Why pay for what you can do yourself?

If you are in pre-foreclosure, or facing any of the following:

• Have a loan that is going to adjust to an unsustainable payment,
• Having troubles making your current payments due to a job loss or similar negative impact to your income,
• Or simply want to reduce your current loan in light of the recent crash in real estate prices,

DO NOT,  UNDER ANY CIRCUMSTANCES,  PAY TO HAVE SOMEONE HELP YOU RENEGOTIATE YOUR LOAN!

Why?  Well in addition to being very expensive at a time when money is probably more scarce and precious to you than ever before, you can do just as good a job yourself in most cases and may even get better results. 

It's important to note that in writing this I want to make clear that I'm not advocating that it is just that easy nor am I printing some magic formula known only to professionals and insiders.  In many cases loan modifications are not -and will not be- offered no matter who negotiates them and what is offered. 

When trying to obtain a renegotiation , you will probably be ignored and sent on exhaustive efforts to re-produce documents and letters all seemingly to no avail.  Here's the secret, it's not just you.  The lack of success of the various modification programs is by itself evidence of the low chances available to obtain such type of new agreements. .  However, it never hurts to ask and try. If you succeed and in turn you save several hundred or even thousands of dollars otherwise used to hire an attorney to defend a foreclosure, all the better.

Also, I am in no way advocating that anyone should purposely not pay their mortgage unless they have no choice in the matter.  Yes, it is probably true that if you don't stop paying the banks are most likely not going to want to work with you.  Yes, it is probably true that the government is not going to come up with any meaningful relief or program that a bank is required to accept any time in the future.  So, yes if you're still paying your mortgage you might be wasting your time.  But again it can't hurt to try, and if they tell you "No" you'll know where you stand with this option and can move forward, whichever way, with a clear conscience.

Also important, if you can afford to pay your mortgage and just are unhappy with your loan, or with the fact that your house is upside down, or that the rest of the country appears to be asking for a modification so why not you, YOU SHOULD NOT STOP PAYING ON YOUR LOAN.  Sorry, not a good idea and certainly not something to consider lightly.  I say this not just from the very real ethical and professional requirements of an attorney but also for the very real ways such a course will affect you and your family's life, including but not limited to:

• Your credit will be fully in the tank for a very long time, and should a foreclosure be filed it will be permanently on your record and a bankruptcy will not remove it.
• Because your credit will be so bad even low end or high interest consumer credit, such as auto loans (new or used), store credit, and even business loans unrelated to your personal house will likely be denied to you.
• Also, the credit crunch can affect and restrict your employment qualifications, which is particularly true for government, insurance and many sales jobs.
• In all likelihood the bank will file a foreclosure on you anyway because they will not or cannot offer you a modification.
• If you appear on paper to be able to pay your loan and you have no real hardship you will be negotiating in bad faith (absent some other legitimate issues such as a valid RESPA violation or a Truth in Lending Claim) and in a subsequent foreclosure defense this could reflect negatively on you with the Court.

If you can't pay your mortgage, including not being able to pay it without draining your savings (particularly 401K, or IRA accounts which might be protectable from bankruptcy) or taking food off your table, then you probably should be making hard decisions now while you're seeking a modification.  I and many attorneys offer free foreclosure consultations these days and you should not be afraid to seek advice. 

So, how is it done?  Well, you can do just what the modification companies do:  make a phone call and send certified letters.  Yes, that's right. In most cases all you're getting for your money is someone spitting out a letter (probably copied off the internet or better yet from HUD or the bank itself) asking for a modification.  Here's the sad part, in many cases (and I'm basing this off of the cases that have come across my desk from clients who have had prior "help" with a pre-foreclosure modification company), they will send 2-3 letters, at most.  These letters inevitably include a RESPA letter, which anyone can download from the HUD website, and should be sent by the home owners themselves and not by a third party.  In some cases they even document a few attempts to make a phone call or two.  You're probably thinking, "I could do that!"  You're right.

In truth most loan modifications are not accepted or even reasonably considered not so much for how they were submitted or what was said in negotiations but based on reasons known only to the banks.  However, I'll give some tricks that will both give you a better chance in negotiations and also help you document your efforts because you never know what might turn into a defense should the case go to foreclosure.

• Research
• Do the Math
• Be Honest with yourself
• Negotiate the Loan and not the Payment
• Start the process as Directed by your banks posted procedures
• Get a case number
• Follow up all calls with a letter, and sent it certified with return receipt
• Keep copies of everything you sent
• Make them give any agreements to you in writing
• If you have stopped paying on your mortgage do not make additional payments or partial payments until you have an agreement in writing
• If you have to faxany documents,  make sure you can keep a fax confirmation page
• Send copies of what you send to the bank to the place where you send your payments and even the address listed on the closing documents for the loans
• Be persistent and expect a lot of frustration
• Keep a log of every conversation you have, write down names, titles, numbers, dates and duration of call.

First, research, research, research!  Go to HUD, go to the Making Homes Affordable website , go to Freddie Mac and Fannie Mae's website, and go to your bank’s website as well.  Go and find out what programs are out there.  Your best option will most likely be the Federal Programs, such as the current HAMP Program.  However, the bank may have a few other programs of their own.  Print them out, if you're not good with math get a friend who is and see how it works.  This way you know which ones to ask for and which ones not to waste your time with.  I'll caution that while there has been much talk of reducing principal, that is not a very likely outcome so if that's what you'll need I would advise not to put many of your emotional eggs and hopes in that basket.

In this research, the important thing to grasp is the payment zone that you will most likely fall into.  Most of these programs, like HAMP, have the goal of only reducing the payment to a portion of your income that you can manage, not to change your loan into a better loan.  Many also require that the amount you pay will go up progressively until such time as you're paying close to your current monthly payment.  In short, they are temporary help, hoping that the real estate market comes back up, or that your income recovers and you don't have to move,.

So, if for example you cannot afford to designate 1/3 of your income to paying your mortgage then even if you get a HAMP modification you won't be able to take it because that is exactly the rule of thumb that the program uses.  Once you know the program’s stated guidelines you can estimate what you can ask for.

Be Honest with yourself.  If you currently have lost your job, or your occupation is tied to an industry that is not going to make a quick comeback, you are not going to look very credible asking the bank to make a modification which you can't afford right out of the starting blocks.  The best you might be able to get is a temporary reprieve for a few months while you take on new employment.  Also, many of the more creative old school negotiation ideas, like refinance, co-signer, 2nd mortgager stepping in and buying off the first mortgage and then coming to some better deal are not going to happen.  This is because right now the old school calculus for home mortgages is out the window.  Your house is most likely upside down and Congress has mandated that banks no longer make risky loans.  Even a pawn shop would not give you $10 for a $9 ring, no matter how special it is to you.  The same applies to banks and your house.

So, assuming you think you can qualify for a program and feel like you can keep the house under its current conditions,  you make your offer.  However, you need to have it all planned like if you were negotiating the loan again for a refinance.  How much the is theproperty worth, how much you have, how much you make, how much will it cost?

Of course,  you will need documents to back it up.  Have your taxes and insurance and be prepared to add 1/12 of the total of the two to your new payment. All modifications will require you to escrow if you're not already doing so.  If this is too high, see what you can do to lower either one by taking on a higher deductible or talking to your local tax appraiser's office.  Every penny counts!

When you make your first call make sure you ask for a case number.  This is your  unique identification so every time you call again, and every letter you send can be related to your case.  Also, be prepared to answer the questions you will be sked.  If you do not have the information, write it down so you can find it.  Try to establish a follow-up date and be ready to follow it.  Afterwards, make sure you've written down everything and send a letter confirming all the details of the conversation, filling in any additional information and providing all requested documents.

As for documents, you're going to need to make nice clean copies.  Even if you fax it over, mail copies of the documents as well, attention to whomever you were directed to send them to.

As for mailings, you should always send them certified return receipt mail, with signature confirmation by US Postal.  This is the green forms and little green postcards at the post office.  The postman can help you.  Make sure your letter references the certified mailing number (the number attached the US Postal form that attached to the envelope) and make sure you put your case number on the return receipt and certified form.  I also recommend getting your receipt postmarked at the post office when you you’re your documents (don't just put on the correct postage, fill out and attach the forms and put it in the mail box).  This gives you a record not only of mailing the letter, but also of their receipt and a neat little signature of the person accepting it.  Make sure you keep a copy of what you mailed and when the green card comes back staple it to the letter.

How do you write a hardship letter?  Just be honest.  Explain why the situation has changed and why you can't get back to where you were.  There's no magic to it and the Federal guidelines at least do not preclude people with temporary vs. permanent changes in their income. 

Finally, expect frustration and problems.  You'll have to keep calling, keep mailing and keep working the system and maybe you'll get a modification.  If not, do not let it get you down but be prepared emotionally for the next step.

I write this post not to either discourage nor to encourage people to make applications for modifications.  I would never promise a client that any method would be more likely to work than another.  In the end, remember you are dealing with a faceless and distant entity, and that in order to succeed  whatever tangled bureaucratic structures have been erected must agree to your request.  No matter how logical your case might seem to you, a "No" may be inevitable for reasons you could never know or they would never say.  However, if by writing this I have spared but one family or individual from throwing good money after bad in an attempt to save their house by paying some "mortgage modification" operation then this long letter is not in vain.