Your mortgage lender may agree to modify the terms of your mortgage loan. Your loan could be permanently changed by adding missed payments to the existing balance, changing the interest rate, making an adjustable mortgage a fixed-rate mortgage or extending the number of years you have to repay your loan. The willingness and ability to modify your mortgage varies by lender and requires a hardship package with income and asset documentation.
Important note: There is a very fine line for approval of a loan modification. A hardship is required to be considered but you must also demonstrate that you are fully able to make the payment on a modified loan. If the financial hardship is too severe, the modification request will be denied. Many lenders have a “one and done” policy. You have one chance to get a loan modification approved or they are done with your file. It is important that you prepare and submit a complete and accurate loan modification package the first time.
You should also consider contacting the Homeownership Preservation Foundation which operates a Homeowner’s HOPE Hotline: 888-995-HOPE. There is no cost to homeowners for contacting a non-profit advisor. Making Home Affordable program can help you determine if you qualify for a Loan Modification but the actual Servicer of your mortgage (the company to whom you make your monthly payments) will make the final decision to grant or deny your loan modification.
You might also want to take a moment to read about other Options to Foreclosure.
Potential Income Tax consequences
It is important to know that any portion of the mortgage that is unpaid either with Lender agreement, Short Sale or foreclosure, it is potentially taxable as income unless you qualify under the Mortgage Forgiveness Debt Relief Act. Please consult with your Tax Advisor.
IMPORTANT NOTICE – ADVANCE FEES FOR LOAN MODIFICATIONS ARE NOW ILLEGAL IN CALIFORNIA.
As of October 11, 2009, it is illegal in California for any person, including lawyers, real estate brokers, real estate salespersons, corporations, companies or partnerships to demaind, charge or collect any advance, up-front, retainer fees or any other type of pre-payment compensation for loan modification work or services, or any other form of mortgage loan forebearance.