The housing bust in 2008 precipitated a downward economic spiral which has jeopardized the ability of many American Citizens to retain their residences. In order to reduce the tide of foreclosures and hopefully allow consumers to retain their homes, the federal government has instituted various incentive-based plans to increase the willingness of home lenders to modify the terms of existing mortgages so that homeowners will be able to afford their mortgage payments. However, since foreclosure laws differ from state to state, the willingness and ability of lenders to modify loans will also vary accordingly. While the purpose of this article is not to deter or discourage anyone from pursuing a loan modification, it is important for homeowners to have a realistic perception of the information and effort necessary in order to determine eligibility for a home loan modification, and to further obtain such a modification.
I will also preface this article by stating that our firm does not represent homeowners with respect to loan modifications, except in the instances where it may be included in terms of prior bankruptcy representation. The purpose of this article is not to solicit clients seeking mortgage loan modifications, but instead to make such individuals aware of their rights, as well as the responsibilities of the lenders, with respect to mortgage loan modifications.
A few things to keep in mind before you contact your mortgage lender in regard to a home loan modification:
- If your house is in foreclosure, especially in the state of Georgia, you must pay careful attention to all foreclosures deadlines. The fact that a mortgage lender may be evaluating your mortgage for a modification or submitting it to underwriting to determine revised terms does not stall the foreclosure process. On numerous occasions I have met with consumers who are attempting to negotiate a home loan modification with their lender while a foreclosure was pending, only to be notified on the eve of foreclosure that the modification was denied. Many times the notice is too late for the consumers to take any steps, bankruptcy or otherwise, to prevent the foreclosures of their residence. Since most bankruptcy attorneys offer a free consultation, it would be a very good idea to meet with a bankruptcy attorney if you receive notice of a foreclosure, even if you are in the process of a home loan modification. In this manner, a homeowner can determine what they need to do to protect their rights in the event that a home loan modification cannot be obtained in sufficient time to stop a pending foreclosure.
- Georgia is a non-judicial foreclosure state. This means that a lawsuit does not have to be filed in order for a mortgage lender to commence foreclosure of a property. In fact, Texas is the only state in which a residential real estate foreclosure can be started and concluded more quickly than Georgia. In comparison, South Carolina is a judicial foreclosure state. This means that a lender must commence a lawsuit and serve all interested parties. It is not uncommon for a foreclosure in South Carolina to extend beyond 12 months. This is significant because mortgage lenders who must undergo the time and expense of a judicial foreclosure proceeding are more likely to be willing to modify the terms of the mortgage loan. Because the foreclosure laws in Georgia are more favorable to lenders and therefore less costly, there is a reduced incentive for lenders to be willing to permanently modify loans.
- Be realistic about your ability to afford your home. Early studies have shown that a significant number of mortgages which are modified ultimately go into default again within a year after the modification. If a homeowner cannot afford his or her present monthly payment, and the purpose of the home loan modification is simply to roll past due payments into the note, with no reduction in the monthly mortgage payment, then the modification will only delay the inevitable. Long term or permanent reductions in household income may prevent the homeowner from taking advantage of even the most favorable terms of a mortgage loan modification.
- A mortgage loan modification is generally something that a homeowner can negotiate directly with their lender. It is not necessary for a homeowner to hire a lawyer or any other type of professional for a fee to assist you with a home loan modification. Consumers should be very alert to “foreclosure rescue” scams or any other arrangement where they are asked to quitclaim their interest in the property to a third party so that a loan modification can be negotiated. Because foreclosures are advertised in the newspapers in the state of Georgia, it is very easy for individuals and businesses to obtain contact information for distressed homeowners. These people attempt to take advantage of the fear and panic faced by people who are struggling with their loan payments, or facing an imminent foreclosure. Almost all lenders have a loss mitigation unit, or loan modification unit, whose primary purpose is to negotiate loan modifications. As a result, there should be no reason to get any third parties involved.
- Be aware of how much your home is worth, as well as how much is owed against it. Homeowners who are “underwater,” meaning the amount of debt owed against their home is in excess of the home’s value, usually have better leverage in negotiating with a lender. This is because the lender will lose money in the event of a foreclosure, because the house cannot be sold for enough to pay off the loan. On the other hand, a homeowner who has developed significant equity in their home may have a more difficult time in pursuing a loan modification, as the lender is aware that they will be able to recover the balance of the loan, as well as any foreclosure related fees, in the event that a foreclosure should become necessary.
- Homeowners with a second or third mortgage may still encounter difficulty with those lenders, even if they are able to successfully modify an affordable loan modification with the first mortgage lender. Once again, the modification of the first mortgage may only delay the inevitable loss of the home if the homeowner cannot maintain payments on the junior mortgages.
- Homeowners who are capable of making the regular monthly mortgage payments will probably receive little, if any, benefit from a loan modification. If the main concern is to obtain a lower monthly payment or interest rate, then up-to-date homeowners should consider traditional refinancing.
Steps to Take During the Home Loan Modification Process
- Most lenders are going to request a variety of financial documents, including tax returns, pay stubs, check statements, as well as billing statements for any other creditors a homeowner may owe. The purpose of these document requests is to determine the amount of available income a homeowner will have to pay towards their mortgage. The most common complaints about the document request are that the lenders either fail to receive, misplace, or lose the documents after delivery from the consumer. Consequently, a homeowner should retain copies of all items submitted to the mortgage lender and be prepared to resubmit the documents on short notice. Another suggestion is to confirm delivery of the requested documents would be to send them certified mail, to the attention of a specific individual with the lender.
- Follow up immediately after any documents are submitted in order to make sure that the documents have been received and that all of the lender’s requests have been satisfied. Do not be surprised or discouraged if the documents have to be submitted multiple times.
- Insist that all instructions and communications from the lender be in writing. If the lender has received your copies of the financial documents, request a confirmation by email, fax, or regular mail. If additional documents are requested, ask that the request be submitted in writing as well. If the lender has agreed to cancel or postpone a foreclosure while the home loan modification is pending, request confirmation of that agreement in writing FROM THE LENDER’S ATTORNEY. Attorneys at our office have spoken with several consumers who believed that they had an agreement to postpone the foreclosure with the lender, but the law firm representing the lender was never notified and the foreclosure sale was consummated.
- Because the purpose of the home loan modification is to help distressed homeowners who may be at risk of losing their homes, many lenders require that a homeowner be at least two months delinquent on their payments before they will be eligible to discuss a home loan modification. Consequently, some lenders will notify homeowners not to make any mortgage payments for two months so they will be eligible to discuss a modification. While this may be suggested by the lender, please be advised that the failure to make any mortgage payments as they come due is an instance of default, giving the lender the right to foreclose. Once again, any such instructions should come from the lender in writing. Additionally, the money that was to be used to make those mortgage payments should be retained in the event that the modification is unsuccessful, so the delinquency may be immediately cured. The homeowner should ask the lender if they will waive any late fees and other charges associated with past due payments in the event that the modification is not approved and the homeowner submits all of the payments that they were told to withhold. Be prepared to seek legal assistance in the event the modification is not approved, or if the terms of the modification will still not make the loan affordable. Be skeptical about any assertions that the modification will be approved until loan modification documents have actually been executed. Remember that the person at the lender’s office with whom you are dealing is not necessarily the person who is going to make the final decision as to whether or not a homeowner’s loan should be modified.
- If a modification is approved, a homeowner is usually sent a stack of documents commemorating any changes with respect to the loan. Read over these documents very carefully and make sure that you understand all of the legal consequences of the modification. Please be aware that some lenders will allow for only a “temporary modification” in which the terms of the loan may be modified for a one year or two year period, with the understanding that the parties will renegotiate terms upon the completion of that time period. Many times the language of the modification will indicate that the lender has the right to restore the original terms of the loan contract at the expiration of such time period.
- Save all records, documents, correspondence, and other materials with regard to the entire loan modification process. Likewise, do not discard any of the original loan documents, even if a modification has been approved. These records may become necessary if the loan is ever sold, transferred, or assigned to another lender. Likewise, these documents may be necessary in the event the lender should attempt a foreclosure or other legal action with respect to the note. Finally, all of the loan documentation and modification documentation may become necessary if the lender were ever to file for bankruptcy.
A home loan modification in the state of Georgia can be a lengthy, document and information intensive process. The best possible outcome is that the home loan of a distressed borrower will be modified with favorable terms that will be affordable to the homeowner. While this is the best possible result, this is not a very frequent result of a loan modification process in Georgia. Homeowners need to be realistic about what they want to accomplish and, more importantly, what they can accomplish. Assembling and forwarding the requested documents to the lender will require a homeowner to be exceptionally diligent and organized. Additionally, patience will probably be the homeowner’s most important asset going into a loan modification.
 Based upon research of the United States Department of Treasury, conducted with respect to the Home Affordable Modification Program (HAMP). Since the inception of that program, almost 20% of the loans that were modified were 2 months delinquent or more after 9 months.