Philadelphia Mortgage Loan Modification Lawyer

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Philadelphia Mortgage Modifications

Homeowners delinquent on their mortgages have several options. Hardships like unemployment, income reduction, divorce, or unexpected expenses often lead to missed payments. One option is a mortgage modification, especially if other debts are current or minimal.

In response to the recession, the Obama administration launched the Home Affordable Modification Program (HAMP) in 2009 to prevent foreclosures. HAMP ended on December 31, 2016, and was replaced by the Flex Modification Program, which combined the best features of HAMP and other modification programs. The Flex program aims to reduce monthly mortgage payments by up to 20%, lower interest rates, and extend mortgage terms up to 40 years.

For loans not serviced by Government Sponsored Entities (GSEs) or conventional mortgages, individual servicers have their own modification guidelines, generally aiming to reduce payments, interest rates, and extend loan terms.

The mortgage modification process involves extensive paperwork and can take three to six months. After approval, there’s a three-month trial period requiring timely payments before finalizing the modification. While beneficial, modifications can increase the total loan amount and affect the homeowner’s equity.

For more information or to assess your situation, contact Sadek Bankruptcy Law Offices.

philadelphia loan modification lawyer

What Is a Loan Modification?

A loan modification is a change made to the terms of an existing loan by the lender, typically to help borrowers who are struggling to make their payments. The goal is to make the loan more affordable and prevent foreclosure. A loan modification request can include lowering the interest rate, extending the loan term, or reducing the principal balance.

Loan modifications are especially common in times of economic downturn or personal financial hardship and can provide significant relief to borrowers facing foreclosure. However, while they can lower monthly payments and make the loan more manageable, they may also extend the loan term and increase the total amount paid over the life of the loan.

Loan Modification vs Refinance

A loan modification involves altering the existing terms of a loan to make it more manageable for the borrower. Refinancing, however, replaces the original loan with a new one, typically with different terms, interest rates, and repayment schedules, often to obtain better terms or take advantage of lower interest rates in the market. While both can help borrowers improve their financial situation, a modification adjusts the existing loan, while refinancing involves obtaining a completely new loan from the mortgage lender.

Partial Claim vs Loan Modification

A partial claim is a specific type of assistance offered by some mortgage programs where the lender advances funds to bring a delinquent loan current, creating a second lien on the property. This secondary lien is typically repaid when the property is sold or the original mortgage is paid off. While both options aim to help homeowners facing financial difficulties, a loan modification involves altering the terms of the existing loan, whereas a partial claim provides additional funds to bring the loan current without changing its terms.

Types of Mortgage Loan Modifications

philadelphia loan modification lawyer

Mortgage loan modifications come in various forms, tailored to the specific needs and circumstances of borrowers. A mortgage loan modification attorney with our firm can help you better understand your options if you are considering a mortgage modification.

One common type is a home loan modification, which typically involves adjusting the terms of the mortgage to make it more affordable for homeowners facing financial hardship. This may include reducing the interest rate, extending the loan term, or even forgiving a portion of the principal balance. Home loan modifications are often pursued by borrowers who are struggling to keep up with their mortgage payments due to factors like job loss, medical expenses, or other financial challenges. This can help them avoid foreclosure, and therefore, avoid losing their home.

For borrowers with Federal Housing Administration (FHA) loans, there is a specific type of modification available known as an FHA loan modification. This program is designed to help FHA borrowers who are facing difficulty making their mortgage payments. Similar to other modifications, FHA loan modifications can involve changes to the interest rate, loan term, or principal balance to make the mortgage more affordable.

FHA loan modifications are administered by FHA-approved lenders and must meet certain eligibility criteria set by the FHA. Remember that some government-backed mortgage loans, like FHA loans, have very specific requirements. Speak with an attorney to better understand how this may affect your mortgage modification.

Similarly, veterans and active-duty service members who have mortgages guaranteed by the Department of Veterans Affairs (VA) may be eligible for VA loan modifications. These modifications are designed to provide relief to VA borrowers who are struggling to make their mortgage payments due to financial hardship.

VA loan modifications may involve adjusting the interest rate, extending the loan term, or other changes to make the mortgage more manageable for the borrower. VA loan modifications are typically administered by VA-approved lenders and must meet specific eligibility requirements outlined by the VA.

What Are the Loan Modification Requirements in Pennsylvania?

Loan modification requirements can vary depending on the lender and the specific program being utilized, but there are several common criteria that borrowers typically need to meet in order to qualify for a modification. First and foremost, borrowers usually need to demonstrate that they are experiencing financial hardship that makes it difficult for them to continue making their current mortgage payments. This could include factors such as job loss, reduced income, medical expenses, or other unforeseen circumstances that have impacted their ability to pay.

Additionally, borrowers typically need to provide detailed financial documentation to support their loan modification application. This may include recent pay stubs, bank statements, tax returns, and other financial records that demonstrate their income, assets, and expenses. Lenders use this information to assess the borrower’s financial situation and determine whether a modification is appropriate.

In many cases, borrowers also need to be delinquent on their mortgage payments in order to qualify for a modification. However, some programs may offer assistance to borrowers who are current on their payments but at risk of default due to financial hardship.

Furthermore, borrowers must often demonstrate that they have the ability to make modified payments under the terms of the proposed modification. Lenders typically evaluate the borrower’s debt-to-income ratio to ensure that the modified payments are affordable based on their current financial situation.

What Is the Loan Modification Process in Pennsylvania?

Once the application is submitted, the lender will review the borrower’s financial information to determine eligibility for a modification. This may involve assessing the borrower’s income, debt-to-income ratio, and the severity of their financial hardship. The lender may also order an appraisal or property evaluation to assess the current value of the home.

If the borrower meets the eligibility criteria, the lender may offer them a trial modification period during which they make modified payments based on the proposed terms of the modification. This trial period allows the borrower to demonstrate their ability to make the modified payments and provides the lender with an opportunity to evaluate the borrower’s performance.

If the borrower successfully completes the trial period and meets all other requirements, the modification may become permanent. This typically involves signing a modification agreement that outlines the new terms of the loan, such as the modified interest rate, loan term, and monthly payment amount. Once the modification is finalized, the borrower is responsible for adhering to the new terms of the loan to maintain the modification status and avoid foreclosure proceedings.

What Happens After a Loan Modification Is Approved?

After a loan modification offer is approved, the borrower typically enters into a new agreement with the lender outlining the modified terms of the loan. This agreement may include changes to the interest rate, loan term, and monthly payment amount. Once the modification is finalized, the borrower is responsible for making the modified payments on time and adhering to the terms of the new agreement.

It’s important for borrowers to carefully review the terms of the modification and understand their obligations to ensure continued compliance. Additionally, borrowers should maintain open communication with their lender and seek assistance if they encounter any difficulties in meeting the modified payment requirements.

Do You Have to Pay Back a Loan Modification?

Yes, generally, you are required to pay back a loan modification. While a loan modification may adjust the terms of your loan to make it more manageable, such as reducing the interest rate, extending the loan term, or forgiving a portion of the principal balance, it does not typically eliminate the obligation to repay the loan altogether. Instead, the modified terms create a new agreement between you and the lender, and you are still responsible for making timely payments according to the modified terms.

Why Is It So Hard to Get a Loan Modification?

A mortgage loan modification can be an option when you’re in danger of falling behind. But many homeowners find the process of applying for one frustrating and fruitless.

It’s worth noting that not all homeowners do. Some loan servicers now run complex algorithms to determine when a homeowner might be in trouble. Some even call, reach out, and offer modification options.

Others just downright deny the modification application and, eventually, proceed with the foreclosure process.

philadelphia loan modification attorney

Why Wouldn’t They Want to Work with Homeowners?

From the outside looking in, this doesn’t make a lot of sense to most people. But they aren’t just being malicious.

1) Loan servicers don’t have much financial incentive to modify loans.

Loan servicers only receive 0.25 to 0.50 of the annual loan balance on each house. When few homes are in default this amount amply covers their costs.

When homes are in default, the costs of dealing with the problem skyrocket.

This is true even in the face of new federal laws about loan modification. According to Bloomberg, they make it harder to meet FHA foreclosure deadlines. When those deadlines get missed, the FHA can hit the servicer with harsh financial penalties. This has in turn made loan modification “prohibitively expensive,” and has made it far more attractive to cut losses, foreclose on the loan, and get out.

2)The servicer may be blocked by agreements with the lender.

About 90% of the agreements between the servicer (the people who send you bills) and the lender (the people who actually funded the loan) are loan modification friendly. But that 10% leaves hundreds of thousands of homeowners with loans they can’t modify.

If that’s the case, nothing about your application or personal circumstances will make any difference.

3) The servicer could be afraid of getting sued.

Investors expect maximum returns from their loan servicers. And they can sue servicers when they feel they aren’t delivering.

For example, a hedge fund sued Countryside. The CEO of the hedge fund argued the loan modification program they were launching was meant only to satisfy lawsuits and would cost investors billions. They wanted Countrywide to repurchase every loan they wanted to modify so investors would be compensated.

In 2010, the United States Court of Appeals ruled in Countrywide’s favor and dismissed the case. But lawsuits make companies leery, and the possibility of other litigation could make some servicers wary.

4) The NPV isn’t in your favor.

“NPV” stands for “net present value.” It looks at the value of your home versus the value of the mortgage.

It’s not a straightforward formula by any stretch of the imagination. But the specifics of the calculation aren’t important. The why of the calculation is. The servicer uses this value to determine whether it’s more profitable to modify the mortgage or to foreclose.

If the NPV isn’t in your favor, they will typically deny the modification.

Loan modification doesn’t always prevent foreclosure.

As frustrating as all these factors are, it’s important to realize that modification alone won’t necessarily save your home. Here’s why.

5) Because modifications sometimes change hands.

If you’ve applied for your modification before the foreclosure process starts, there’s always the chance another servicer will pick up the loan. When this happens, the application paperwork might get lost in the shuffle.

By the time you realize the new company doesn’t have the materials, it may be too late.

6) Because the modification may be too conservative.

If you’re dealing with a personal hardship, will the reduction of a $1200 mortgage note to a $1000 mortgage note really help you?

It might, but often, it doesn’t. While every penny counts, these reductions often need to be substantial to make a real difference.

When you’re in real danger of foreclosure, you aren’t often given enough time.

Federal laws require loan services to respond to requests and to approve or deny them quickly if you are within 60 days of a mortgage sale. But even if the modification is approved, you’ll usually still have to pay amounts in arrears.

It’s rare for homeowners to have that money within the short window of time they’d need to raise it to save their homes.

What Are My Mortgage Loan Modification Options?

So, what’s the solution? There are two things you can do.

1) Get a foreclosure defense lawyer.

Sad, but true: servicers often take loan modification requests a lot more seriously when there’s a lawyer involved.

An experienced foreclosure defense lawyer can sometimes push the request through better than a homeowner alone.

A lawyer can also spot other potential foreclosure defenses which might be more helpful to your case.

See also: What is an Unconscionable Home Loan?

2) Consider bankruptcy.

Sometimes, a Chapter 13 bankruptcy really is the best solution. The automatic stay keeps the servicer from foreclosing on your home. A Chapter 13 plan payment is going to be a lot more aggressively helpful than a loan modification.

See also: Modifying Your Home Loan While In Bankruptcy.

Bankruptcy can also buy you some time to push a loan modification through, or to sell the house so it doesn’t need to foreclose. Or, if you short sell the house, it gives you the ability to then put the deficiency balance into the bankruptcy plan.

See also: What is a Mortgage Cram Down?

Is it right for you?

We won’t know until we sit down with you and look at your specific situation.

But if you’re facing foreclosure, you shouldn’t wait. Call us for a free consultation today.

Contact a Philadelphia Loan Modification Attorney at Sadek Law Today

As you explore the options for loan modifications in Pennsylvania, Sadek Law stands ready to assist you. Our dedicated team in Philadelphia understands the challenges you may be facing and is committed to providing guidance throughout the process. Whether you’re struggling with mortgage payments, facing foreclosure, or seeking relief from overwhelming debt, our experienced bankruptcy attorneys are here to help.

With our personalized approach and proven track record of success, you can trust a Philadelphia foreclosure attorney at Sadek Law to advocate for your best interests and help you achieve a brighter financial future. Contact us today to schedule a consultation and take the first step toward financial stability.

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