You have to beware of Fraud when someone talks about Loan Modification. The FBI is very concerned about companies that are claiming to modify loans for individuals. Many of these companies make promises that a homeowner can stay in their home. These companies then ask for an upfront fee to complete the process. As homeowners already behind on house payments are suffered by major hardships like job loss or serious illness so they are left with little money. In these scenarios the modification company takes the money in advance because they can't guarantee whether they can get the modification done or not.

We have had clients that have paid companies money upfront to do a loan modification. Recently one of our clients paid another company $3,000 to do a modification. After several weeks the company called back and said that they did not get approved. That client wasted $3,000 and there is no real way to know if the attempt was even made.

In some cases a loan modification works for the client. But the ratio of these sort of cases are very few and rare. For example, at the time this writing Chase Bank is requiring $10,000 from the homeowner just to submit the file to loan modification. The money is applied to the loan however that is just paid for them to review the file. That does not mean the file will be approved by the bank.

Many lenders do not want to do loan modification even though the government wants them to go for loan modification. They feel that it is just delaying the process of foreclosure. That means if you are only hundred or two dollars off from being able to make your house payment then a loan modification might be a good option for you and this is only possible if your lender is open to this idea.

Another reason that lenders don’t want to modify loans is in most cases the modification entails increasing the client’s payment. The lender feels this is just delaying the foreclosure process as if the client can’t make the current payment how are they going to make a higher payment. It is a recipe for disaster.

However if you have a first and a second mortgage then a loan modification is not going to work for you. Most second mortgages are not going to modify the loan. They are typically upside down in the value and they don’t see the point in doing it.

The banks have found that over 50% modification that have been done failed. If a modification is done and then failed it may make other options for a homeowner worse off. For example if a lender does a modification the homeowner is already behind on house payments. The foreclosure process has started, when the loan is modified the foreclosure process stops right where it was, however if the modification is not kept the bank is able to pick up at the very same place in the foreclosure where they left off. This could mean that a foreclosure sale could be weeks away.

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