How to Avoid Foreclosure with a Loan Modification

A loan modification can help a homeowner permanently change one or more of the terms on the mortgage, including lowering the interest rate, increasing the term of the loan or adding missed payments to the loan balance, to make monthly payments more manageable.

5 Tips for a Successful Loan Modification

1. Keep notes of all your contact with the lender including details such as the date and time of contact, the form of contact made (in-person, by phone, fax, email, or mail), the first and last name of the representative, and the outcome.
2. Follow up any oral requests you make with a letter to the lender. Send your letter by certified mail with a “return receipt requested.” Keep copies of all letters and enclosures.
3. Meet all deadlines set by the lender, and if possible complete any requests ahead of time and as soon as possible.
4. Loan modifications are usually only available on owner occupied properties, so do not move out or rent your home during the process. Renting a home should only be considered if the rental income is enough to maintain the loan current.
5. Maintain persistent contact with your lender. Follow-up is crucial to your success. 

Call Your Lender

Prepare for your first call with the lender or loan servicer by gathering the following information and jotting down responses to these questions on paper so that you have a well prepared argument:

1. Your home loan account number.
2. Your most recent income documentation, including:
   
   • pay stubs, or if you are self-employed, your tax returns or a year-to-date Profit & Loss Statement
   • benefit statements from Social Security, Disability, Unemployment, Retirement, or Public Assistance
3. A comprehensive list of all household expenses.
4. A brief explanation of your circumstances. Illustrate for the lender the events that led you to miss your mortgage payment(s). Support your explanation with any documents you may have.
5. Describe how you have tried to resolve the problem.
6. Is your problem temporary, long-term, or permanent? How would a loan modification help you get back on track?
7. Are there any other financial issues that may prevent you from getting back on track with your mortgage?
8. What type of arrangement or work-out plan would allow you to better manage your finances?

There is no alternative to calling your lender if you are trying to successfully accomplish a loan modification. If you reach a department other than loss mitigation, ask to be transferred after taking note of the direct number.

Remember to document the date and time of contact, the first and last name of the representative, and the outcome of the call after you are done. Explain your situation and the cause of your financial hardship; i.e. interest rate increase, loss of a job, etc. You should add that you are or may soon become delinquent on your mortgage and would like to request a loan modification to avoid falling further behind and possibly facing foreclosure. Stress the urgency and seriousness of your situation.

Answer honestly any of the representative’s questions and be sincere about the disparity of your financial situation. If the representative can determine from the initial phone call that you potentially qualify, you will receive a loan modification packet that will help establish your inability to make the current or increased mortgage payment after a rate adjustment. You also must prove that a loan modification will improve your situation to a point where you will be an acceptable risk for them.

Detailed Notes are Critical

You will have to make a lot of phone calls and deal with several different people within the loss mitigation department. This in itself can lead to unique challenges and road blocks if you don’t have your efforts well documented. Keeping track with a detailed call log that reference promises, comments and details should help you overcome objections as you talk to other people in the department. If there are any delays with the loan modification and the home goes into foreclosure, the log that you have created can be used to justify your good faith efforts in trying to find a resolution to your situation. If your situation gets to a point where you lose your home to foreclosure because your bank acted in bad faith, a foreclosure attorney can use the log to build a case against the bank.