When circumstances beyond your control, resulting in a situation where you are unable to make your monthly mortgage payment, it is virtually impossible not to feel helpless and overwhelmed. A temporary loss of employment, illness, divorce, natural disasters, just to name a few, can leave severe financial havoc in their wake. Your interest rate may also have increased due to the expiration of an “arm” or your mortgage rate was always variable.
It is important to understand that a mortgage modification is not the same as a loan refinance. A refinance is dependent on the good credit standing of the borrower and is typically undertaken to lower the interest rate, add or remove co-borrowers, and even cash out equity. In contrast, the objective of a mortgage modification is to achieve a more affordable mortgage payment, based on a showing of hardship. A mortgage modification is not dependent on a borrower’s credit score but is highly dependent on income and a showing of the ability to keep up with the modified payments.
In reality, a mortgage modification is just a component of loss mitigation programs that exist in both the Supreme Court and Federal Bankruptcy Court, and include foreclosure defense in the process. In Supreme Court, Loss Mitigation can begin only once a foreclosure complaint has been filed and served by the bank. In Bankruptcy Court, the loss mitigation was adopted some years back and has resulted in a much more effective and streamlined process, with overwhelmingly positive results. Loss mitigation in Bankruptcy Court can begin at any point, whether you’ve only missed a few payments, but feel that you will not be able to catch up going forward or you are several years in default and foreclosure proceedings are underway. Though not advisable to wait, a bankruptcy filing and the commencement of loss mitigation can prevent a sale date from being set or stop a foreclosure sale.