Accept Your Situation - You Can't Change What You Can't Change.

The money tree dried up. Savings are gone. Default is here. What lies ahead depends on NOW - how you handle yourself, how you prepare yourself, whether you inform yourself, or whether you panic and loose control. A crucial first is accepting your situation. I strongly dislike this saying, but sometimes there's simply no better way to put it: "it is, what it is." You can't pay your mortgage, for whatever reason. Stop worrying (for now) about how your real estate agent lied to you when you purchased or refinanced your home, stop believing everything you hear on the loan modification infomercial, stop believing everything your neighbor tells you, and stop thinking of how different things would have been if (fill in the blank). In other words, relax. You can't change what you can't change.


Re-Read Step 1.

Why? Because it's important. A recurring and considerable obstacle with my clients is that because they were so nervous, anxious, frustrated, etc., they made decisions that unnecessarily worsened their situation. Frustration leads to desperation, and people do some pretty whacky things when they are desperate (like staying up at 3 am watching loan modification infomercials, signing up with the company, paying $4,000 up front, then receiving no benefit whatsoever in return - that's about 5 of my clients). 80% of my clients paid at least 2 other companies before hiring me, unnecessarily spending THOUSANDS of dollars indulging their frustration and desperation. What's shocking is that they still know absolutely nothing about the process. But what's MOST DAMAGING IS THE TIME LOST (many months)! FORECLOSURE TAKES NO PRISONERS. It marches to the beat of its own drum and time is gold.


Contracts 101: What is a "Modification"?

When you purchased/refinanced your home, you entered into a legal contract with your lender. Every contract confers rights and obligations on each party. A RIGHT on one side creates an OBLIGATION on the other side. Simply stated, you have the RIGHT to live in and possess the property; your lender has the OBLIGATION not to interfere with your possession. The lender has a RIGHT to collect monthly mortgage payment; you have the OBLIGATION to pay. When one party fails to uphold its OBLIGATION, the other party gains a RIGHT. When you fail to make your mortgage payment, you create the right in the lender to foreclose against your property. When you petition a bank for a modification, you are ASKING it to ignore its right foreclose and instead change/alter/modify the terms of the original agreement to reflect new, sustainable terms. This is why guarantees by loan modification companies are a scam. The LENDER, and only the lender, decides whether or not to modify.


Set Realistic Goals and Expectations.

Most people facing foreclosure are upside down on their home, meaning their home is worth far less than what they owe. There's a lot of misinformation about what banks are likely to do in a modification. The reality is that if your home is upside down, don't expect the lender to reduce your principal balance - it happens only rarely, unless you're with one of the few lenders who reduces principal more frequently (Wachovia and Litton, to name a few). Your lender will likely reduce your interest rate for a set amount of years (anywhere from 1-8 yrs is common), include all impounds, and in some cases, amortize your loan over 40 yrs. Please note, however, that an interest rate reduction of even just a couple of points can drastically cut your payment, so don't be disappointed if "that's all you get." If you understand generally what you're asking the bank to do (step 3) and have realistic expectations about what your bank may do (step 4), you'll sleep better at night.


Do the Research - Log on to www.makinghomeaffordable.gov

Everything else you need to know about modifications is contained in that site. You can evaluate your specific case for a loan modification, estimate your payment reduction, see answers to frequently asked questions, and review the general requirements, including download general forms used by participating lenders. The Payment Reduction Estimator tool is particularly useful. Use it.


Contact HUD, Another Third Party, and/or Contact Your Lender Directly.

The U.S. Department of Housing and Urban Development (HUD) offers FREE counseling to homeowners seeking to avoid foreclosure. HUD counselors can help you compile the necessary paperwork to submit to your lender. You can also hire a third party, such as an attorney, to take care of the process for you. As of mid October, no one, not even an attorney, can charge fees for loan modification services in California until AFTER the services is rendered. If you decide to hire a third party to assist you, check their references. Run a couple of google searches on the company to see what others are saying about your prospective company. Try www.ripoffreport.com and www.consumerfraudreporting.org. Also, check with the BBB. If you decide to contact your lender directly, be prepared. It will take many, many phone calls. The phone calls can take 5 minutes, or they can take 30 minutes. The representative can be helpful, or completely useless, in which case you should call back.


The Process.

It is long. It can involve many months. It will be frustrating. But it can also yield very favorable results. At some point, after sending your package 400 times (or so) to the lender, you'll get an answer. If your answer is favorable, great - sign the paperwork and move on. If you are unable to obtain a modification, there are other options. Consider a short sale, deed in lieu, cash for keys, etc. Ask your lender what foreclosure alternatives are available. If you get to this stage, re read step 1. Do not get frustrated. Frustration leads to desperation, and people do whacky things when they are frustrated (pay people for false hope).