I received a call from a woman the other day who was looking for someone to help her modify her loan. As she began to describe her situation, her likelihood of successfully modifying this loan grew slimmer and slimmer. When I let her know that I wasn’t going to be able to help her with her problem and gave her all the reasons why, the gravity of her situation finally sunk in. It was heartbreaking. At the same time, she made pretty much every mistake you could make when you’re in foreclosure.
With that said, here are the things you should have if you want to get a modification.
It should go without saying that if you want to modify your loan, you will need money to make a modified loan payment to your bank. A modification does not mean a free house. If you want a free house, that’s a different story, and I might be able to help you with that. But if you want a modification, you need income. When I asked the woman from the other day about what income she had coming in, she told me she was retired and that her two adult sons (in their 40s) were living with her and were going to be looking for jobs soon. Yikes.
Everyone’s situation is different. When you’re applying for a modification, things are going to pop up. You might not need additional time if you’re the typical situation – you’re a married couple with W-2 income and predictable expenses. The thing is, if everything with you was typical, you probably wouldn’t be in this position. Something happened – a death, injury, illness, loss of a job – that put you into this situation. You may be self-employed and will need to have your accountant prepare a profit and loss statement for your modification application. You may have just begun to rent out the top floor of your home and have to present a lease and prove that you’ve been receiving the rent. When I was talking to the woman the other day, I asked her if she received a notice of sale yet. She told me that she did, and the sale was scheduled for October 12th. If you’re one week away from the foreclosure auction, now is not the time to think about modifying your loan. You just don’t have enough time.
3. A hardship
Back when HAMP was a thing, one of the absolute requirements of obtaining a HAMP modification was that you had to have an actual hardship. Now, a lot of servicers still want you to tell them what the event or series of events were that led you to defaulting on your mortgage. This should be easy to get, as everyone has some period where they face adversity. The woman from the other day did have this one checked off – her husband, who was the sole breadwinner – got sick, leading to the default, and he ultimately passed away.
4. Defenses to the foreclosure
This shouldn’t be a thing, because when you’re applying for a modification, you’re going to tell the bank that you acknowledge your default and want the bank to modify the loan. However, common sense dictates that if the bank is more likely to modify your loan if they have an incentive to settle the case. A good answer to the foreclosure complaint with actual defenses that the bank may have trouble defeating will help you get a modification. If the bank knows that you’re willing to take this case up on appeal, or you’ve been able to establish a defense that will require a trial on an issue of fact, they’re more likely to want to save the legal fees and the time involved in continuing with the foreclosure and just give you a modification. The woman from the other day told me that she had her friend (a general practice attorney) help with the foreclosure but didn’t know what her friend did.
5. A recent appraisal
You should know how much your house is worth when you’re going into this. Then, find out how much you owe to the bank by requesting a payoff quote. The bank is going to be more likely to modify your loan if you owe more than what your house is worth. You may be able to negotiate the amount you owe altogether if you owe more than what your house is worth. If you have a ton of equity in your house, the bank is less likely to modify your loan. This is because of something called the “NPV” test. NPV stands for net present value, and it basically means that the bank will get more by going through foreclosure than modifying your loan. The amount of equity has a lot to do with that, because if there is a lot of equity, the bank knows that it will recover any interest, escrow advances and legal fees out of the equity in your home. If there is no equity in the property, the bank wants to turn this loan into a performing asset as soon as possible because they won’t be able to recoup any money (especially true out of pocket expenses like for property taxes and insurance) after a foreclosure sale.
Modification applications require patience. You may be rejected. You may be rejected twice, or three times. You may send in an application that the bank denies receiving. You may have sent in your response to the bank’s missing documents letter and the bank asks you for the same things all over again. By the time you get those other things and send them in, the initial documents you sent are stale and you must send new ones. The bank may miscalculate your income. This can be a lengthy process, but if you can get what the bank wants quickly, you can move through it faster.
7. Help from someone experienced
You can try to do this yourself. It works for some people. But getting the assistance of someone who knows what they’re doing can be the difference. I know I’m biased, but you should really get a lawyer to help you with this. A lot of attorneys can be retained to just help you with a modification or provide flat fee services to handle your foreclosure matter, and an attorney who can navigate the system with the banks and the courts is really your best bet. Modification “specialists,” who are often out of state, inexperienced, and don’t know your situation, will take a lot of money from you to have a glorified call center help you. The banks and the banks’ attorneys see right through them immediately. The woman from the other day told me her lawyer friend didn’t know what she was doing and didn’t do anything for her. It’s unfortunate because the bank has pretty much had its way the entire time and the woman is going to lose her home sooner rather than later.
Do you have everything on this list? If you do, you’re probably ready to submit your application. If not, contact me to see how we can get you closer to your goals.