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.
- 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.
- 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.
- 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.
- 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.
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