Loan Modifications (Mods)

What is a loan modification?

It is when the lender (Bank) and borrower (Homeowner) enter into a new agreement that replaces or modifies the original agreement. For example, the Bank may allow you to defer 3 months worth of payments without penalty or any negative information being placed on your credit report.

What is modified?

There are several components to a loan.

  • The Rate, or Interest which is usually a percent (APR)
  • The Term which is a number of months or years
  • The Principle which is the total owed
  • The Payment which is the amount you must pay each month
  • Penalties - Some loans have early repayment fees.
  • Costs - These are the "fees" that are charged to get or modify the loan
  • First payment due date

All of these may be modified, but it is uncommon for them all to be modified at once. Usually a Bank will allow a customer to modify what is reasonable based on their unique situation.

Some examples:

Example#1) If you currently pay $1,500 per month Principle and Interest (PI), and your income decreases by 30% due to a temporary condition such as illness. The bank may allow you to pay $1,000 for the next 12 months until you are able to recover.

Example #2) Lets say you are 70 days late due to a tropical storm causing damage to your property, and the insurance company is refusing to pay for the damage. You have the money to make the payment but are being charged late fees, and damaging your credit every month as you are now continuously 60 days late. The bank could take 3 payments off the mortgage as of the date of modification, and move those payments to the end of the loan. This means that you would pay those payments 20 or 30 years from now by extending the final payment date 3 months.

Who can do it?

You - IF IT IS YOUR LOAN - but it does take skill. If you found a "Loan Mod" business make sure they are legal. This is the biggest scam currently in Florida and numerous other states! As a rule, all attorneys can perform the loan modification. In many states, Mortgage Brokers can do them as well. In some states Real Estate Brokers are allowed. As a good rule - If the number you call is a cell phone, no website exists for the company or is a brand new website, the BBB has no information, you cannot Google anything about the company, or if you saw the ad on the side of the road on a 1x3 handmade sign, or if you are made promises that seem too good...MOVE ON! In many states, such as Florida, only $150 can be collected upfront by an agency, however, attorneys are exempt due to trust accounting regulations and other rules.

How is it done?

The procedure is started by contacting the "loss mitigation" or "workout department" or "loan modification" department of your bank or loan servicer. They may have forms for you to complete or instruct you to begin the process online.

You will need many documents:
  • Hardship Letter stating why you need the modification
  • Pay stubs or documentation of income
  • A qualified opinion of price - Appraisal, BPO, CMA, Etc.
  • A request for what you want modified
  • Condition or pictures of the house (If it helps)
  • Documentation of changes in the neighborhood
  • Crime rates (If it helps)
  • Credit score knowledge - Do you still have good credit - if not why?
  • Copies of your last statements (1st mortgage, and the 2nd mortgage if applicable)
  • Proof that you are you - Drivers license etc.
  • Proper phone numbers to call and initiate the process
  • All other documents they may request.

Things to avoid:
  • Long excuses or unnecessary details of your colonoscopy or illness
  • Trying to be their friend - Just give the basics details of what you need
  • Sending in documents one a time - be organized!
  • Unrealistic offers - Don't waste their time
  • Blaming them or being angry that they cannot "give more"

We have performed many loan modifications and always tell our clients two things

1. Be Realistic
2. There are no guarantees that we can get exactly what you want - This is an agreement that they (Bank) must feel needs changed or they will not do it. Put yourself in their shoes for a second. If your credit card company called you and asked that you pay an additional 10% interest on your balance because they spent too much money or did not budget properly would you just say, "sure that sounds great!" Of course not! Don't expect this to be easy if you do it on your own.

Also note that this is not a science but an art. Some companies will work quickly, some will not even respond. Some banks prefer to deal with a professional as the documents are usually more organized.

How long does it take?

Most modifications can be professionally performed in 30-90 days. In the do-it-yourself the range is usually 90-180 days due to the delays of not having the right department, paperwork delays and unrealistic requests.

What if I need more help?

Although this article is about loan modifications, there are many other options that are available. If you are located in Florida our law firm can help with many other options. These other options include: short sales, refinance, bankruptcy, foreclosure litigation, and other kinds of debt restructuring. If you want to find an agency to assist you, they are easy to find. Just be sure they are licensed, regulated, and have been in business for more than a few months. The disadvantage with all "loan mod" businesses is that they cannot help with other legal alternatives such as bankruptcy. Although you may not want to consider bankruptcy an option, creditors are sometimes more willing to work with attorneys because they fear a bankruptcy will follow your hiring of an attorney. Whatever you do you must not procrastinate! Time wasted may cause you to lose your house.

How much does it cost?

If you do all the work on your own, it will probably cost nothing but your time. If you have attorneys do it - probably $2,000 to $2500. At Affinity Law Firm, we generally charge $1995 as a flat fee. So why pay someone for something you can do? Several advantages and unknown cost(s) must be considered. First, a professional will know what is realistic and what can be obtained for you modification. Often, we see people after the modification fails and they are now facing foreclosure. Time is not your friend! Also, when we represent someone, the bank knows you are serious and not just trying to save some cash. Lastly, your credit is damaged until the issue is resolved. One or two extra months may ruin years of excellent credit, and you may risk losing your house to foreclosure.


Gust G. Sarris, M.B.A., J.D.
Managing Partner
Affinity law Firm, P.L.
(904) 398-9510