LOAN MODIFICATION DURING BANK FORECLOSURE IS NOT A SIMPLE PROCESS
While many regulations are in place to help the borrower during a loan modification request, there are also many provisions and requirements that must be followed. In order to understand all the nuances, borrowers need to be informed about the application requirements.
WHAT IS A LOAN MODIFICATION?
In a loan modification, the loan is restructured to implement permanent changes to one or more of the original terms. This process typically results in a lower monthly payment. To achieve this, the number of years left on the loan may be extended, the principal balance may be reduced, the interest may be changed from a variable to a fixed rate or the interest rate may be lowered.
ELIGIBILITY FOR A LOAN MODIFICATION
Usually, loan modification eligibility depends on these factors:
- Financial hardship – You may need to demonstrate that you cannot afford your current monthly mortgage payments due to financial difficulties.
- New payment trial period – Sometimes you will be required to complete a trial period to demonstrate your ability to meet the new payment amount.
- Documentation – You must provide written verification of all the facts requested.
Borrower Protections During a Loan Modification
The Real Estate Settlement Procedures Act (RESPA) is a real estate regulation that mandates specific disclosures from the lender and provides certain borrower protections for any real estate settlement. RESPA is managed by the Consumer Financial Protection Bureau, and it was most recently updated in October of 2017.
CAN A BANK FORECLOSE DURING A LOAN MODIFICATION?
According to RESPA guidelines, the lender is required to consider a loan modification application and communicate with the applicant during the process. The foreclosure will be put on “hold” during certain phases of this process, but it does not automatically stop, and the foreclosure time frame could conceivably continue to run. The lender does not have to approve the loan modification request, and the foreclosure can proceed if it is not accepted. There are also many requirements that the borrower has to meet during this process. If the borrower fails to meet one or more of them, the bank may decide to press forward with the foreclosure.
As with any financial situation that requires strictly following legal guidelines, it is always a good idea to consult a loan modification attorney before initiating any action. RESPA offers many concrete protections from some negative lender practices, and borrowers can take advantage of these stipulations if they faithfully follow all the rules.