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When you fall behind on your mortgage payments, or believe you may fall behind in the near future, it is easy to assume that losing your home is only a matter of time. Fortunately, this is not always the case. In many situations, homeowners may be able to modify the terms of their mortgage, lower their monthly payment, and avoid the foreclosure process entirely. That being said, obtaining a mortgage loan modification is not always easy, which is why it is strongly recommended that you retain the services of a knowledgeable and skilled Rockland County foreclosure defense lawyer who can effectively guide you through every step of the process. Fortunately, if you’re reading this, you’re in the right place. The Law Office of Peter A. Hurwitz, PLLC has decades of experience helping people stay in their homes via mortgage loan modifications, and we’re here to put that experience to work for you. Contact us today so we can discuss your circumstances.
What Is a Mortgage Loan Modification?
Simply put, a mortgage loan modification is a permanent change to one or more of the terms of your existing mortgage. A loan modification does not replace your mortgage with an entirely new loan; instead, your lender or mortgage servicer agrees to adjust the loan you already have so that your monthly payments become more manageable.
Homeowners will often request loan modifications after experiencing a financial hardship that prevents them from continuing to make their payments as originally agreed, such as if a homeowner:
- Lost their job
- Suffered a serious illness
- Went through a divorce
- Experienced a reduction in income
- Faced unexpected expenses
Of course, lenders do not approve every modification request they receive, which is why you should hire a lawyer who can effectively prepare and present your case for requiring a mortgage loan modification.
How Does a Mortgage Loan Modification Help Prevent Foreclosure?
When a homeowner stops making mortgage payments, the lender may eventually begin the foreclosure process. A successful loan modification can help prevent this from happening by replacing the unaffordable payment arrangement with one that better reflects the homeowner’s current financial situation. Depending on the circumstances, a loan modification may:
- Reduce the interest rate on the mortgage
- Extend the repayment period
- Add missed payments to the outstanding loan balance
- Lower the homeowner’s monthly payment
- Convert an adjustable interest rate into a fixed rate
- Temporarily set aside a portion of the principal balance
In New York, homeowners facing residential foreclosure may also be entitled to participate in a mandatory foreclosure settlement conference. During this conference, the homeowner and lender are expected to negotiate in good faith and discuss possible alternatives to foreclosure, including a loan modification.
Who Qualifies for a Mortgage Loan Modification in New York?
One important thing to understand: different lenders, mortgage servicers, and loan investors all have their own eligibility guidelines. However, several factors are commonly considered when determining whether a homeowner qualifies. Generally, a lender will want to see:
- Proof that the homeowner has experienced a genuine financial hardship
- Evidence of current income
- Bank statements, tax returns, and other financial records
- A complete list of monthly expenses
- Information concerning the property and outstanding mortgage
- Evidence that the homeowner can afford the proposed modified payment
Many homeowners mistakenly believe that they must already be several months behind before applying for a modification. Though delinquent homeowners frequently apply, a homeowner who reasonably expects to default may also be able to request assistance before foreclosure proceedings begin.
It is also important to understand that having too little income can result in a denial, but having too much income may create problems as well. In other words, the lender must be convinced that financial relief is necessary, while also believing that the homeowner can successfully maintain the new payment arrangement.
What Types of Mortgage Loan Modifications Are Available?
The precise terms of a modification will depend on your mortgage, lender, financial hardship, income, and several other factors. That being said, some of the most common forms of mortgage loan modification are as follows:
- Interest rate reduction: The lender lowers the interest rate, thereby reducing the homeowner’s monthly payment.
- Loan term extension: The length of the mortgage is extended, allowing the balance to be repaid over a longer period.
- Capitalization of arrears: Missed payments, interest, and certain fees are added to the remaining loan balance.
- Principal forbearance: A portion of the principal is temporarily set aside and may become due at a later date.
- Fixed-rate conversion: An adjustable-rate mortgage is changed into a fixed-rate mortgage, which can make future payments more predictable.
- Combination modification: The lender uses several of these methods together to create an affordable payment.
You should note that a loan modification does not necessarily reduce the total amount you owe. In some cases, extending the loan or adding missed payments to the balance may increase the total amount paid over time, even though the immediate monthly payment becomes lower.
How Does the Loan Modification Process Work?
The loan modification process begins with a review of your mortgage, income, expenses, hardship, and overall financial situation. From here, you will generally have to submit what is commonly known as a loss mitigation application to your mortgage servicer. This application may require documents such as the following:
- Recent pay stubs or proof of other income
- Bank statements
- Federal income tax returns
- A hardship letter
- A monthly income and expense worksheet
- Information regarding other debts and assets
- Additional documents requested by the servicer
Once the application is submitted, the lender will review it and determine whether it is complete. If anything is missing, the lender may request additional documents.
If the modification is approved, the homeowner may first be required to complete a trial payment plan. During this period, the homeowner must make several payments in the required amount and on time. After the trial period is successfully completed, the lender may offer a permanent loan modification agreement.
Contact a Mortgage Loan Modification Lawyer Today
The bottom line is that a loan modification may provide homeowners with a valuable opportunity to remain in their homes, catch up on missed payments, and avoid foreclosure. If you are struggling to afford your mortgage or have already received foreclosure papers, the Law Office of Peter A. Hurwitz, PLLC is here to help provide you with the relief you need. We serve clients in Rockland, Westchester, and Orange Counties, as well as in New York City. Contact our firm for an initial consultation today so we can discuss your circumstances and begin building a comprehensive strategy on your behalf.
