Could you imagine being 2 weeks away from closing on your home and then you find out that you owe the lender $40,000 more than you thought you did. That is a reality some homeowners are finding themselves in. Here’s why…
What is a loan modification?
Basically a loan modification is you asking the lender to modify the original terms of your loan.
Why do people do this?
The most common a reason is they want their payment lowered and there are a few different loan modification options:
You have a capitalization of arrears
You have a rate reduction.
You have a term extension.
You have principal forbearance. [This is what happened in this case].
Why is this becoming more of an issue?
It’s because a lot of people did loan modifications when the market
crashed back in 2008. Let’s say they did their loan modification in 2010 and now they’re ready to sell their house. Pretty much a long story short… Sellers are forgetting or not truly understanding how the loan modification will affect them once they sell the house.
The harsh reality is that when somebody is going through a hardship, their focus is getting out of that hardship so they are looking to get their payment lowered. Maybe they’re paying $1,800 a month and they are trying to get it down to $1,400. They are just happy their payment got lowered. Do you they read all the fine print? Maybe not…
The solution!
When you get ready to sell your house (before you list it; ideally before you contact your agent) go ahead and request a loan payoff from your lender. They are most likely going to charge you $25 (more or less depending on your lender).
Next, ask your agent or advise your agent that you’ve done a loan modification. Your agent should request that the closing attorney request the official payoff upfront (as early as possible). They should not wait 3 or 4 weeks into the process to request the payoff. It should be requested upfront so you know what we’re dealing with immediately.
*Tip for Realtors
When you meet with a seller, one of the questions that you need to ask is, “Have you done any loan modifications?”. And you may need to probe a bit because they may not remember. It may have been years ago, so probe.
If they say yes, 1) ask them to go ahead and request a loan payoff from their lender. They will have to pay for it, but it will be worth it.
2) Once you submit your contract to the closing attorney I would also notify them and request that they request the official payoff upfront. Let’s not wait several weeks into this deal, after the inspection and financial contingencies for something like this to pop up.
Can I ask you a favor? If you have ever experienced this situation with a loan modification, whether you’re an agent or you sold a home or you know somebody that did, please leave a comment on the video below. This will help others.
Hopefully this information was helpful to you. Check out the video below for a better understanding.