While it may not be the answer for everyone, loan modification offers a very real alternative to foreclosure and bankruptcy, assuming it is done properly.
A loan modification is a process of changing one or more original mortgage terms in a manner that both parties can agree upon. This is usually done following a claim of hardship on the part of the borrower and allows payment terms to be changed to a more affordable amount, usually through lowering the interest rate. Loan modification is different from refinancing because the clock doesn’t start over by creating a brand new contract, it simply modifies the terms of a pre-existing contract that remains in force.
Loan modification is a step that takes place before a short sale, foreclosure, or bankruptcy. A loan modification is meant to avoid these consequences. Many people are able to modify their original mortgage contracts and lower their monthly payment by hundreds of dollars. The amount that can be saved will depend on the amount, age, and balance of the loan. Another factor that will affect the terms of the loan is a person’s ability to negotiate with banks and lenders. In these instances, when the best possible savings are being sought, hiring a lawyer may be in a person’s best interest.
By attempting to modify a loan before filing for bankruptcy or losing a home in a foreclosure a person may be able to keep these derogatory terms off of their credit reports. Saving a couple hundred bucks a month on mortgage payments can mean having an extra couple hundred bucks a month to put toward other debts. That extra cash can be invested entirely in open debts or split amongst debts and high interest savings accounts or other low risk investment options.
Many lenders are more than pleased to modify loans when it becomes clear that financial hardship may soon creep up on the borrower. Some banks are even pleased to lower interest rates to long time customers that simply ask for the reduction.
There are plenty of folks in the world that rush into bankruptcy or short sales. They get scared and think that no other options exist. Even though the debt may seem overwhelming, borrowers usually have options. Loan modification is a simple step that many folks seem to forget on their road to foreclosure or bankruptcy. It may not be an option that works for everyone, but it is an option that everyone should attempt. Loan modification is one of the bankruptcy / foreclosure avoidance tactics that actually puts money back into the hands of the borrower, instead of the borrower being the only one expected to part with their cash.
Loan modification is also a very non-threatening option for lenders and borrowers. Lenders can help ensure that they will get as much of their investment back as possible while the borrower can avoid a rather large hit to their credit report. The nice thing about a loan modification is that nothing bad can come from making the request of the lender to modify original contract terms. The worse they can say is “no”. In comparison to the other things a lender can say, “no” doesn’t seem that bad.
Timothy G.McFarlin is an Attorney at McFarlin & Geurts with expertise in a variety of practice areas including real estate law, debt reorganization, bankruptcy, business litigation, and consumer law and mortgage litigation. http://www.mcfarlinlaw.com/Debt_Restructuring.php