Loan Modification Pitfalls

We all know there are people out there who are constantly looking for ways to take advantage of people. This can be especially true for those faced with hard economic times. It’s no secret that the majority of scams prey mainly on those struggling to make their mortgage payments and are on the brink of foreclosure. These con artists promise relief for a hefty fee which the home owners willingly pay. The reason many do is simply because when faced with an overwhelming problem or situation we tend to reach out to anyone who may have the ability to help us and trust that they know how to resolve it.

Research is key.
You should always check for references, jump online and find out as much as you possibly can about the company and the individual who will be assisting you. Contact your local Better Business Bureau to see if any complaints have been filed as well. You can never do enough research.

Know what to look for.
If something doesn’t sound or feel right to you, don’t do it! We’ve all heard stories of homeowners signing over the deed of their home because of some loop whole that will prevent the bank from foreclosing on the home. Really, people did that. It’s quite upsetting to hear these stories and they happen every day.

If faced with foreclosure, don’t throw common sense out the window. NEVER sign over the deed of your home! I don’t care what the reason is, you never do that.

How much are loan mod negotiators charging?
$1,000? $2,500? $5,000? What ever they can get from you. Look, the reality is that dealing with the bank doesn’t require that much effort. All banks have more or less the same procedure when it comes to loan modifications. Hiring someone to assist you with a loan mod might not be worth it when we’re talking about thousands of dollars. I always recommend clients to try and work with the bank themselves at first. Should they be unsuccessful I happily assist them at no cost of course.

Free Resources
Because so may were affected by the housing market, several non-profit and government agencies provide distressed homeowners free counseling and assistance for loan modifications. All of these do so at no cost as well, potentially saving you thousands.

Is it the best thing to do?
Have you taken everything in consideration? This is a really important question if you are facing foreclosure. Most homeowners I speak to don’t consider what it means to get a loan modification. They are simply looking for a lower monthly payment they can afford so they can save their home from foreclosure. This may not be in your best interest long term.

Let’s assume your current mortgage is for $500,000 but your home is only worth $300,000. You may be able to get a loan modification which will adjust you to a lower fixed interest rate, reducing your mortgage by a few hundred dollars. Great! No what?
You still owe $500,000 on a home that’s only worth $300,000. You are still and will continue to be $200,000 upside down. How long do you suppose it will take for your property value to increase to that same level? 10,15,20 years? And when that happens you’d still have $0 in equity. Ouch!

I’m not saying loan modifications are terrible, I just want you to consider everything before rushing in to a decision that will impact you and your family’s financial future for years to come.