What is Loan Modification?
Loan modification is a change made to the terms of an existing loan by a lender. It may involve lower interests rates, extended payback periods, forgiven debt, or a combination of relief to provide a (hopefully) more affordable payment.
What are the Qualifications?
Eligibility is based on your lender’s guidelines. That said, lenders tend to have similar guidelines and criteria. Lenders will review your finances and require you to have experienced a financial hardship that has made the current loan terms unaffordable (i.e., loss of job, reduced hours or income, death of co-borrower, divorce, illness, injury, etc.).
How does Loan Modification Work?
You will need to complete a loan modification application and attach documentation such as: financial statements, proof of income/pay stubs, tax returns, bank statements, and a financial hardship affidavit.
If your lender approves your application, you will be offered new loan modification terms. If you accept the new terms and conditions, you will be required to complete a trial period to demonstrate you can afford the new monthly amount.
Can a lender foreclose while my application is pending?
In Minnesota, the short answer is no with some exceptions.
Scenario 1 (Pre-Referral): If your servicer received your loss mitigation application and the subject mortgage loan has not already been referred to an attorney for foreclosure, your servicer is prohibited from referring the subject mortgage loan to an attorney for foreclosure while your application is pending.
Scenario 2 (Referred to Attorney): If your servicer receives a loss mitigation application after the subject mortgage loan has been referred to an attorney for foreclosure, but before a foreclosure sale has been scheduled, your servicer is prohibited from moving for an order of foreclosure, seeking a foreclosure judgment, or conducting a foreclosure sale.
Scenario 3 (Foreclosure Sale Scheduled): If your servicer receives a loss mitigation application after the foreclosure sale has been scheduled, but before midnight of the seventh business day prior to the foreclosure sale date, your servicer must halt the foreclosure sale and evaluate the application. If required to halt the foreclosure sale and evaluate the application, your servicer must not move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale.
In the above scenarios, your servicer may take the actions that were expressly prohibited if:
(1) your servicer determines that you are not eligible for any loss mitigation option, your servicer informs you of the determination in writing, and the applicable appeal period has expired without an appeal or the appeal has been properly denied;
(2) where a written offer is made and a written acceptance is required, you fail to accept the loss mitigation offer within the time frame specified in the offer or within 14 days after the date of the offer, whichever is longer; or
(3) you decline the loss mitigation offer in writing.
The rights described above (while your application is pending) only applies to first lien mortgages subject to foreclosure under chapter 580 or 581 that are secured by owner-occupied residential real property containing no more than four dwelling units and where the subject mortgage does not secure a loan for business, commercial, or agricultural purposes.
We are committed to helping homeowners who need assistance with modifying their loans and have successfully negotiated fair and reasonable terms for our clients. Please contact us with any questions you may have.