Loan Modification: How Do Banks Work In Real Estate?
What Is A Loan Modification? How Does That Process Work?
Loan modification is where you would go to your lender and say, “I have a problem. I lost my job, I’ve been in a hospital for six months and I did not make any money. I can’t afford my payments” or, “I’m falling behind.”
You will talk to your lender try to figure out a way to modify the terms of your existing financing such that it makes sense for them and they don’t lose anything and don’t have to risk foreclosure. It also puts you in a situation where you’re not set up to fail. So you would just approach the lender and the lender would ask you for financial information, fill out paperwork, such as paystubs and tax returns, etc.
There is not necessarily a standard way that it works because every lender does it differently. There is no rule that the banks have to do modifications for you. It’s almost like an accommodation that they are doing because banks don’t want to foreclose on properties. They are in the business of loaning money, not owning property. Despite what everybody thinks, the bank doesn’t want your house and they don’t want to take it back from you. There is really no reason to do it and it costs them a lot of money when they do foreclose. People don’t quite see it that way but it’s the truth. It’s in their best interest to work with you if they can.
What If The Banks Just Won’t Work With Someone? Is That Ever A Likely Situation?
It happens more often than you would think, for various reasons. There are some options depending on what the person’s financial situation is. Bankruptcy may be an option where you could do a Chapter 13 and you could reorganize your debt a little bit and you can get caught back up. Bankruptcy could be an option where you do a Chapter 7 and you liquidate and you just walk away.
Sometimes, a deed in lieu of foreclosure would be something where you don’t actually have a foreclosure but you just work with the bank and agree to sign the property over to them. They don’t have to foreclose on it, which is easier for them and less costly but those are fairly rare.
Those are your main other options short of just not doing anything at all. You could also do a short sale too. This would be where, for example, you owe $200,000 but the house is only worth $150,000. Since you can’t afford payments on the house, you sell it but the best offer you can get is $150,000. So you negotiate with the bank and they agree to take $150,000 and maybe sell the property to somebody else. That’s another option to avoid foreclosure but those are really the only options.
Attorney Brian Douglas talks about the Loan Modification Process. Call the law office of Attorney Brian Douglas for an initial consultation at (770) 933-9009 and get the information and legal answers you’re seeking.