Receiving a loan modification denial letter feels very scary.
To make matters worse, the denial letters make it hard to understand why you were denied or what you’re supposed to do now that you’re denied.
A loan modification denial doesn’t necessarily mean that the process is over.
Understand why you were denied a loan modification
The first step to understanding your denial letter is to figure out the reason for your denial. Here are the most common reasons.
- You never completed the required loan modification package
- You don’t make enough money to support a loan modification
- You don’t have clear title to your property
- You don’t have a valid financial hardship reason
- You make too much money and have too many assets.
- You have exceeded the number of loan modifications that you’re allowed
- Your investor does not offer loan modifications as a loss mitigation option
- Your Loan to Value (LTV) ratio is too high or too low
- You defaulted too close to the origination date of your mortgage or too close to your last loan modification
Read this guide to get an in-depth look at each of the 8 denial reasons.
The next steps after receiving your denial letter
The first thing you can do is appeal your loan modification denial within the 30-day appeal period to try and correct any errors or mistakes you think the lender has made.
Or, if you think your first application was deficient, you can re-apply for the loan modification after speaking with a professional in your state who can help you present your information in a way that will help your approval chances.
Be sure to check and see if there are any protections or processes in your state that can help you overcome your denial. Washington State has the Foreclosure Mediation process that will give you a platform to discuss your denial with your bank under the umbrella of foreclosure protection.
Best practices for submitting a loan modification appeal
Understand your 30-day timeline so you don’t miss your submission deadline:
You will have 30-days to submit an appeal of your loan modification. The 30-day clock runs from the DATE of the denial letter – not the date you received the denial letter.
There is often one week between when the lender mails the denial letter and when you receive it so you check the date of the denial letter, as the 30-day timeline starts on the date that letter was issued.
Send the appeal to the address listed in your denial letter:
Appeals often go to a different place than where you sent your modification documents to. Read your denial letter and make sure you send your denial to the right address.
It is also advisable to send a copy of your appeal to your lender’s loss mitigation department but please note that sending it to loss mitigation will not automatically get it to the right spot unless you’ve also sent it directly to the address listed in your denial letter.
State the reasons for your appeal clearly, simply, and succinctly:
Lenders have to review hundreds of appeals every day. Make your reasons for your appeal clear and easy to read.
Attach any supporting documentation you have and show the bank where to look within the documents to get the information they need:
If you need to attach bank statements, pay stubs or your application to your appeal – attach the full document and then circle or highlight the relevant areas within the document so the bank can easily see what you’re talking about.
Include as much knowledge about the investor guidelines you believe are being violated or the regulatory laws you believe are not being followed:
It may be best to consult with an attorney before submitting your appeal but if you have a good idea of the laws, guidelines or procedures the lender has failed to follow, include this information in your letter.
Call to follow-up regularly and ensure your appeal was received:
Make sure you receive confirmation from your bank that your appeal was received and is in review. Don’t just assume they uploaded it to your file just because you mailed it to the correct address.
Mail your appeal with tracking information:
You need to keep a record of your appeal’s delivery in the event the lender tries to tell you they didn’t receive it. If this happens, you can point them to the tracking information to help them locate your appeal.
Sample appeal letter for a loan modification denial
Borrower Name: (Exactly as listed on the mortgage statement)
Property Address: (Exactly as listed on the mortgage statement)
To Lender (insert lender’s name):
I am writing to appeal the loan modification denial I received on ______(insert date of denial letter). The denial letter is attached for your reference (attached denial letter).
I am appealing my denial on the basis of__________________(insert why you believe you should not have been denied).
I have attached supporting documentation including:
(Outline in the letter what supporting documentation you have attached)
As you can see, ______________________________________________________________
(Connect your supporting documentation to your argument for appeal. Tell the bank why your supporting documentation should overturn your denial)
Based on X, X, and X (cite anything you know about your investor’s guidelines, regulatory laws, state or federal statutes that support your claim), I believe this is a wrongful denial.
Should the issue not be resolved, I will not hesitate to ___________(state what your intended next steps are to fight for modification approval e.g. a regulatory complaint, litigation, a bad faith certificate in Mediation etc.)
Signature (sign with a wet signature)
What are my options other than appealing the denial?
If you’ve decided not to appeal the loan modification denial, you still have other options. You can:
- Sue your bank using the foreclosure litigation process
- Reinstate the amount of payments you missed and resume your regular payments prior to the foreclosure sale date
- Use state-specific protections available to you based on your foreclosure timeline to buy as much time as possible and then sell the home right before foreclosure
- Do nothing and let the home go to foreclosure
How many times can you appeal a loan modification denial?
One time. Once the bank has reviewed and replied to your appeal – that modification request is closed.
If you are a Washington state homeowner and have been denied a loan modification and want to chat about your options, feel free to give me a call at (425) 654-1674.