When facing foreclosure, the best way to get your mortgage back on track is to obtain a modification. You will need to complete your lender's loss mitigation package. Loss mitigation involves the submission of various financial documents and a Request for Mortgage Assistance (or RMA). The lender will make a cursory review of your application, then send it to its underwriters. The mortgage company's underwriters are who make the final decision as to whether you will be granted a modification. Here are the top 6 reasons loan modifications are denied.
The most common reason that loan modification requests are denied are incomplete applications. If you leave out a single signature or loan number, the lender will deem your entire application incomplete. Often a modification request is in underwriting review for several months, during which time you will need to update the file with additional paystubs, bank statements, etc. If the New Year passes, you will need to provide another tax return. In addition, you must continually update the lender with changed circumstances, like an increase or decrease in income. The best way to cure a documentation deficiency is to ask the lender, "What do you need to complete the file?" and then to promptly provide whatever is missing. An experienced attorney can assist in providing a complete loss mitigation package and curing any deficiencies.
If you cannot afford your monthly payment, even with a modification, then your mortgage company will deny your request. If your hardship is ongoing, then you should consider letting the property go and perhaps even filing bankruptcy. Foreclosures often result in deficiency judgments, which allows the lender to sue you for the difference between the loan balance and foreclosure auction price. If you are unable to make any kind of reasonable modification payment, your lender will not approve your loan modification request.
An essential part of your loss mitigation package is the financial hardship letter (or "letter of hardship"). A hardship letter explains the circumstances that caused you to fall behind on your mortgage payments. You must prove to your lender that you defaulted for a good reason. Your financial hardship must be real, like job loss or a medical emergency. You must fully and succinctly explain why you were unable to pay your mortgage. If at all possible, provide documentation sufficient to prove your hardship. that you have actually undergone financial hardship.
Perhaps you are not in foreclosure and you are simply seeking a modification for better mortgage terms. You may want to reduce your payment. Your lender will assess your current mortgage terms to determine whether you can actually afford your monthly payment. If you can comfortably afford your current mortgage payment, then the lender will likely deny your modification request. At that point, you should consider refinancing with another lender.
Your lender will not offer more than one loan modification per year. If your mortgage company approved you for a loan modification within the 12-month period prior to your new request, then your mortgage company will deny your modification request. This is automatic, and has nothing to do with changed circumstances. If you are facing foreclosure and want to keep the property, you may have to file for Chapter 13 bankruptcy to delay an auction. Once the 12-month period has passed, you will be eligible to request another modification.
Your lender may offer you a three-month trial modification. If you make all three trial modification payments, then your lender will make your modification permanent. However if you miss one of those payments (or pay one of them late), then you have defaulted on the trial modification terms and will be denied a permanent loan modification.
While these are the top 6 reasons loan modifications are denied, this list is not exhaustive. Your lender may deny your modification for another reason. In many cases, you can appeal the decision to deny your loan modification. If you want to appeal the decision, you must contact your servicer within 14 days of denial to begin the appeal process. You should request a response, and in most cases, this will be provided within 30 days of your appeal. If your lender denies your appeal, then that is the end of the line for your modification request.
Loan modifications are purely voluntary on the part of the lender. You cannot force your lender to offer you one. If your mortgage company denies your loan modification request, you may have other options. Do not give up. Contact an experienced foreclosure defense attorney in your area and request assistance.