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Loan Modification

Introductions to Loan Modifications

[this article replaces a former article regarding HAMP modifications. It is preserved for posterity here]

You’ve just been served in a mortgage foreclosure lawsuit – you want to save your home – what do you do? A few years ago, foreclosure defendants would retain counsel and applying for a loan modification was part of that representation. Now that attorney’s are less likely to recover attorney’s fees from the banks for doing this, the list of attorneys that help Florida residents modify their loans continues to decrease.

One thing we’ve prided ourselves on at my firm is that we do not seek fees from the bank when there is a loan modification. Because of this, our staff does not look down on this process, and we’re able to help a lot of our clients in the process.

First things first, what is a loan modification?

If you are delinquent on your mortgage as a result of a financial hardship (loss of income, divorce, sickness, etc.,) a loan modification is a mutual agreement between the borrower under the loan and the bank. This generally requires you to disclose significant financial information to the banks so that the lender can make an informed decision about the borrower’s ability to repay the loan. Often times, the lender is using the principal balance at the time of default, plus the arrearages [including attorney’s fees and interest] and recasting that as a new loan over a period as long as 40 years.

HAMP Modifications v. HARP Refinancing

A common misconception about loan modifications is that they are a refinance. This is not generally true. Under previous Federal laws, the Home Affordable Modification Program (HAMP) was the typical loan modification plan afforded to borrowers. This program was eliminated at the end of 2016. This program would recast existing loans by reducing the time period to pay (amortization), reducing the interest rate, removing escrow requirements, or in some rare cases – reducing principal (the amount owed on the loan.)

A similar section of the law – the Home Affordable Refinance Project (HARP) – allowed for individuals to procure new loans in an effort to lower interest rates. Generally these were offered on properties that were only minimally upside down in terms of value or property that actually had equity in the property. This actually generated a new loan for the consumer. They are very different programs and this program does not expire until 2018. There may still be time for consumers to use this program.

Post HAMP Expiration Modifications

Given that HAMP has expired, many individuals are being told that there are no longer modifications being offered. While it is up each bank to determine what programs it will offer to consumers and borrowers, many still try to work with their clients in order to allow them to keep their home.

In house loan modification programs

Many larger financial institutions (think Wells Fargo, Bank of America, etc.,) have offered in-house modification plans when the government plans did not work for the borrower. Some of these modifications are actually offered on better terms than those required by the governmental modification programs.

One big upside for consumers in the state of Florida – whether they are in default or not – is the ability for a lender to offer streamlined modifications with little to no financial disclosure from the borrower. This can be beneficial if, on paper, the borrower does not look like they have the ability to repay the loan under other terms. Oftentimes the financial information is being pulled from an individuals credit or from available information [such as tax returns if a 4506-T has been submitted].

Unfortunately, some other banks and credit unions are not allowing individuals to modify their loans after default or offer limited options. If you can’t modify your loan, having an attorney helps you quickly move from a failed loan modification attempt to a short-sale or a deed-in-lieu of foreclosure.

RESPA/CFPB Protections

If you have applied for a modification, the Federal Government is still trying to help. In fact, the Consumer Finance Protection Bureau has been created, in part, to help streamline the modification procedure. Under 12 CFR 1024.41, certain timelines are now placed on lenders to give, among other things, notices of receipt of loan modification documents, to put a stay on foreclosure sales, and to allow for more expeditious processing of loss mitigation applications. If your lender habitually misses deadlines imposed on it under these regulations, a private cause of action under RESPA may exist.

Contact an Attorney

Given that fewer and fewer attorneys still attempt to modify loans for their clients, and even fewer attempt to meaningfully attack lenders for violations of the CFPB’s requirements, meeting with an attorney that does can be a game changer in terms of getting your modification application reviewed efficiently. If you would like to explore this option then scheduling a consultation with an attorney should be a high priority. I offer very convenient ways to set up a time to speak with me: you can e-mail my office to have my staff call you, or you can call my office today at 813.502.6768.