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Loan Modifications

What is a loan modification (also called mortgage modification)? What does it really mean? Is it right for me?

You may have heard it called loan modification, mortgage modification, mortgage restructuring, or something else entirely. But it means the same thing. A loan modification happens when a debtor who is in bad financial shape works with his or her mortgage holder to restructure the mortgage so they can afford to make the payments. If the loan modification does not work out, the homeowner has to face the prospect of foreclosure and bankruptcy.

The new plan you agree on may be temporary or permanent. It may change some or almost all of the terms of your original mortgage. The goal for the individual is to get your mortgage payments down to 31% of your gross income. The goal for society is to stem the flood of foreclosures.

Your lender may be able to change one or more terms of your original loan to make the payments more affordable to you. Your loan could be permanently changed in one or more of the following ways: (i) Adding the missed payments to the existing loan balance; (ii) Changing the interest rate, including making an adjustable rate into a fixed rate; and (iii) Extending the number of years you have to repay.

As you might imagine, it is a complex process of negotiation and there is a lot of number crunching involved. Our attorneys are doing a lot of loan modifications now, and we find it is frustrating to negotiate terms with clerks on the other end who seem unable to really negotiate and make the best decision for all of those involved. These can be very difficult negotiations.

You should be careful about trying to negotiate a mortgage modification by yourself. You should hire an attorney to do it for you. That is what we recommend. At the very least, the attorney makes the lender aware that they really do have to make a deal with you, or else you will be filing for bankruptcy. The same threat does not exist if you are doing the negotiations yourself. Remember, we offer a free consultation if you are worried about foreclosure, so it doesn't cost you anything to find out what your options are, and get some good guidance beyond what this internet article can provide.

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