The current buzz phrase for assisting homeowners with these problems is loan modification. In simple terms, a loan modification changes an existing mortgage in a way to make it more affordable to the homeowner and keep a home from going into foreclosure. Loan modifications are actually complex changes to complex legal documents.
Beware of Lenders Offering Loan Modifications
Many lenders are offering unsolicited loan modifications to their current customers. The lenders have several incentives to do this. The foreclosure process for lenders is expensive and time consuming. Lenders need to pay attorneys for foreclosure work along with court and service fees. During the foreclosure process the lender is receiving no income and spending money on a process that may take a year or more.
Ultimately a foreclosed house is sold at an auction and in current market conditions likely to bring in less money from the sale than the value of the loan. With those considerations, modifying a loan so that the current home owner can afford it provides the lender with immediate current income and the long-term prospect of realizing the mortgage’s full value eventually.
The lender thus has incentives to make offers to parties with troubled loans rather than foreclose. Since the lender is making the offer, the offer will be on terms that are in the best interest of the lender, with the terms drawn up by attorneys working for the lender. While the homeowner may realize some relief, it is unlikely the relief will ultimately be in the homeowner’s best interest.
Research Carefully Loan Modification Service Providers
As the lenders have professional legal staff working on modifications, it is in the homeowner’s best interest to have his own professional representation for a loan modification. There are many providers offering such services on the internet and through other advertising media. Before a consumer gives such a firm confidential information thorough research should be done.
Consumers should be wary of those firms that say they will give your information to their attorneys for review. Loan modification companies that are not law firms are not bound by the same attorney-client secrecy rules as actual lawyers. Protecting sensitive personal information is critical given the growing problems with identity theft.
Regulation of Loan Modification Service Providers
As loan modification activity has grown, many non-lawyers are trying to do this work. In response states are looking closely at individuals involved in this work, and many states have placed restrictions on who may engage in representing consumers in loan modification negotiations. A consumer should be certain that his choice of representation can legally operate in the consumer’s state.
Non-lawyers actively involved in representing a homeowner in contractual negotiations risk being involved in the unauthorized practice of law. Such activity is prohibited in all states and a felony with significant prison terms in many.
Mortgages are complex legal contracts, requiring legal training to effectively modify.
Consumers should seek out the help of a professional law firm to handle their loan modificaiton.
Elements of a Loan Modification
The following are examples of terms that can be altered in a loan modification and should be part of any modification negotiation:
- Principal Reduction
- Interest Rate Reduction
- Additional Years to Repay Loan
- Forgiveness of Missed Payments
- Forgiveness of Late Charges
- Low Fixed Payments
- Permanent Terms for the Life of the Loan
Translating the above concepts into a legally binding contract requires skill and training in the law. A homeowner should be sure to have competent legal representation in the process. This is true even when the modification is part of the government Making Home Affordable program.
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