Robin, Other/Just Looking in 92646

What is a loan modification and can this be done on a home that's listed as a short sale?

Asked by Robin, 92646 Wed Nov 30, 2011

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Hi Robin; This a great question and thanks for asking it.

A loan modification is just what it sounds like. If the homeowner wants to attempt to keep their home, the homeowner can request a modification to the terms of the loan existing on their home, for example, interest rate, repayment period, and/or principal balance reduction. If these modified terms are agreeable with the homeowner, they can stop and cancel the short sale per the terms of the purchase agreement with the Buyer as contained in the Short Sale Addendum and Short Sale Information and Advisory. If you are the buyer who has submitted an offer on this home, please reread these two documents.

I hope this helps.

Erin L. Phillips
Keller Williams Realty
DRE# 01474901
Web Reference:
0 votes Thank Flag Link Wed Nov 30, 2011
Hi Robin,

As Elizabeth stated, most lenders will not allow you to pursue both a loan mod and a short sale at the same time. They are both considered "Workout Programs" and most lenders will only allow one Workoiut Program in progress at a time.

In the order of "I want to try to keep my home" to "I'm ready to get ridy of my home", your options are (in order):

1. Loan Mod (this includes a variety of additional options depending on different variables)
2. Short Sale
3. Deed in Lieu of Foreclosure ("friendly foreclosure", benefits your lender because they incur no attorney fees)
4. Foreclosure

If you are interested in keeping your home, I would try this link first:

Also, remember that HUD has many home loan counselors that advise for FREE and over the years have become much better at getting you to the right sources as well as determing faster where you stand.

If your home is listed in a short sale, you may want to contact your agent and advise them that you may be considering keeping your home and exploring a loan modification.

Hope that helps!

0 votes Thank Flag Link Wed Nov 30, 2011
I don't know of any lenders that will open two files simultaneously. Generally, the bank will ask you to do one or the other. Either choose the loan mod or choose the short sale.

It is very common for a seller to try to do a loan modification first. When that fails, and it generally does, then the seller attempts to do a short sale.

Sometimes, agents don't ask their sellers any questions when they take a listing. So, it is possible that an agent could list a home as a short sale, having never discussed a loan modification with the seller. Then, after an offer is signed, accepted and sent to the bank, the bank then calls the seller to say, Hey, have you thought about a loan modification? At which point, the seller, not knowing it could be a possibility, says no, I have not, but I would like to.

The seller is overjoyed and can barely sleep at night, with visions of reduced principal balances and 2% interest rates dancing in her head.

So the short sale gets canceled and the loan modification is pursued. After another 12 months of horsing around with the lender, the loan modification gets denied and the seller is then notified that a foreclosure is happening the following week, when it's too late to try to do a short sale. That's our banking system for ya.

Elizabeth Weintraub
Broker-Associate #00697006
Lyon Real Estate
Sacramento Short Sale Agent

Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
0 votes Thank Flag Link Wed Nov 30, 2011
The first gate you must go through is to determine if you have a hardship. If not, the lender will be less likely to work with you on either option.

If you are attempting to work with your lender through the government's Making Home Affordable program, then the paperwork is the same. They will require that a loan mod be considered first under the HAMP program. If you don't qualify for that based on your financial ratios, or request the short sale, they will move you into the HAFA program to short sale your home. Kylee is right, most lenders do not want you in consideration for both at the same time. They're often two different departments and the file is in only one place for consideration at a time.

If you are in California, you might want to pursue what is available under the Keep your Home California program as well. that is also an additional program, depending on whether your lender participates in that, but it is a federal grant specific to California homeowners.
Web Reference:
0 votes Thank Flag Link Wed Nov 30, 2011
Different lenders or lien holders may define this differently, depending on what they are willing to do for you. Basically, a loan mod changes some of the terms of your loan--such as lowering the interest rate, to make your loan more affordable. Usually, lien holders will ask you to either be in the loan modification program (applying for a loan mod.) or short selling. You should call your lender and ask if you can apply for a loan mod while your home is on the market. If you are already under contract with a buyer, however, you should consult with your Realtor regarding cancelling the sale and switching to the loan mod. program. Hope that helps!
Web Reference:
0 votes Thank Flag Link Wed Nov 30, 2011
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