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By Sobe33 | Real Estate Pro in Laguna Beach, CA

What is a Trial Loan Modification?

A Trail Loan Modificationis when your lender/servicer puts you as a homeowner into a temporary loan modification while they evaluate your paperwork to see if you qualify for a permanent loan restructure.   The temporary terms are usually for a period of three months.  In general, the mortgage payments should be less than what you are currently paying.  Keep in mind that the trial modification terms will not be the same as the permanent loan workout terms.

One thing that you have to keep in mind is during the trial period you must make all of your payments on time.  This is a standard condition of the trial period, else they will deny your request for a loan workout and you may find yourself in foreclosure soon. 

These types of temporary workout programs are all a little different depending on the bank/servicer and what state you are in.  So I will provide a few more tips for those that are being offered such programs and these are general guidelines only. 

One of the key expectations is the homeowner will receive upfront trail loan modification paperwork directly from the bank outlining all the terms before ever making a trial payment.  You will need to sign the trial papers and send that plus the first trial payment back to the lender/servicer. 

While the trial period is moving forward, the bank/servicer will fully evaluate your loan modification package to determine if you qualify.  If you are working with an Attorney, the full loan modification package would have been submitted to the bank prior to the trial period.  In these cases, the reputable Attorneys already know you will qualify and it is a matter of giving the bank time to evaluate everything. 

For the most part, I think these trial periods are more of a stall tactic for the bank to get money from the TARP funds immediately instead of waiting for the permanent workout program.  Remember the permanent program terms take 60 to 90 days, and the trial period begins soon after discussions with the bank.  This gives the banks money upfront and more time to stall and commit to a modification.  Of course, the banks are working in their best interest and not the homeowners.

If you have tried a loan modification on your own, usually the bank takes that information over the phone and later offers the trail modification.  If this is the case, the process above is not always followed.  In most cases, the banks have verbally qualified you bases on a phone conversation or partial paperwork sent over by the homeowner.  I would be very leery of any verbal commitments by the bank, “buyers beware”. 

Many times the homeowner never receives the upfront trail loan modification paperwork and is only going on a verbal by someone in the bank.  Then after the trail period, they never receive any loan workout documents and find their home being foreclosed on.  This happens sometimes in part because the banks verbal qualifications did not match up with the paperwork sent over by the homeowner during the trial period. 

Unfortunately, the banks are taking advantage of homeowners in this situation, in part because homeowners just don’t know what to expect or even demand.  So, if this is happening to you, you know now what to ask for, and that is upfront trial loan modification papers and final permanent papers. 

If you are not getting these papers as described, then I say buyer beware.  You can contact a Loan Modification Attorney at that point or just ride it out and see what happens.  Just a quick note on the Loan Modification Attorney, the reputable ones are almost 100% successful with permanent workout programs after the trial period, so feel confident that you’re in good hands.

If you find yourself at odds with your bank in a trial modification and can’t make progress, we have help for you through one of our contracted Loan Modification Attorneys at www.CallALMS.com.


By Destiny1,  Wed Apr 28 2010, 17:06
I am 3 months into a 5 month trial period. They said I dont qualify for the Obama plan but they put into a loan foreberance program for 5 months. My payment dropped from 2,500 to 1,000 a month which is good. They said that if I make the payment before the 1st every month the bank will modify my loan to approx the payment I am making now, which would be fantastic! Also I checked my credit and have no negative marks yet but if I can get this reduced payment it would be worth it because I am not moving for awhile. Once you have made the payments in a loan foreberance program does that guarentee a permanant modification because 5 months really doesnt help me out that much over a 30 year period.
By PaulMolinaroEsq,  Sat Feb 12 2011, 12:07
Lenders have figured out a new way to game the system... take money from Uncle Sam by promising to use that money to modify loans... get money from the borrower during a trial modification... deny the permanent modification... and sell the property... consult with a local attorney in your state to see about suing if you "pass the test" of your trial loan modification does not turn into a permanent one

- Paul

Paul J. Molinaro, M.D., J.D.
Attorney at Law, Physician, Broker
Fransen&Molinaro;, LLP
980 Montecito Drive, Suite 206
Corona, CA 92879

** This post and all others I make on Internet are for informational purposes only. None of the information or materials I post are legal advice. Nothing I post as comments, answers, or other communications should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. While I try to be accurate, I do not guarantee accuracy.

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