Modification Tips

Applying for a loan modification is a redundant process that will frustrate you more times than none. The servicer representative may even anger you at times with their sharp replies or inability to answer a question you feel is important. The negotiator will require additional bank statements and pay stubs weeks after you applied for the modification, those updated documents supporting the original bank statements and pay stubs you submitted with your modification package. These are standard procedures for every modification application. That said, all of the frustration you experience and the time you put into the modification process is well worth the effort to keep your home. Below are some key modification tips to follow along with an explanation of the short sale and "Deed-in-Lieu" process.

1) GO TO EVERY SCHEDULED COURT DATE! Any missed dates will not play-out well for you.

2) Submit a complete modification package without error, following the enclosed package guidelines as requested.

3) You must send every bank statement page with your application, even a page that is blank.

4) The tax document "4506-T" must be included in the modification package even if you send a hard-copy of your taxes with the application.

5) Keep a log book to document every conversation, fax or email you have with the servicer. This is a must! Make sure you record the name of the individual you spoke with, sent an email to or faxed, along with the date and time you had contact with the individual. You also need to make a note regarding the conversation you had about a particular matter, the fax you sent or the email you sent to the individual. While the servicer representative doesn't have to give you their last name, they do have to give you their first name and phone number extension or their company I.D. number. This tactic is intimidating to the servicer because it makes them accountable for any information they give you. 

6) Make sure your last name, account number and page count is on every document you fax or email. Example: Smith, account # 9876543, page 1 of 26. Smith, account # 9876543, page 2 of 26. Smith, account # 9876543, 3 of 26. Using this method, you can identify any page the servicer tells you they're missing and only have to resend that particular page. This is a time-saving technique.

7) If you have an adult child in your household working, then you can add their "monthly rental charge" on your financial report to show more income. You must have a signed rental agreement in place, which is not difficult to do. 

8) Make sure you add all your debt on the financial worksheet even if there isn't an area to provide this information. Such debt should include all utilities and insurances. Use the blank space marked "other" to add these expenses.

9) Make a copy of the financial worksheet for yourself as well as a seperate note for all of the debt you're reporting. The negotiator may ask you about the financial worksheet you turned in, particularly about the area marked "other" with a debt total that wasn't clear to the negotiator. You want to exactly match any debt you reported, and sometimes our memories don't serve us well in this situation when we're suddenly put on the spot.     

10) Do not wait more than 30 days after submitting your completed package to get an update on your file.

11) Do not wait more than 60 days after submitting your completed package to speak with your negotiator's manager if your modification hasn't been approved yet. Find out what is holding up their decision.

12) Sheriff Sales and court ordered evictions are real, so make sure you are following-up on any mail you receive from the foreclosing attorney. DO NOT HESITATE TO CONTACT US IF YOU'RE UNSURE ABOUT THIS PROCESS!

OTHER OPTIONS IF YOUR MODIFICATION IS REJECTED:

REGULAR SALE: Of course, this is only an option if you have equity. However, this option must be decided relatively early in the preforeclosure process because all of your nonpayments, late fees, penalties and the servicer attorney fees will be added to the balance of your mortgage. In most cases, the owner will wait too long to decide on this option and will lose thousands-of-dollars in equity. This is not a problem if you have all the criteria to support a loan modification. But a lengthy loan modification process will eat-up your equity. This is a situation where you have to push the servicer to make a decision on your modification FAST.

SHORT SALE: In this option, the lender (investor) is agreeing to sell your home for less than the balance you owe and, in the majority of the cases, forgive you for any deficiency you have on the loan when the short sale closes. This is an option that doesn't cost you a nickel. Your lender (investor) will pay all closing costs involved with the short sale including all past and present taxes, real estate commissions and the attorney representing your short sale. THIS IS A HUGE BENEFIT FOR YOU! This process is basically the same as applying for a loan modification, but the paperwork should be a lot less if you've already applied for a modification and was denied. The process can take anywhere from 3 to 6 months depending on the situation, but it allows you to stay in your home during the entire process. A monetary incentive is available for most short sale programs. While this won't compensate for the loss of your home, it's better than not receiving anything if your home forecloses. The monetary incentive and extended stay in your home until the short sale closes is worth your participation. If you do not plan on filing for bankruptcy and you do not qualify for a modification, then participating in a short sale should be your priority --- immediately, in fact! 

"Deed-in-Lieu": In most cases, this isn't an option until you've already tried short selling your home. This option does remove you from the home much quicker than a short sale, and in some cases, much, much quicker than the foreclosure timeline that Illinois allows. As well, you must keep up the property interior and exterior maintenance after you vacate your home while also leaving all the utilities on until you receive the "Deed-in-Lieu". It can take months before the servicer's representative checks the property before agreeing to the "Deed-in-Lieu". In essence, you are guaranteed nothing after you vacate your home. A "deed-in-Lieu" should only be an option to consider if your short sale doesn't close.

DEFICIENCY CONSEQUENCES FOR A FORECLOSURE: Illinois law allows an investor to seek a deficiency judgment against a borrower up to SEVEN YEARS after the foreclosure took place. The investor may do this if they suspect your financial situation will improve during that time. In most cases, the investor will waive the deficiency judgment (in writing) with the closing of a short sale and this will never be an issue for you in the future. THIS IS HUGE! In this case, it will not be necessary for you to file for bankruptcy unless you are doing so for the debt that you have other than the mortgage.

CREDIT CONSEQUENCES: A bankruptcy and foreclosure together will devastate your credit history for 10 years, and the foreclosure, itself, will remain in the public records forever.   

TAX DEFICIENCY: First and foremost, this is a real issue that you cannot overlook if you're not filing bankruptcy. Homeowners are no longer protected by House Bill H.R. 3648. This is different than the mortgage deficiency mentioned above. In most cases, the mortgage deficiency is waived in a short sale, while the tax deficiency is a required IRS procedure for the investor to follow. IT'S UNAVOIDABLE! The IRS tax amount is calculated after the foreclosure property transfers ownership from the bank’s possession to a new buyer. You won’t know that amount until you receive the 1099 to pay the deficiency tax, and any tax return you’re expecting will be intercepted. In a short sale, you will know that amount at the closing and prepare the necessary paperwork to eliminate the tax deficiency. Again, in this case it will not be necessary to file for bankruptcy if you're only doing so for the mortgage deficiency.

CONCLUSION: If you have a justified hardship, are currently employed or have a satisfactory permanent disability income, then you should qualify for a loan modification. If you don't meet the required criteria then you should participate in a short sale, if for no other reason, to eliminate the deficiency risk and avoid having a foreclosure on your credit report. THIS IS GOOD ADVICE!