Loan Modification Myths Dispelled for Homeowners Facing Foreclosure

A list explaining several issues concerning loan modification has been released by consumer advocate Ralph R. Roberts of Federal Loan Modification Law Center. The list tries to provide facts to correct common misconceptions about loan modification to better educate and inform homeowners to help them avoid foreclosures.

The following are some misconceptions and explanations intended to help homeowners facing the threat of foreclosures.

• Banks and lending institutions prefer foreclosure.
  Banks try to avoid taking away distressed properties because they lose your monthly payment and have to deal with a vacant home. They are forced to pay attorney’s fees during the foreclosure process, rehabilitate the home and sell it which requires paying commission to an agent.
• Difficulty in qualifying for a mortgage loan modification if a homeowner has a low credit score.
  Your personal credit score is not a factor when applying for a mortgage modification. Unlike refinancing, loan modification involves adjusting the terms and reducing the loan balance. In fact, your credit score will improve over time if your loan modification proves to be successful that it has prevented you from declaring bankruptcy or foreclosure
• Only delinquent homeowners are qualified.
  Previously, you are required to be two months delayed on your monthly payment to avail of a loan modification. However, many banks and mortgage lenders are trying to develop a loan modification for those who pay on time. You just need to discuss your financial position with your lender or lawyer.
• Bankruptcy or abandoning the house is advantageous over loan modification.
  Lenders can file a deficiency judgment on you if you decided to just abandon your property to allow banks to collect the remaining payment.
• Those who received notice to foreclose are not qualified.
  If you are still living in your home and it has not been sold, you have the chance to avail of a loan modification. It is imperative that you act on the problem as soon as you realize that you are in danger of losing your home to foreclosure.

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