5 myths about loan modification that you can avoid.

Quite often, when people get into situations that put them at risk of losing their homes, they unfortunately are misled by some of the bad information that is out there – call it urban legend or myths they’re still wrong. There are still things that could work to keep them in their homes.

From a press release by Ralph R. Roberts, consumer advocate and spokesperson for Federal Loan Modification Law Center, comes this list dispelling the top five myths about loan modification (with appropriate additional comments - ed.)

MYTH #1: My bank wants me out of my house or my bank wants my home. Wrong! Banks and other lending institutions do not want to foreclose. They earn more money if you can make your payments. When they foreclose, they not only lose your monthly payments, but they also have the expense of foreclosing (attorney fees), rehabbing the home, and then selling it (agent commissions). In today's market, there's a good chance they'll have to sell the home at a loss. This is all good news for you – it means the bank is highly motivated to make a deal with you. But they’ll never get that opportunity if you never ask them.

MYTH #2: My credit score is bad so I won't qualify. Unlike the option of refinancing out of trouble, which requires you to apply for a new loan, loan modification simply adjusts the terms and perhaps reduces the balance of a loan you already have. Your credit score is much less of a factor in determining whether you qualify for a loan modification. In addition, a successful loan modification can actually improve your credit score over time, especially if it prevents you from ending up in foreclosure or bankruptcy. Remember too that you r credit score is much higher at the start of this process than it will be if you go through a foreclosure.

MYTH #3 I am not late on my mortgage payments so I won't qualify. / I have to miss a payment to be eligible. Early on, this was true. In fact, some early eligibility requirements stated that you had to be 61 days delinquent in order to qualify. In other words, you would have had to have missed two full payments. The truth is that the eligibility requirements are constantly changing and differ among lenders. Many lenders are now working out loan modifications with borrowers who are up to date on their payments. It’s difficult to determine whether you qualify until you actually discuss your situation with the lender or with an attorney who is knowledgeable and experienced in loan modifications. The biggest mistake that people make is not taking the time to discuss their situation with the lender before they get behind and trying to see if they will entertain a loan modification.

MYTH #4: I would be better off walking away or declaring bankruptcy than modifying my loan. Walking away from the home and filing for bankruptcy are certainly two options, but they are rarely the best options when you are facing foreclosure. If you simply walk away, the lender is unlikely to pursue legal action against you, but in some jurisdictions, the lender can pursue a deficiency judgment against you to collect the difference between what the lender receives for your home at auction and what you currently owe on the balance of the mortgage. Filing for bankruptcy may be better than just walking away, but it can leave a blemish on your credit history that makes it difficult to borrow money in the future. A successful loan modification is almost always a more prudent choice.

MYTH #5: It’s too late. I have already received a foreclosure notice. As long as you still reside in the home – that is, you didn’t voluntarily abandon it, and the home hasn’t been sold at a foreclosure auction – you may still have time to work out a loan modification with your lender. The sooner you take action, the more options you have available and the more time you have to pursue the best option, but you can still negotiate late into the process. By contacting the lender or, better yet, having your attorney contact the lender on your behalf, you demonstrate a good faith effort to work out a solution and can often buy yourself extra time to negotiate a loan modification. If the Sheriff’s Sale hasn’t already taken place you may still be able to do a workout or modification. Once the Sheriff’s Sale has taken place the best you can hope for is a short sale agreement with the bank, with them agreeing mot to pursue a Deficiency Judgment.

For more about the loan modification process and what you might still be able to do, visit Ralph Robert’s Web site http://www.keepmyhouse.com/. If you are beyond the Sheriff’s Sale point already, with no real hope of being able to keep the house, visit my site http://www.mishortsales.net/ for a no-nonsense approach to using a short sale to save as much of your credit as you can.