Do You Need Legal Help with a Mortgage Loan Modification?

A loan modification permanently restructures your mortgage for the purpose of helping you stay in your home when you face financial hardship. Lenders only consider a loan modification if you’re at risk of foreclosure. Your loan servicer could lower your interest rate, extend the loan term, reduce the outstanding principal balance, or change the loan product.

The key to a favorable loan modification decision is to have a financial hardship that is not so dire that you can no longer afford to make any payments on the loan.

To evaluate your financial circumstances, lenders use an application, which requires a letter of explanation along with submitting bank statements, pay stubs, and other financials. The lender then issues either a conditional approval or decline.

A conditional approval generally involves making the adjusted payments for a period of three to six months. At the end of the trial modification, if you make on-time payments, the changes become permanent.

Not all modifications are straightforward. You might need legal guidance to decide if a conversion is the best option, help with the application, or assistance appealing a denial. Here are a few circumstances that might require legal assistance from a lawyer:

You do not understand the loan modification application. Like many lending services, the application is not simple. You have to show a financial hardship that prevents you from continuing the current payment schedule and disqualifies you for a refinance. Yet, you must earn enough to qualify for a new lower payment.

You are not sure what you should or should not disclose. One key element to qualifying is your statement of circumstances. Presenting your case the wrong way or not explaining enough could lead to the denial of your application. Suppose you are facing a foreclosure and are unsure how to approach a loan modification. In that case, an attorney can help navigate the process and educate you on how to present the financial hardship to your lender.

It is unclear if the modification will avoid foreclosure. If a loan modification does not prevent foreclosure, you may receive a greater benefit from taking measures to exit rather than fighting to stay.

The loan servicer does not follow state and federal laws during the modification process. Laws are in place to protect your rights. There is a specific process the lender must follow, which includes providing you with every opportunity to retain your home. Most consumers do not understand the laws associated with a loan modification. An attorney can ensure the process does not violate your rights and can pursue legal action or improve your negotiating position if the company oversteps its bounds.

You receive a denial and want to appeal. There is more than one modification program. Most loan servicers begin with the in-house process and may not make you aware of other options available to you. However, if you have a federally backed loan, you may qualify for a modification through Fannie Mae or Freddie Mac. A lawyer can appeal the decision or help you find an alternative loan modification program.

Final Thoughts

It is not mandatory to get legal help as you go through the loan modification process. If you understand the laws and the loss mitigation procedures, you may be able to navigate the process on your own. However, if you have questions about loan modifications and want advice on what you should or should not say to your loan servicer, hiring an attorney may be the safest route.