Tuesday, September 01, 2009

The Pros and Cons of Loan Modifications

As announced by this new press release, my law firm has begun offering loan modification services in addition to tax debt resolution. As the country’s economy continues to lag, and more and more jobs are being cut, thousands of families are turning to loan modifications to stay in their homes. Unfortunately, there is a lot of confusion in the industry, so to help my blog readers who might be considering a loan modification I have put together the following list of pros and cons.

Pro: Avoiding Foreclosure

For many families, the biggest incentive to get a loan modification is to avoid being forced into foreclosure or even bankruptcy. By modifying the terms of your loan, you can reduce your monthly payments without loosing your home.

Con: Confusing Process

The loan modification process is actually more like a tangled web of arguments, negotiations, and presentation of evidence. It can take months to reach any type of settlement, and involves dozens of phone calls, countless letters, and hours of direct negotiation. Fortunately, if you hire a professional then they can handle all of this on your behalf.

Pro: Professional Help

As I mentioned before, modifying the terms of your loan is a confusing process. However, by hiring a professional you can relax while some one else fights with your lender to renegotiate the terms of your loan. Additionally, a professional loan modification company will have more experience with the process, and can often obtain better settlements then a consumer could negotiating on their own. For more information on the loan modification services offered by my law firm, checkout this page on RoniDeutch.com.

Con: Time Consuming

Loan modifications can take weeks, or even months depending on your bank or lender. For this reason, you should begin the loan modification process as soon as you realize that you can no longer afford to make your mortgage payments. If you wait until the foreclosure process has already begun, then it can make modifying your loan more difficult.

Pro: Affordable Monthly Payments

The main goal of a loan modification is to reduce your monthly payments so that you can afford to stay in your house. This can be done either through reducing your principal amount, or reducing your interest rate. Either way, the end result is an affordable monthly payment.

Con: Affect on Credit

Although a loan modification itself will not impact your credit, missed mortgage payments will. Therefore, if it takes a few months to negotiate a loan modification and you accidentally miss a mortgage payment then it will hurt your credit.

Pro: Cancelled Debt is NOT Taxable

Unlike cancelled credit card debt, the IRS does not consider cancelled mortgage debt taxable income. Therefore, if part of your loan modification includes a reduction of your principal loan amount, then you will not need to worry about paying taxes on it. For more information on the topic, check out this entry on the Roni Deutch Tax Relief Blog titled Tax Implications of Mortgage Loan Modifications.