Do you Need an Attorney to get a Loan Modification?

by tammy on June 25, 2010

There is no real requirement to hire an attorney to represent you when proposing a loan modification to your mortgage lender; however in some instances having an attorney act on your behalf can be extremely helpful. Basically, any voluntary loan modification proposal will likely be taken more seriously by the lender if it is presented by an attorney as opposed to anyone else (the borrower, a broker, etc.).

The difference between voluntary loan modification and involuntary is based on whether or not the borrower is using the federal government’s Home Affordable Modification Program (HAMP) in order to propose and implement the loan modification. The U.S. Department of Housing and Urban Development, which administers HAMP on the borrower side, offers a full range of free services and housing counselors to help borrowers with the process and the program has its own series of incentives for the lenders. Therefore, people using HAMP have no need for an attorney at all. However, loan modification proposals done outside of the HAMP framework are considered voluntary since neither party to the original agreement is under any obligation to accept the proposal.

Virtually any borrower initiated loan modification is – almost by definition – detrimental to the interests of the lender since it involves either receiving the amount owed over a longer period of time than originally agreed or receiving less money than was originally agreed. Therefore, from the very outset, the lender is likely to view a loan modification proposal with hostility and to seek to make the process as complicated and time consuming as possible in order to discourage others from taking the same action.

This inherent hostility to the idea – both because it is directly detrimental to the lender and encourages others to make similar moves – is why an attorney can really make a difference when it comes to voluntary loan modification. An attorney carries an automatic implied threat of further legal action, suggests that the attorney’s client is very serious, and suggests that the client has the means to initiate further legal proceedings if an arrangement cannot be worked out. This is particularly threatening to management firms that are administrating the mortgage on behalf of removed investors since many management contracts put legal fees on the management firm as opposed to the investors for whom they work.

On top of this, an attorney should also help to protect the borrower from falling victim to tricky little changes and conditions that might easily mislead someone unfamiliar with contract law. Since loan modification involves changing the original agreement, it means that it is entirely possible for an unscrupulous lender to sneak in all kinds of new terms and conditions that could later prove disastrous to the borrower. A good attorney should be able to help protect against this since they have a better idea of what to look for and understand how important the small print and fine detail can be in contract law.

If you are looking at loan modification through the government’s HAMP program, there is no need for an attorney at all. However, if you are aiming at proposing a voluntary loan modification program, hiring an attorney can be a very good investment. This is not absolutely necessary, but it will give your proposal a lot more weight than would otherwise be the case.

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