Mortgage Loan Modification & Borrowers' Legal Rights
Purchasing a home is an exciting time in anyone’s life. Unfortunately, maintaining mortgage payments and staying on top of your repayment schedule can pose difficulties for many people. Whether you lose your job, take a pay cut, or become ill, there are many unforeseen circumstances that can cause a homeowner to fall behind on their mortgage obligations. In other situations, the borrower simply does not manage their finances appropriately and winds up falling behind on mortgage payments. Loan modifications offer a way for borrowers to get their finances back on track after falling behind on their mortgage payments. A mortgage loan modification involves restructuring the initial loan contract to find terms that are more suitable for the borrower’s financial situation, including the repayment period and the interest rate.
Considerations in Mortgage Loan Modification
There are many state and federal laws that entitle borrowers to receive a loan modification. These laws, however, limit the amount of loan modifications that can be granted to once within any 24-month period. In order to qualify for a loan modification, the borrower must meet his or her borrower’s loan modification eligibility requirements. Examples of criteria that lenders examine include whether the borrower has suffered a verifiable loss of income or an increase in living expenses and whether one or more of the borrowers receives continuous income in any form, including disability benefits.
Additionally, the lender will look at how much surplus income the borrower has left each month. Surplus income is the amount of money left after the borrower pays all of their monthly obligations. To qualify for a loan modification under federal laws, the borrower’s surplus income must total at least $300 and must constitute at least 15 percent of his or her monthly income. If you have fallen behind on your mortgage payments, the lender will look at whether your surplus income is sufficient to repay your total unpaid mortgage payments for the last six months. In some situations, only one individual in a married couple is listed on a mortgage. If the listed party loses his or her job, but the non-listed spouse is employed, a lender may review the total household finances and expenses to determine the amount of surplus income.
The Loan Modification Arrangement Process
After a lender determines that your current financial situation enables you to obtain a loan modification, you will most likely need to go through a trial period before the modification becomes permanent. In most cases, the trial period lasts three months. If the borrower is at high risk of defaulting on their mortgage, the lender may require the borrower to go through a fourth month of the trial period. During the trial period, the borrower will be required to make payments according to the loan modification agreement. Many borrowers are excited to learn that a lender is expected to waive any and all late fees associated with the borrower’s late payments.
During the loan modification arrangement process, the lender has the option of conducting an interior inspection of the property if they have any concerns regarding the condition of the property’s interior. Additionally, a lender can include any fees and costs incurred associated with any steps the lender has taken to foreclose on the property. In many cases, a borrower will not seek a loan modification until the lender has initiated a foreclosure proceeding. In general, a foreclosure proceeding happens when the lender retakes possession of the house as a result of the borrower’s inability to make loan payments.
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