Last Sunday morning, I sat down with some homeowners to discuss their options relating to the foreclosure mess they were in. Through the course of the conversation, I learned that they had just received a letter stating that they didn’t qualify for a loan modification, after having been in a period of “Trial Modification.” Some of you might have heard of people in Trial Mods. Maybe you are in one yourself. If so, there are some things you ABSOLUTELY need to know about how these things work.
What exactly is a Trial Modification? Simply put, it is a period of time when the bank gives you a new lower payment, without committing to allow you to keep that payment permanently. Presumably, this is to see if you can indeed make the new payment. One would assume that if a homeowner were successful at making the payment for a period of time, that the bank would then agree to make the terms of that modification permanent. But you know what they about saying “assume.” Don’t do it. Especially not in this case, ’cause it just ain’t so.
Here’s the rest of the story about the homeowners I mentioned above. The homeowner’s made their “Trial” payments for 8 months. They struggled. They made them on time. They lived up to what they thought was their end of the deal. But 8 months later they got word from the bank that they didn’t qualify for the payment that they were paying successfully.
This was a big surprise… to them. It wasn’t to me. And you can bet it wasn’t to certain people at the bank.
The story above gets worse. The homeowners found that none of the payments that they had been making had been applied to their mortgage. Instead of showing that they had been making payments, the loan now shows over 8 months of no payments having been made. This means that the bank can now go immediately to the advanced stage of foreclosure, the fast track to losing your home called NTS or “Notice of Trustee’s Sale.” An NTS basically allows the bank to foreclose on your property in as little as 21 days, without any further debate, or discussion.
Could you find a new place to live, pack up your stuff, and move in 21 days?
On top of all this, the homeowners were out 8 months of payments – over $13,000 – that they could have saved, to help start over in a new place. Instead they made payments to the bank in good faith, struggling to do so in the belief that they were working towards saving their home. In fact, they were wasting the little resources they had. And now they don’t even have the typical period of time – 111 days – the bank must wait before they can foreclose, without making mortgage payments, in order to prepare to move.
You might think that this is one of those isolated cases, one of the horror stories you hear about. In fact, this is par for the course with trial modifications. In the government HAMP program for example, as of July, 2010 there were 1,334,117 trial modification started. Of that number 663,538 were cancelled. That my friends, just about equals a whopping 50% failure rate. I guess you could say that it is also a 50% success rate, but in this case, I’m sorry, I have to side with the glass is half empty crowd.
You need to be extremely leery of a Trial Modification offer. There are certain ratios that if you fall outside of, will almost certainly disqualify you from obtaining a permanent mod. Call me and I’ll go over them with you.
And by the way, are you wondering why the bank would set you up in a “Trial” offer that it would seem they should have known from the onset if you qualified for or not, and then pull the rug out from under your feet? If this is bothering you, consider the following two scenarios, one hypothetical, one actual. After that it should all be pretty clear:
- First the hypothetical one. The bank could have let the homeowners know up front that they didn’t qualify for a modification. The homeowners could have stopped paying their mortgage for 111 days before the bank could have legally foreclosed on the property, and in the process the homeowners could have saved almost $7000 to help them start their lives over.
- Now what actually happened. The bank told the homeowners to begin making $1700 a month payments, while breezing through that mandatory 111 day period I mentioned that the bank had to wait before they could legally foreclose. In the process they collected $13,000+ and now reserve the right to kick the homeowners out in 21 days.
Is anyone still unclear?