If your loan modification has been denied, there may still be options you can pursue. If you wish to keep your house and are determined to follow all the necessary protocols, then you may be able to get a modification. Here are the major steps you need to take following a modification denial.
1. Provide Proof to the Lender
After a modification denial, you are required to prove two things to your lender:
- You were experiencing a financial hardship that kept you from submitting your mortgage payments
- You have overcome your financial hurdles and are able to support the payments
The purpose of proving your income to the lender is to show where you went through financial difficulties and how you recovered. Your lender may either approve or deny your appeal. Lenders typically review a borrower’s financial situation by relying on a snapshot in time. You are usually denied when you fail to demonstrate that you were having financial hardships and that you have recovered from them.
2. Understand the Reason For Your Denial
Lenders are legally required to state their reasons for denying your request for a loan modification in a denial letter. Before you go to appeal a loan modification denial, you need to understand the denial letter. A Short Sale Lawyer will help you digest the reasons for your denial.
In some cases, you may qualify for mediation. The difficulty with appeals is that you are not in a position to know what your lender is thinking. Mediation allows you determine what your lender is thinking by asking them questions about the reason they turned down your loan modification appeal. When you know your lender’s mind-set, you are best placed to respond accordingly.
Some of the common reasons for a denial include:
- Affordability: This means you have not offered sufficient proof to show that you could not afford your mortgage payment
- Debt to Income Ratio is High: If your debt to income ratio is high, it means your lender believes you have many expenses and a small income to support modified payments
- Defaulted on Another Loan Modification: If you previously got approved for a loan modification but were unable to be faithful on your payments, there may be a guideline preventing you from applying again until a specified time lapses.
4. Identify an Appeal Strategy
After identifying the reasons for your denial, a Short Sale Lawyer of Nassau County will ensure that your appeal is in response to the reason you were denied. The two basic types of appeals are:
- Appeals arising from changed circumstances: If you experience a significant change between your submission and the lender’s decision (e.g. you lost your job, your income increased or decreased, etc.), your lawyer will draft a letter to explain the changed circumstances and supporting documentation as proof.
- Appeals arising from the lender’s mistake: In such a situation, your appeal materials will specifically address the reason you were denied.
For example, if your loan modification denial was based on affordability or debt to income ratio, your lawyer will use an income review when appealing. An income review helps identify miscalculated income. To appeal due to miscalculated income, you need to show increased or decreased expenses, changing income, and profit and loss among other factors.
To know more about your options, get in touch with us!