Foreclosure Basics: Working with the Lender to Modify a Loan

By Eric Sutton, Managing Attorney, United South Broadway Corporation Fair Lending Center

Once a loan is in default (or sometimes before), many homeowners try to work with the lender to modify the loan to make it more affordable. But what is required to get the lender to agree to modify the loan?

First, for residential mortgages, the lender is required by federal law to at least review and make a decision on a complete application for a modification. That does NOT mean that the lender has to modify the loan. There are a variety of reasons that the lender could refuse to modify. Lack of income, too many household expenses, too many prior modifications, the loan was too recently modified…there are a number of possible reasons.

The most common reason for denial, however, is that the lender determines that required documentation was not submitted. That happens most frequently because of a communication breakdown between the lender and the homeowner. It can be difficult to be sure what the lender is looking for.

At the heart of it, the lender is looking for very much the same documents that are required when the loan is first made. The difference is that unlike at the start of the loan, when the lender is inclined to be friendly and helpful, once a loan is in default the lender’s goal is not necessarily to get the loan back on track. It is to make sure that it gets repaid.

If the loan is brought current, or modified, so that it is performing again, the lender will happily collect payments. Until that happens, though, the lender will just as readily foreclose and sell the home. In short, the lender is not a friend at this point, and the homeowner should not assume that the lender will go out of its way to make sure the homeowner knows what is necessary to complete an application.

With that in mind, it is important to seek help when putting together documents for an application. United South Broadway has experienced HUD-certified housing counselors available to help any homeowner, regardless of income, to put together all the necessary documents to apply for a modification. Whether you are at the start of the process, or you have been trying without success, one of our housing counselors can help.

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NOTE: New Mexico homeowners who are behind on payments or in foreclosure can get free housing counseling and/or legal help from United South Broadway Corporation (USBC) toll free on 1-866-201-6286 or contacting us here. USBC also can help homeowners apply for up to $30,000 in cash grants to catch up on payments.