Why do Banks Deny Loan Modifications?

Loan modifications can help you through financial hardship and an inability to make mortgage payments due to divorce, sickness, layoffs, and unexpected expenses.

Not all loan modifications are approved, however.

Lenders’ Reasons for Denying a Loan Modification

Some denials may seem fair and some unfair—but they give you a clear idea of what to do if you are denied.

  1. You were approved for a loan modification within the past 12 months. Even if your circumstances have changed for the worse, you will not be eligible for another modification during that time period. Your lender has already given you a second chance and you won’t get another within 12 months. If foreclosure proceedings have not been initiated, you may be able to wait out the remainder of the 12-month moratorium and try again.
  1. Your lender believes your current terms are affordable. You must prove financial hardship because based on the original terms, you demonstrated the ability to repay the loan. Make sure your application clearly states valid reason(s) for your hardship—and offer proof, including medical expenses, divorce documents, letter of termination, or other supporting documentation for your particular hardship.
  1. You can’t afford even the modification. If you encounter hardship that makes it risky for the lender—and even modified terms aren’t affordable—the modification won’t be approved. Make sure you clearly state all income, including child support, spousal support, or income from roommates and make sure that the bank’s numbers are correct.
  1. You have filed incomplete documents. This is easy to fix, but you need to act fast because the foreclosure clock does not stop.

What To Do If You’re Denied

If you have taken the steps to prove to your lender that you are experiencing financial hardship, and you have filed your paperwork correctly, and you have proof of hardship as well as proof that you can afford the modified terms… and you still get denied, don’t despair.

First, make sure that the lender gives you the reasons in writing and that you understand them, so you can take measures to correct the problem and have some choices.

Provide as much documentation to support your intention and your ability to repay the modified loan. This can include:

  • Proof of income. Most lenders will want several months’ pay stubs. You may have just gotten a new job or second job; in this case, obtain a letter from your new employer.
  • Independent contractors can request a letter from their clients stating their intention to continue to use your services.

Dig deep into the lender’s own actions. Don’t assume that just because it’s a bank, there won’t be errors! If you find errors in their documents, you may be able to negotiate with the lender to approve the modification or at the very least hold off on the foreclosure for a couple of months, hopefully giving you enough time to get beyond the 12-month cutoff or secure additional income.

The problem with loan modification denials is that foreclosure is getting closer every day and delays can prevent you from pursuing other options such as a short sale.

Above all, don’t be afraid to ask for help. If you feel that you were unfairly denied for a loan modification, consult with a foreclosure attorney about your options and next steps.

Looking for help selling your Fort Lauderdale property?  Call us today.

Why Only 20% Of Homeowners Get Approved For Loan Modifications

The term loan modification became quite the buzzword for a while after the 2008 home crisis. It became very popular because of the government programs focussed on keeping people in their homes. Fast forward to today, and the economy has improved significantly yet people are wondering why only 20% of homeowners get approved for loan modifications in today’s market. We’re going to have a look at why this is the case.

A loan modification is where the lender agrees to modify the terms of a homeowners contract also known as a mortgage. The idea is to implement strategies to lower the monthly payment structure making the home more affordable and avoiding foreclosure. There are specific criteria a homeowner is required to meet to qualify. These terms must satisfy the bank’s legal lending requirements and still make it worthwhile for the homeowner.

Not long after the crisis, the government implemented the Hamp program (Home Affordable Modification program). This program is no longer available, but the idea was to help homeowners modify their payments in a way that was affordable. These programs were also designed to help stabilize the economy during that challenging stage. However, today the economy has improved a great deal, so the plans have been shut down.

When homeowners qualify, the lending institutions will typically lean on three main strategies to move forward while minimizing their risk in the process.

The first strategy is setting up a repayment plan to get the homeowner back on track from the previously missed payments. It can be useful if a family has the option to make up the payments. If it’s too difficult to achieve, the bank may disqualify them.

The second strategy is something called interest rate reduction. The lender will attempt to re-underwrites the terms to determine if the new payments would be viable using an income to debt ratio. If the new payment structure does not fall into the correct ratio, the homeowners will not qualify.

The third and popular method is extended aromatization. This strategy is where the lender will extend the terms over a longer period. For example, the lender may take a standard 30 year amortization period and spread it over a 40-year plan. Again, if a lender decides this is too burdensome for families they will be turned down.

The bank’s objective is to work with candidates that can continue to make consistent payments over an extended period without disruption. The lender must also adhere to its strict regulation but yet keep default rates low. If a bank has a high default rate, the bank will likely have a lower lending cap the following year making it even harder for the next person. The higher home values and recovering economy has contributed to the lower approval rate with loan modifications. Also, banks are utilizing stricter guidelines in their qualification process.

To conclude, loan modifications aren’t always the best option because the family is going to pay a lot more over an extended period. In essence, the homeowner is still maintaining a high level of risk, plus spending more money long-term while not contributing to their equity. If instead, a homeowner chose a more suitable option such as getting out from under the debt, It would likely be more fitting for the family long-term. The homeowner can utilize tools such as short sales or even selling the home for cash escaping foreclosure and the debt.

What Should A Seller Do When They Have Municipal Liens On Their Home

Families experiencing financial distress sometimes find themselves with municipal liens applied towards their title. This issue can add layers of frustration to families looking to sell their home and are seeking a way out of a difficult situation and even foreclosure. It can be very confusing leaving families unsure of what they need to do. We’re going to have a look at this in more detail and see if we can shine more light on the topic.

When homeowners owe money to another entity, the owner can receive a lien on their property title. This process can include claims from your local municipality. If the current homeowner has outstanding payments with local municipal office, In many cases, they will need to resolve these issues before they can sell the property to have it result in a clear title.

There are two main types of liens applied towards your title. The first is what’s called voluntary lien. This type is one the homeowner consents to. For example, and mortgage would fall under this category, and they have a contract. The second type is what’s called an involuntary lien. It is the type a homeowner does not consent to and is usually attached to the property due to unpaid obligations. Even some overdue tax bills with the city regarding water could qualify as an involuntary lien. Some examples of Municipal violations potentially resulting in liens are tall grass, broken windows, properties in the state of disrepair, excess trash left in the yard and even a roof in need of significant repair.

With situations involving Municipal violations, the homeowner is given a time frame to resolve and fix the problem. If a family is in severe financial distress, maintenance of the property may be the last thing to receive attention resulting in these types of issues. In fact, although these fines appear simplistic, they can add up quickly especially when you’re sorting through probate situations. Some violations can accumulate as much as $250 a day.

If you’re considering the sale of your home, it’s best to surround yourself with a good team. When a buyer is contemplating the purchase of your home, it will include a title search as part of the process. So the buyer will be aware of any liens. A good team can not only help advise you on your course of actions but they can also possibly helped to negotiate with the municipality to improve your situation.

A significant advantage of a seller working with an experienced team and getting a clear understanding of the properties title status early on in the sales process is the ability to save time during closing. Having this knowledge early on can play a big part for families especially if they are experiencing financial challenges. Knowing where to prioritize their attention and focus is critical during such an emotional and time-sensitive time. Your property will be more marketable once you handle these issues correctly.

To conclude, having unresolved municipal violations can result in liens applied towards the title of your home. These violations can add up quickly, and the current owner should take them seriously. Depending on the infraction they’re sometimes upwards of $250 a day. Even as a seller it’s worth discussing options with an experienced team to determine your options. Addressing these issues early in the process may save you a lot of time later on. Having a clean title will make your home more marketable in the end.

What To Do When Selling Your Home With Illegal Additions

Homes with illegal additions go on the market for sale all the time. Many of the houses are simple minor infractions that are not costly fixes. It goes along with the territory. However, on occasion, there are homes with larger illegal additions that could potentially be a problem at the time of sale. What do you do as a homeowner when you’re trying to sell your home with additions not having the correct permits?

An illegal renovation or addition to the property is when someone has modified their home without obtaining the necessary permits from The local municipal building office. The step is sometimes skipped out of ignorance other times it’s intentional. People occasionally feel obtaining permits is too expensive and only cause delays, especially if they’re already upside down. Whatever the intention or reason, a homeowner should never overlook obtaining the correct paperwork because of safety for the occupants. The inspectors enforce the regulations for a reason. Now it’s true some is left open for interpretation depending on who’s inspecting the final work but overall they follow specific guidelines.

While it is true it is up to the prospective buyer to do their due diligence on any property they’re looking to purchase, it’s good practice to make sure your home is up to its correct standards according to local bylaws. If the purchaser fails to do their due diligence during the purchasing process, they will assume the issue once the sale is complete. However, the current homeowner should go through all the proper channels to obtain the correct permits for any modifications they’ve done to their home for many reasons. It’s never good practice to try and sell a home with areas not up to code first and foremost for safety reasons. This course of action could potentially lead to litigation if someone were to get hurt, especially if the homeowner is aware of a situation but neglected to take steps to resolve the issue.

If a homeowner is attempting to sell and is facing this situation for whatever reason, it is best that they go to their local municipality and see what permits the home currently has. If there’s a discrepancy, there’s room for the homeowner to have it rectified before the sale. This is sometimes commonplace with probate properties.  This action can benefit the seller in many ways because the addition can add on to the square footage of the home allowing you to seek a higher price. If on the other hand, the homeowner is unaware something required permits they may not be getting the credit for the square footage they deserve.

Another issue a homeowner could face when trying to sell a home with illegal additions is the buyer will likely pull permits themselves at the municipality office to determine what is up to code. If they learn there’s an infraction the buyer may request the current homeowner to fix the issue before completing the sale. Having a good team around you to advise you on your situation is probably the best idea because if the home needs a significant amount of repair it may be worth discussing a cash sale with your real estate team.

In conclusion, it’s best practice always to have your home checked to make sure it is current with code, and the permits are correct. There are options however if there’s a significant addition done to the house and you still need to sell. You can discuss the options with your real estate team and possibly go with a cash sale.

At What Point In Pre-foreclosure Should A Family Consider Selling?

From time to time families can run into stressful situations. These circumstances can present a challenge when we have home ownership and are unable to make our payments. Some things are well beyond our control leaving us in a difficult spot of missing mortgage payments. Homeowners do their best to keep up with their commitments, but when people fall short, the banks can proceed with a pre-foreclosure process. It’s a difficult situation all around especially if you’re at the stage where you’re looking for options to save your credit. At what point in pre-foreclosure should you consider selling?

Pre-foreclosure is a stage in a process where the bank has already notified a homeowner indicating they’re behind on their mortgage payments. This period is when the homeowner has an opportunity to repair their situation in some different ways. The homeowner has likely fallen on hard times and maybe exploring options attempting to stay in their home. For example, they may be exploring options such as loan modifications and bankruptcy rather than facing foreclosure. However, the homeowner might also be looking for alternatives to save their credit and understand a sale is likely the best option under particular circumstances.

The pre-foreclosure process is pretty complicated because there are many moving parts. Sometimes the banks are even quiet after issuing a notice, and you’re not entirely sure what stage the bank is in with the pre-foreclosure process. This uncertainty can make it difficult decision for everybody. For example, when the lender issues notice and then communication seems to drop to nothing, it’s adding another layer of stress to the situation. It’s imperative to open dialogue with the bank if for no other reason to see where they are at in the process. This open communication can help you determine your time frame so you can consider all options.

The next thing you should consider so that you have all your options available to you is to obtain legal advice and also locate a good real estate team. Having a good team in your corner to help advise you on your circumstances is crucial. The Experience they can bring can shave quite a bit of time off of having to research on your own. In fact, it’s complicated to try and navigate these waters without proper advice. It is just too time-consuming for the untrained eye. You need to have people that have seen these situations many times over and have learned from experience.

The team will be able to give you options and advice on which way to turn and when. Some steps require a fair bit of time to get setup, and if you miss a stage, it may not serve you as well later on. Many families end up going down one rabbit hole only to learn there were other options available but now are out of time. Timing is crucial to determine whether loan modifications might be an option or when is best to consider a short sale.

Even if you’re not entirely sure you want to sell you should consider everything involved to prepare for that scenario. Having an understanding of the process as early as possible is to your most significant advantage. For instance, having a good idea as to what you can get for the sale of your home may be helpful if you’re considering Securing money for another location. Securing money may be difficult because of your current circumstances and having late payments associated with your credit, but families will take a more notable hit if they go to foreclosure.

In conclusion, pre-foreclosure is very difficult to navigate for homeowners. Understanding where you are in the process with the bank is vital. Considering all options as early as possible is your best course of action. Unless you feel your situation is temporary, and every circumstance is unique, a family should consider their sale as early as possible.