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Modifying Your Mortgage to Avoid Foreclosure

by glenn on October 17th, 2012

Modifying Your Mortgage to Avoid Foreclosure

by Jeffery Sterner

The Foreclosure Complaint

If you are facing foreclosure because you haven’t been able to keep up with your mortgage payments, you should pursue a mortgage modification. At the start of the foreclosure process, the plaintiff, who is the lender or bank, files a lawsuit against you, the defendant, for failing to meet the terms of your mortgage agreement.

The purpose of the lawsuit, often called a “Foreclosure Complaint,” is for the defendant to be cut off from any interests in the property and for the title to be returned to the plaintiff. The property is sold at a public auction and the lender must be remitted of all costs involved.

When you are going through a foreclosure, you are given a notice or a summons of the Foreclosure Complaint by a sheriff or law enforcement office. This notice provides you with a period of time to either respond or reinstate your mortgage. The time period may vary from 30 to 90 days depending on the state.

Pursuing A Loan Modification

If you are in financial difficulty and cannot afford to make any payments, you should pursue a loan or mortgage modification with the lender. This is an agreement between you and the lender to change the original terms of the loan so that you may be able to afford payments and remain in the property.

In order to get a loan modification, you must be able to demonstrate that you can make payments with proper paper work, including IRS statements of your income, and that you are embarked on a realistic plan to get out of debt.

At this time, you should consider getting an experienced attorney or counselor to represent you. The advantage is that he or she will know all the foreclosure procedures involved for your state. Many attorneys require half a fee to be paid upfront and the other half paid once the foreclosure is favorably resolved.

You must be careful not to become involved with a scam artist who charges a large upfront fee for a mortgage modification. Check references on the attorney if you should hire one. The entire fee should not be more than one mortgage payment.

Your bank may be willing to work with you and modify your loan. In some cases, an adjustable rate mortgage may be changed into a fixed-rate loan with a lower interest rate but extended over a longer period.

Federal Program

The Home Affordable Modification Program was established under the Obama administration to help distressed homeowners avoid foreclosure. HAMP provides incentives to banks to modify loans of homeowners who cannot pay their mortgages. Homeowners must be able to demonstrate that they have sufficient income to make payments, under a modified plan.

The qualifications include that you have missed at least two or more mortgage payments; your mortgage is more than 31 percent of your income or you have had a financial hardship that has caused you to lose income.

Changes to HAMP now allow those whose mortgages are less than the 31 percent rule to be considered for mortgage modifications if they have significant debt outside of the mortgage. Those owning rental properties and are facing foreclosure may also qualify for HAMP.

Lenders and banks are not obligated to modify homeowner loans, nor are they obligated to use HAMP. You can and should call HUD and ask for advice from an approved counselor. Make sure you keep all paper work showing you are working on debt relief.

Jeffery Sterner writes and blogs about personal financial well-being and issues that influence it for Debt.org, America’s Debt Help Organization.

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