What Are Your Options?
A loan modification is supposed to make your mortgage more manageable.
But what happens when it doesn't anymore?
Maybe the modified payment was affordable when you accepted it, but your income has changed. Maybe your insurance and other household expenses have increased. Perhaps your modified interest rate changed, or you simply reached the point where there isn't enough money left at the end of the month.
Whatever caused it, you may now be facing a frustrating reality:
You went through the loan modification process, kept your home, and now you're struggling with the mortgage again.
That doesn't mean you have no options. But this is a good time to look at the entire financial picture rather than automatically assuming another loan modification will solve the problem.
Start With One Question: Is This Temporary or Permanent?
Before deciding what to do with your home, determine whether the problem is likely to be temporary.
If you've had a short-term interruption in income and expect your finances to recover soon, your situation may be very different from someone whose mortgage payment is simply no longer affordable.
Ask yourself:
- Has my income temporarily decreased?
- Has my mortgage payment permanently increased?
- Have homeowners insurance, taxes or other housing expenses increased?
- Am I using savings or credit cards to make the mortgage payment?
- Do I expect my financial situation to improve within the next several months?
- Even if I catch up, can I realistically afford this house going forward?
That last question may be the most important.
Catching up on a mortgage and being able to afford the mortgage long term are two different problems.
Contact Your Mortgage Servicer Before You Fall Too Far Behind
If you believe you're going to miss a payment—or you've already missed one—contact your mortgage servicer and ask what loss-mitigation options may currently be available for your loan and circumstances.
Don't assume that because you've already received one loan modification, nothing else can be considered.
At the same time, don't assume you'll automatically qualify for another modification.
Available options can depend on your loan type, investor guidelines, payment history, current financial circumstances and other factors.
Ask questions. Keep copies of correspondence. Take notes about telephone conversations and deadlines. If you're asked to submit financial documents, keep a copy of everything you send.
Most importantly, don't ignore letters or notices from your servicer because you're afraid of what they might say.
Could I Get Another Loan Modification?
Possibly, but there is no universal answer.
A previous loan modification doesn't necessarily guarantee or prohibit another mortgage workout. The servicer or loan investor will determine what options are available under the applicable program and your circumstances.
If you're considering another modification, however, look beyond whether it reduces the immediate payment.
Ask:
Will the new arrangement actually make this home affordable for me?
If another modification only postpones the same affordability problem, you may eventually find yourself having this exact conversation again.
What If I Have Equity in My Home?
This is an important number to determine early.
If your home is worth substantially more than what you owe, selling may allow you to pay off the mortgage and other obligations and potentially walk away with proceeds from the sale.
But don't calculate your equity using:
Online estimated value minus the balance shown on your mortgage statement.
You need a more complete picture.
Consider the property's realistic market value, mortgage payoff amount, other liens or assessments, and anticipated costs of selling.
Once you understand those numbers, you can make a much better decision about whether selling is a reasonable alternative.
Can I Sell My House After Getting a Loan Modification?
In many situations, yes.
A loan modification generally changes the terms of the mortgage; it doesn't necessarily prevent you from ever selling the property.
However, your particular modification documents and payoff information matter.
Some homeowners may also have deferred balances, subordinate liens or other amounts that need to be addressed when the property is sold.
Before making assumptions about how much money you'll receive from a sale, obtain accurate information about what will need to be paid.
What If I Don't Have Enough Equity to Sell?
This is where homeowners sometimes feel trapped.
They can't afford the mortgage, but they also believe they can't sell because they owe too much.
A traditional sale may not work if the expected proceeds aren't sufficient to cover the mortgage and other required costs.
But that doesn't necessarily mean you have to wait for foreclosure.
Depending on your circumstances, a short sale may be an option.
In a short sale, the mortgage lender or servicer is asked to approve a sale in which the proceeds will not be sufficient to satisfy the amount owed under the normal terms of the loan.
Short sales require lender approval, and every situation is different. But for some homeowners, exploring a short sale can make sense when keeping the property is no longer financially realistic and a traditional sale doesn't produce enough money to close.
What If I'm Already Behind on My Modified Mortgage?
Being behind doesn't mean you should stop looking at your options.
It does mean time becomes more important.
The longer the problem continues, the fewer comfortable choices you may have.
Pay attention to correspondence from your mortgage servicer and any foreclosure-related notices you receive. California's foreclosure process has specific requirements and timelines, and your individual situation should be reviewed based on the notices and dates that actually apply to your loan.
If selling the property might be part of your solution, don't wait until the last possible moment to investigate what the property is worth and what you owe.
Should I Use My Savings to Keep Making the Payment?
There isn't one answer that fits every homeowner.
But this is worth thinking about carefully.
If you're using savings every month to cover a mortgage that you already know you cannot afford long term, you may be spending down the very financial cushion you'll need later.
The same concern applies when mortgage payments are being made with credit cards or other borrowed money.
Before continuing that pattern indefinitely, step back and look at the numbers.
How much is the house worth?
How much do you owe?
How much are you spending every month to keep it?
Is your financial situation likely to improve?
And most importantly:
What does staying in the house accomplish six months or a year from now?
Sometimes keeping the home is still the right goal.
Sometimes selling it provides the better path forward.
The important thing is to make that decision intentionally rather than allowing missed payments and deadlines to make it for you.
You Don't Have to Wait Until Foreclosure to Make a Plan
Homeowners sometimes wait because they believe their situation isn't serious enough yet.
They're only one payment behind.
They haven't received a Notice of Default.
The lender hasn't started foreclosure.
Those can actually be reasons to start investigating your options now, rather than reasons to wait.
More time gives you the opportunity to gather information, communicate with your mortgage servicer, understand the value of your property and determine whether keeping or selling the home makes sense.
Start With the Numbers, Not the Panic
If you can't afford your modified mortgage payment anymore, you don't need to decide everything today.
You do need to understand where you stand.
Start by gathering:
- your most recent mortgage statement,
- your original loan modification agreement,
- any recent letters from your mortgage servicer,
- information about additional liens or loans, and
- a realistic estimate of your property's current market value.
From there, you can begin separating the possibilities that actually fit your situation from the ones that don't.
At Midas Realty Group, we work with Southern California homeowners dealing with complicated mortgage situations, including homeowners who previously completed a loan modification and are struggling again.
If selling becomes one of the options you're considering, we can help you understand the real estate side of the equation—including what your home may realistically sell for, whether there appears to be sufficient equity for a traditional sale, and when a short sale may need to be explored.
The earlier you understand the numbers, the more opportunity you have to make a decision instead of having circumstances make it for you.
This information is for general educational purposes and is not legal, tax or financial advice. Foreclosure and loss-mitigation situations can involve important deadlines and individual circumstances. Consider consulting an appropriate attorney, HUD-approved housing counselor, tax professional or other qualified adviser when needed.
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