Mortgage Loan Modification and Bankruptcy
Home-ownership is at an all-time high of 65.1%, but that rate is also linked to mounting mortgage costs. Americans hold an estimated $10 trillion in mortgage debt for a family residence. The average mortgage for first-time homeowners is $260,386, but the combined cost of the mortgage, utilities, and insurance can range upwards of $1,500. While the mortgage payment may be a stretch during “normal” circumstances, a financial difficulty can lead you with few options. It could be something as simple as a medical emergency, death or injury in the family, or a layoff. You could be left in an untenable situation, where you can’t cover the costs of your mortgage.
You could modify or refinance your home loan. Or, you can file for bankruptcy. Your ultimate goal is to get through this difficult time, but it’s also important to consider your options. In the best possible scenario, you’ll be able to avoid default, lower your loan payment, and keep your home while you climb out of the depths of debt.
What is a Loan Modification?
A loan modification is a change to your terms to mitigate loss. The change can extend the number of years for repayment, forebear, reduces your principal balance, or reduces your interest rate.
Modifying a Mortgage Loan
The modification of your mortgage loan should get you out of your current haphazard situation and allow you to get back on your feet financially. The goal of the loan modification is to make your payment more affordable, but the goal for your lender is to avoid a default or the loss of any more money than necessary.
Depending on your loan, your situation, and other factors, the lender can offer modification options, including:
- · A loan extension–from 30-to-40 years, for example.
- · A lowered interest rate.
- · An agreement to add the arrears to the loan debt.
- · The conversion of the loan from an adjusted-to-fixed-rate mortgage.
- · A possible deferral or even forgiveness of part of the principal on your loan.
While the lender doesn’t technically have to offer generous terms or offers to help mitigate your financial hardship, but it’s often worth it for the lender to work with you so they can avoid the cost and inconvenience of foreclosure.
Depending on your financial situation and hardship, you may also be eligible for other government programs that can get you even more favorable terms. The Flex Modification Program, for example, is designed to prevent foreclosure. Even if you aren’t eligible for government programs, your lender may offer a modification program to meet your needs.
Who can qualify for a loan modification?
You might qualify for a loan modification if your loan is owned by a bank or mortgage company. You could also be eligible if your loan is a Fannie Mae or Freddie Mac loan. Other qualifying factors could include:
- Your house value has declined so such a degree that you now owe more than your home is worth.
- · You’re spending more than 31% of your income on your housing costs every month.
- · Your current financial situation puts you in danger of default (or you may have already defaulted).
- · You’re not eligible for mortgage refinancing.
You may be able to work with your lender, starting with an application process, then continued through a trial period to prove that you’ll be able to fulfill the requirements. Finally, your lender will make a final decision on how or if they will offer you the loan modification.
How Can a Bankruptcy Attorney assist you to get a loan modification
A loan modification can happen concurrently or separately from your bankruptcy. Either way, a bankruptcy attorney should be able to assist you in navigating the process. He or she can review the paperwork, make sure the agreement is in your financial best interest, and consult with you on how to best accomplish the loan modification. As with many legal matters, you can enter into a loan modification without having an attorney look at the paperwork, but it’s typically better to have a legal opinion on the case.
The law does not require a lender to offer a loan modification. The lender is only required to review your application. Having a lawyer in your corner to review, offer advice, and to advocate on your behalf with the lender is always beneficial. If the loan modification is not successful, your bankruptcy attorney can continue to work to avoid foreclosure and the loss of your home.
How Nathan A Berneman, APC Can Help
No matter where you are in the process, with bankruptcy, refinance, or a loan modification, we at Nathan A. Berneman are here to help. With more than 20 years of experience in the Los Angeles area, we offer the level of knowledge and expertise to help you navigate the hardships you’re undergoing.
Call 805-492-7045 or schedule your free consultation online today!