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Loan Modification: A loan modification is when you go to your existing lender and ask them to adjust the terms of the loan. Many terms can be changed. I have seen loan modifications where they simply lowered the interest rate, or perhaps they will extend the term of loan out to 40 years or more. These types of adjustments are the most common. They reduce the homeowner's monthly payment, but in the end do nothing to attack the real problem. Some loan modifications will adjust the principal of the loan. This is what I call a real loan modification. These types of adjustments seem to be very rare, however, if you can get one, you may be able to save your home from foreclosure. CAUTION #1: With any solution that creates a loss to the bank of principal there may be significant tax consequences. Please contact an attorney or tax consultant for more information as that loss can be considered capital gains. CAUTION #2: When a bank takes a loss during a short sale or foreclosure sometimes they can come after you for repayment of that loss (a deficiency judgment). We have been successful in getting banks to agree, during short sale negotiations, to not pursue a deficiency judgment. We have started to see banks put wording into loan modification paperwork that limits our ability to secure anti deficiency judgment agreements. A very high percentage of people who obtain a loan modification still end up short selling or foreclosing. Be careful not to create more problems for yourself down the road. Now What? If you think that a loan modification may be right for you, you must contact your bank. They typically will have a hardship package that needs to be filled out. They will need information about why you are not able to make your current payment, your income, and much more. Every bank is different so call yours. |