitigation Department. This first call may take hours, so be prepared for that. Have all of your documents close at hand and be ready to fax them over. Keep in mind that these calls may get frustrating. Keep your temper in check, lenders are far more likely to help you if you are polite and easy to talk to. Keep a journal of the dates and times and the name of the person you speak with every time you converse with your lender.
- The last step is simply to wait. Unfortunately while your bank makes their decision, this is all you can do.
Tips for Loan Modification.
Asking for a loan modification is a difficult process that takes a lot of time and patience. Consult a Miami foreclosure attorney to make sure you reach as fair an agreement as possible with your bank. You just want a fair deal, but your bank wants you to pay as much as possible. An attorney can help protect your interests and challenge the bank if they are offering an unfair deal. Educating yourself is important, and the following tips will help you avoid some pitfalls in Florida Loan modification.
- After all your paper work is in; it may take your bank several months to make a decision. Try to keep busy with everyday life; there is no way to speed the process up. If you are at risk for foreclosure in Miami, the process will go a bit quicker because banks process based upon urgency.
- Do not forget applying for a loan modification means you are asking for a favor from your lender. A quick temper will get you nowhere and may cause you to lose your home.
- Do not expect too much. The deal that you think is fair is not going to be the same as what your bank thinks is fair. You want to pay as little money as you can but the bank wants you to pay as much as possible. High expectations will only leave you disappointed.
- Keep your hardship letter straight and to the point. You want your lender to identify with you and understand your situation, but do not whine or complain. The letter should be approximately a page long and state why you are struggling to pay (a car accident that put you out of work for a few months, for example) and what new terms you would like.
- Make sure the agreement is something that you can realistically pay over the long term. If you were in an accident that kept you from working for a few months but are now working again, forbearance may forgive a few months of missed payments by adding them to the end of the pay period. If you received a huge pay cut, you probably need the payments lower every month. Make sure your new terms will work for you for the foreseeable future.
- On your expense report you must be honest and reasonable. Inflating your expenses does not help address the real problem – you need to cut back if you want to keep your home. Lying about your income could cause your request to be denied, or result in a deal that you cannot afford in the long run.
- Be honest with yourself about your role in the situation. Your situation may not be your fault, but expressing this to your mortgage company will not help you. You situation is what it is. A loan modification is a way to move on with your financial life.
What are the Benefits of Loan Modifications?
A loan modification is a change of the original payment agreement between a borrower and a lender. This happens usually when the borrower is having trouble making the agreed upon monthly payments on time. Banks make money when borrowers pay them back the borrowed money, plus interest. When a loan goes into default, they not only lose the money they loaned out but they lose on all that interest they would have gotten. Bankruptcy or foreclosure means the bank only receives a portion of the money they loaned out and no interest. Loan modification is the bank’s way of working with a borrower so that you can afford to pay them back and they can make a good profit. It’s pretty clear how banks benefit from this situation, but it is good for you as the borrower, too. How?
- You can pay less each month. One type of Florida loan modification can lengthen the time you are allowed to pay the loan off. You will still pay the loan off in full, just over a longer period. However, you will end up paying more in interest in the end. If your financial situation has changed and you can no longer afford the same payments, this can keep you from defaulting on your loan.
- You might be able to stop home foreclosure! Foreclosures in Miami are a common occurrence. If you are able to modify your mortgage payments down to an affordable rate, you may be able to keep your home. If you are facing foreclosure, Miami foreclosure attorneys to help you determine if modifying your mortgage can help. The best time to try and avoid foreclosure is before the process starts, if you wait too long it might be too late. Florida loan modifications may let you keep your home.
- You can protect your credit score. Unless the modification forgives part of your principle balance, it will not affect your credit score. If you make late payments, file for bankruptcy or if you home is foreclosed on, your credit score will plummet. This means you will pay higher interest rates and may not be able to borrow money at all. Bad credit will follow you for years.
- It can save you money. Another common way to modify a loan is by lowering the interest rate. This means you will not only pay less money per month, but you will also pay less money over the life of the loan.
- Get out from under late fees that keep accruing. If you missed one or two monthly payments but are now able to make on time payments you might still be drowning under late fees that do not stop. By adding the months you missed to the end of the loan term, you can get back on time and stop the late fees. The lender may even forgive the late fees that are already in place.