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Know What to Expect When Applying for a Loan Modification

Q: I am having trouble making ends meet. How do I apply for a loan modification on my note and mortgage?
A: Contact the financial institution that collects your monthly mortgage payments and ask to apply for a loan modification. If your financial institution offers a loan modification program, it will send you an application packet. Second, determine if you are eligible for various government programs that will assist obtaining funds needed to modify your loan or will assist in the loan modification process. These programs include Save the Dream Ohio (www.savethedream.ohio.gov) and various agencies that can help you with question about the loan modification and foreclosure process. A list of agencies can be found at http://portal.hud.gov/hudportal/HUD?src=/states/ohio/homeownership/foreclosure​

Q: What kind of documentation/information must I submit for a loan modification?
A: The required documentation/information can vary depending on the financial institution. Because applying for a loan modification is similar to applying for a loan to buy a house, the process may take time and involve lots of paperwork. Most financial institutions require at least two months’ worth of recent bank statements, two recent pay-stubs, an affidavit testifying as to the reasons why you cannot afford your current mortgage loan, an expense worksheet outlining how much money you are bringing in versus your monthly expenses, a current utility bill, a signed IRS 4506-T form, two years’ worth of tax returns, a Dodd-Frank Certification form and a property tax bill. Your financial institution may require additional information, depending on its requirements and your particular situation (e.g., you receive SSI, rental income from another property, are self-employed, etc.).  

Most financial institutions require you to provide all of the documentation within 30 days from the date you apply for your loan modification. If just one document is “stale” (not submitted within 30 days of your application), your entire application may be rejected and require you to start over. To reduce the chance of letting any of your documents become stale, submit everything at once if possible. Finally, triple-check your paperwork before you send it. A document missing a single signature or containing one blank line may not be noticed until after the 30 days has passed. A single omission like this can cause all the documents to become stale and require an entirely new application.

Q: How do I know which modification program(s) my financial institution is considering for me?
A: You should ask your financial institution this question, since the answer will depend on the entity that owns your note and mortgage. If your financial institution participates in the federally backed Home Affordability Modification Program (HAMP), you will likely first be considered under that program. If you do not qualify for the first type of modification offered (such as HAMP), you will be reviewed for the second available program. If you qualify for the second program, it will be offered. If not, your financial institution will continue to review you for other programs until it has exhausted all its options.  

Q: Should I continue paying my mortgage while I am being reviewed for a loan modification?
A: Yes. Until you have a final loan modification agreement that contains both your signature and the signature of your financial institution, you do not have a loan modification. That means you are still legally obligated to pay the monthly amount owed under your original note and mortgage. If you fail to make these payments, a foreclosure action might be filed against you.

Q: My financial institution sent me a document stating it is a “trial period plan” or a “forbearance agreement.” Does that mean my loan modification has been approved?
A: No. The trial period plan is simply a first step and usually sets a monthly payment amount based upon your income. This first step ordinarily requires three months’ worth of payments to demonstrate your ability to repay a modified loan on time. It also postpones the collection process while you are reviewed. However, you must still submit all the documentation your financial institution requires and even then, you may not ultimately qualify for a permanent loan modification. If you have reached the end of your trial or forbearance period and have not heard anything about your loan modification application, contact your financial institution. Whatever you do, do not stop making monthly payments.

Q: A third party has offered to help me with my loan modification application. How can I find out if this is a scam?
A: First, if someone promises that in exchange for a fee they can get you a “deal” on loan modification or promise a certain result, it is almost always a scam. Financial institutions generally utilize the same process regardless of whether a third party is involved. Consult the Ohio Attorney General’s website at www.ohioattorneygeneral.gov/Individuals-and-Families/Consumers/Foreclosure/Foreclosure-Rescue-Scams or LoanScamAlert.org to learn more. 

1/8/2013

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by attorneys Richard A. Freshwater (Cleveland), Nicholas Myles (Dayton), and Jessica E. Salisbury-Copper (Dayton) all with Thompson Hine LLP. The column offers general information about the law. Seek an attorney’s advice before applying this information to a legal problem.

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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