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Community Service Announcement: Modification Warnings
There is a lot of positive which can be said of getting your loan modified and the mortgage payment changed to one which is more affordable. But you would be wise to consider some new twists which may mean it is not as great a bargain as you thought.
Temporary or Permanent Change
Back in the olden days—just a few months ago—loan modifications were made by lenders for distressed borrowers who had demonstrated the ability to resume payments and sustain them as permanent changes to the existing mortgage. The modification was processed as a PERMANENT change in the loan terms so the borrower could rest assured that the new loan was, in fact, one which could work for them. Many of the new modifications are only TEMPORARY. The trial period may be as short as 3 months or as long as six months. This is being used as a new test period to see whether or not you are able to sustain the payment. The problem is that there is no ironclad guarantee that the ‘modified’ loan payment will remain in place after that introductory period.
Life Happens
What happens if your loan is transferred to another servicer during your trial period? Worse yet, suppose your financial institution is sold or otherwise acquired by someone else? In either case, you would be holding an unenforceable, short-term agreement with a party different than the one you actually have to deal with concerning payments. You would be wise to consult with an attorney about the terms of ANY modification being proposed by your lender or to have an attorney to help you with structuring a modification which is practical given your current situation and the value of the property.
Temptation Could be too Strong …
Under the current administration’s plan to encourage lenders to modify as many loans as possible, lenders/servicers are being paid a fee to process those modifications. Substantial fees. They are paid based on whether or not they get the modification completed. They are paid whether it is an agreement which works for you or not. They are paid whether or not you have received what is called “net tangible benefit” (did it do you any good?).
We would hate to think that a bank might process modifications in order to receive payment even when they were aware that the payment amount was not sustainable for the borrower, but remember these are the same institutions which processed loans for some folks who clearly were not in a position to make those payments either. I’m just saying....
Has the modification been recorded?
One might argue that there is no point in recording a short term agreement and you could see their point. But maybe the reason for processing short term or temporary modifications was to avoid recording them in the first place. If there is NO RECORD officially—as in your local city’s Recorder’s Office—of the newly created Modified loan then the only record which exists is the OLD, unaffordable loan. IF your loan is transferred or sold, then the OLD loan is the current loan which is the ONLY loan that exists. Surely you can see where I am going with this.
Recommendation: If your loan has been modified and you want to keep that payment then it MUST be recorded.
HINT: Insist that your modification agreement contain a provision for the loan to be recorded promptly after agreement is finalized by your and your lender/servicer. Otherwise, you could be in for some heartburn.
Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
There is a lot of positive which can be said of getting your loan modified and the mortgage payment changed to one which is more affordable. But you would be wise to consider some new twists which may mean it is not as great a bargain as you thought.
Temporary or Permanent Change
Back in the olden days—just a few months ago—loan modifications were made by lenders for distressed borrowers who had demonstrated the ability to resume payments and sustain them as permanent changes to the existing mortgage. The modification was processed as a PERMANENT change in the loan terms so the borrower could rest assured that the new loan was, in fact, one which could work for them. Many of the new modifications are only TEMPORARY. The trial period may be as short as 3 months or as long as six months. This is being used as a new test period to see whether or not you are able to sustain the payment. The problem is that there is no ironclad guarantee that the ‘modified’ loan payment will remain in place after that introductory period.
Life Happens
What happens if your loan is transferred to another servicer during your trial period? Worse yet, suppose your financial institution is sold or otherwise acquired by someone else? In either case, you would be holding an unenforceable, short-term agreement with a party different than the one you actually have to deal with concerning payments. You would be wise to consult with an attorney about the terms of ANY modification being proposed by your lender or to have an attorney to help you with structuring a modification which is practical given your current situation and the value of the property.
Temptation Could be too Strong …
Under the current administration’s plan to encourage lenders to modify as many loans as possible, lenders/servicers are being paid a fee to process those modifications. Substantial fees. They are paid based on whether or not they get the modification completed. They are paid whether it is an agreement which works for you or not. They are paid whether or not you have received what is called “net tangible benefit” (did it do you any good?).
We would hate to think that a bank might process modifications in order to receive payment even when they were aware that the payment amount was not sustainable for the borrower, but remember these are the same institutions which processed loans for some folks who clearly were not in a position to make those payments either. I’m just saying....
Has the modification been recorded?
One might argue that there is no point in recording a short term agreement and you could see their point. But maybe the reason for processing short term or temporary modifications was to avoid recording them in the first place. If there is NO RECORD officially—as in your local city’s Recorder’s Office—of the newly created Modified loan then the only record which exists is the OLD, unaffordable loan. IF your loan is transferred or sold, then the OLD loan is the current loan which is the ONLY loan that exists. Surely you can see where I am going with this.
Recommendation: If your loan has been modified and you want to keep that payment then it MUST be recorded.
HINT: Insist that your modification agreement contain a provision for the loan to be recorded promptly after agreement is finalized by your and your lender/servicer. Otherwise, you could be in for some heartburn.
Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
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