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What Happens After a Loan Modification is Approved?

What Happens After a Loan Modification is Approved?

What Happens After a Loan Modification is Approved? 150 150 The Law Office of Nadia K. Kilburn

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what happens after a loan modification is approved

If you’ve recently received word from your mortgage lender that you’ve been approved for a loan modification, you are nearing the end of the process. While you should feel proud of yourself that you’ve made it this far, you still have a ways to go before the process is complete.

You are probably asking yourself, “What happens now that the loan modification is approved?”

Lenders find ways to complicate the process up until the very end so – it is important that you understand what you can expect once you’re approved so you can complete your modification without any issues.

Once approved for a loan modification, your lender will:

  • Notify you that you got approved (in writing) and offer you a Trial Payment Plan (TPP)
  • Send you final loan modification documents at the end of your TPP period

Then, you will:

  • Review the final modification documents that the lender sent you
  • Sign and notarize the agreement 
  • Send it back to the lender

Once the lender receives your signed documents, they will:

  • Review your signatures, sign the documents themselves, and then record the loan modification

At this point, the lender removes you from a default status in their system (and stops any foreclosure activity attached to the account). 

Then, you move forward paying regular mortgage payments each month.

Note: On occasion, certain lenders will skip the TPP period and move directly to giving you your final modification documents. While it is most common to receive a TPP first, there are some exceptions, so don’t feel surprised if you receive your final documents with no mention of a TPP.

writing a check for a trial payment plan

What is a Trial Payment Plan?

Once approved for a modification, your lender will usually require you to go through a Trial Payment Plan (TPP) before they complete the modification. 

A TPP requires you to make a mortgage payment for a fixed number of months prior to fully modifying the loan. 

Lenders force you to go through a TPP as a way to test the household income to make sure that resuming regular mortgage payments is affordable for you. 

A typical TPP usually starts on the 1st of the next upcoming month and usually lasts for three months. (I have seen six, nine and twelve month TPPs – but these timeframes are less common).

The amount required for each TPP payment is the same for all three months and the amount is close (if not identical) to what the modified mortgage payment will be at the end of the TPP period. 

TPP payments are usually due on the first of the month. 

It can be exciting to receive a TPP because it does mean you are preliminarily approved for a modification. However, it is your job to be vigilant during the TPP period to make sure you avoid issues and successfully make it through the TPP.

Don’t make all three TPP payments at once

Some people think it’s better to make all three TPP payments at once.

Borrowers do this with good intentions –  to show the lender how motivated they are to make it through the process and to speed up the timeframe.

However, paying all three payments at once can actually backfire, as the lender often struggles to apply the payments correctly when it comes as a lump sum. It also doesn’t help the lender see that you can consistently afford a monthly payment (which is what they’re testing). 

Don’t overpay or underpay or split the TPP payment

The TPP payment should be paid in the exact amount each month (down to the cent). 

Don’t pay the TPP payment online

Some lenders will offer a “pay online” option for TPP payments in addition to “pay over the phone” and “pay by mail” options. Paying online for a TPP is not a good idea (even if the lender tells you that you can!).

Paying online can confuse the lender’s automatic system. Since you likely have an outstanding balance, paying online will sometimes cause the payment to get applied to the outstanding balance instead of your TPP. 

Mail your TPP payment with TRACKING information 

Most lenders offer a “mail-in option” for TPP payments. Mailing a TPP payment is fine but you should mail it with tracking information attached, even if it costs extra. 

Attaching tracking information allows you to follow the payment and ensure it gets delivered correctly. If the payment gets lost in the lender’s system or lost in the mail (which does happen), the tracking information will help the lender locate the lost payment. 

Without tracking information, you could end up in a situation where it’s your word against the lenders that payment was made. 

How to attach tracking information to the TPP Payment: You can attach tracking information to any USPS, FedEx or UPS mailings. Take your payment to either the post office, FedEx or UPS store and tell them you want to mail it tracked. Make sure you walk away with a receipt that allows you to follow the payment to ensure successful delivery. Use the links below to track the payment:

  1. https://www.usps.com/nationalpremieraccounts/trackmailing.htm
  2. https://www.ups.com/track?loc=en_US&requester=ST/
  3. https://www.fedex.com/en-us/tracking.html

(Find the address for the TPP payment in the copy of the TPP document. If there is no address listed, call the lender and ask them where they want the TPP payment sent)

Pay the TPP payment in certified funds if your TPP agreement says the payment needs to be certified

Some banks are particular about accepting only certified funds for a TPP payment. It is important for borrowers to read their TPP document carefully to see whether the bank is requesting payment be made in “certified funds.”

“Certified funds” is a form of payment that is guaranteed to process – personal checks are typically not certified funds. To get certified funds, borrowers usually have to get a certified check from their bank or a cashier’s check. 

Call to confirm the receipt and application of the TPP payment

After you make your TPP payment, call the bank to ensure the bank received and applied the TPP payment correctly. 

Make this call no later than 7 business days after payment is made. 

Use the below questions when asking the bank to confirm the payment:

  1. Question 1: Has there been a recent payment made to the account?
  2. Question 2 (assuming they said “yes”): What was the amount and what was the payment for?

Avoid saying: “I made a TPP payment on November 1st for $1,600. Can you confirm this was received?” If you ask it like this, you may get a representative on the other end who doesn’t check the file and just says “yes” to you. Make the bank confirm everything first to be 100% sure the TPP payment was received. 

Don’t wait until the last minute to make the TPP payment

Many lenders will tell you that you have the entire month to make your TPP payment. It is not advisable to rely on this and make a TPP payment last minute. 

If you make a TPP payment shortly before the expiration of the TPP month, and something goes wrong (either on your end or on the lender’s end) and the payment doesn’t get applied to the TPP quickly in the month it’s due, the lender can close the TPP and refuse to move forward with the loan modification. 

signing final loan modification documents

After the TPP is complete, the bank will generate your final loan modification documents 

When the loan is ready to be permanently modified (usually at the end of a TPP period), the bank will send you a large packet in the mail.

The modification packet is typically extensive. The packet has multiple copies of the modification documents and several cover pages with instructions from the lender. 

The packet typically contains a prepaid envelope for you to send the executed documents back to the bank.  

It is always advisable to have an attorney review modification documents prior to signing. The documents can be long and complicated. You want to have a clear idea of what you’re signing. 

Be sure they have your address correct so that the final modification documents are sent to the right place.Some lenders have outdated mailing addresses on file and don’t necessarily update information as time passes. 

There are several different kinds of things that can be added to modification documents that can land as surprises down the line. 

Watch out for things like prepayment penalties, appreciation agreements, early sale penalties and other types of clauses that can get added to modification documents from time to time. It’s always beneficial to have an attorney review the documents prior to signing. 

Below are a few things that should be abundantly clear in the final modification documents:

  • The principal balance of the new loan agreement
  • The maturity date of the new loan agreement
  • The total monthly mortgage payment of the new loan agreement
  • The breakdown of the new payment meaning – the document should tell you how much of their total payment is going toward principal and interest and how much is going toward taxes and insurance in an escrowed payment

The timeframe to receive these documents can be anywhere from 10 – 45 days from the date of the last TPP payment.

It’s important for you to call regularly to ensure that the final documents are being worked on and in the process of being generated. 

At a minimum, while waiting for final documents, you should be calling weekly to ensure that nothing has fallen through the cracks. 

When you call to check on your final documents, you are checking on two things:

  • The “generation” of the final modification documents: Lenders use the term “generation” to refer to the process of drafting and attaching the final modification documents to the account. Once final modification documents are generated, it means that there likely won’t be any barriers to getting them mailed. “Generation” means that the documents have been fully prepared and uploaded to your account. 
  • The mailing of the final modification documents: Once the documents have been generated, the lender will mail the documents to the borrower’s mailing address on file. Borrowers should call regularly and ask when their documents have been mailed so they know when to expect them. Lenders make a note in their system with the mailing date once they’ve sent the documents. Once you know when your final documents were mailed, then you can watch for their arrival.

After the final documents are generated, execute the documents in front of a notary

Each lender and investor have different execution instructions so make sure you read the instruction page at the front of your packet correctly. 

Below are some general execution tips:

  1. Sign your name exactly as it’s listed. Pay attention to how your name is listed in the final modification documents. If your name is listed with a middle initial or a middle name, then your signature must include the initial or name. Conversely, if a middle initial or middle name is excluded, don’t sign with a middle initial or name.
  2. Don’t sign documents that have spelling errors. If the bank has misspelled the name or the property address (or something else), don’t sign an agreement with an incorrect or misspelled name. If this has happened, call the lender back and request the change. The lender will generate new documents. If you have to do this, have a conversation with your lender about what is expected of you while you wait on the new set of documents. Sometimes, this will take time and lenders will want you to continue to make TPP payments while they fix the errors.
  3. Sign in front of a notary. A notary will notarize the final modification documents. A common error borrowers make is signing the documents at home before going to the notary. So, make sure you sign all documents in front of a notary, (even the pages that don’t have a specific notary line on it). The notary will then complete their part of the process by signing and stamping the documents.
  4. Have a valid ID with you at your notary appointment. The notary will require you to show a valid ID prior to being able to sign the documents.
  5. Finding a Notary. Most banks have in-branch notaries that you can make an appointment with. It’s helpful to call ahead to make an appointment with the in-branch notary to make sure they’re available when you go in. UPS and FedEx stores often have notary services for a fee. There are also for-hire mobile notary services that will travel to your home for a fee to notarize the documents. A quick Google search should help you locate a notary.
  6. Mobile Notaries. Some lenders like Mr. Cooper, Caliber Home Loans and PennyMac offer mobile notary services. Once final modification documents are mailed, the lender reaches out to see if you would prefer a mobile notary to come to your home. 
  7. Pay attention to how many copies to return. Different banks and different investors have different requirements for how many copies of the documents to return. Some lenders want multiple original copies of the documents, others will only want one original copy. It’s important for you to read the instructions carefully to determine how many original copies are asked for. An original copy of a loan modification has a wet ink signature from all borrowers and a wet ink signature and stamp from the notary. 
  8. Don’t sign on the lender’s line. Final modification documents have a space for a representative from the lender to sign. This section is typically called the “Lender’s Acknowledgment” section.  This section should be returned blank so the lender representative can countersign the documents prior to recording.

After you have executed your final documents, the bank will review them and then they will finish your modification

Once you review the terms of your modification agreement and fully execute the documents, mail the original copy(s) back to the bank in the envelope they gave you.

Once the bank receives the documents, the bank completes the following steps:

  1. The lender reviews your documents in their Quality Control department: The lender puts the executed documents through a quality control process, sometimes abbreviated as “QC.” The quality control process checks your signatures and the notary’s work to make sure everything was signed in a compliant manner. The lender also checks to ensure they received every page back and that they have the requisite number of original copies they requested. 
  2. The lender countersigns the documents: Once the documents pass through the quality control process, they countersign the documents in order to create a valid contract. 
  3. The lender sends the documents to be recorded: Once the lender has countersigned the contract, they send the document to the county recorder’s office. The document then gets recorded with the county as the last and final step.  

Once the above three things have happened, the lender will then “bring the loan current” in their system, remove any default status flags, and remove any foreclosure status attached to the account. 

This process can take 30-45 days to fully complete after the countersigned contract is recorded with the county. 

It’s important that you stay with the process of checking on your loan, even after the executed documents are returned. 

Call your lender regularly (every 72 hours) and ask the following questions until the process is fully complete. 

  • Have you received my documents?
  • Are the documents in quality control?
  • Have the documents passed quality control?
  • Have the documents been countersigned yet?
  • Have the documents been sent for recording yet?
  • Is my loan still showing in a default status?
  • Has my loan been fully removed from any foreclosure status?

Some lenders’ processes differ slightly but using the above questions will help keep track of where the file is in the final steps of the process.

FAQs: After the loan modification is approved

How long do I have to wait after a loan modification to refinance?

This is a question you should take to the new lender you’re hoping to refinance with. Different lenders have different guidelines for how long you need to wait after completing a modification before you can refinance your mortgage.

Or the short end, lenders want to see three months worth of consecutive mortgage payments following a loan modification before you can refinance. 

On the longer end, lenders like to see 12 months of consecutive mortgage payments before you can refinance.

If you’re considering a refinance, there is no harm in having a consultation with a potential lender even before your modification process is complete so you know what to expect moving forward. 

Can I skip my TPP?

If approved for a TPP, there is typically no way to get around it or permanently modify the loan without participating in the TPP. 

TPPs are required as part of the process to permanently modify the loan. 

Can I do a loan modification twice?

Your investor’s guidelines determine how many  loan modifications you can have over the life of your loan. As a reminder, your investor is the entity who owns your loan and makes the final decision about whether you get approved for a loan modification, so your first step in answering this question is to figure out who your investor is. 

Most government-backed investors (Fannie Mae, Freddie Mac, FHA, VA, USDA) limit loan modifications to three loan modifications total over the life of the loan and there can be limits on how soon you can get another loan modification after being given one.  

There are also some limitations on how quickly you can get a loan modification. Most investors will not give you a loan modification if you defaulted on your original mortgage less than one year after the mortgage was taken out. 

Can I sell or rent my house after a loan modification?

Generally, yes. Most loan modifications do not limit what you can do with your property after the modification is complete. 

If there are any limitations, they will be included in your final modification documents so make sure you review them carefully before you sign them.

Read more about the tricky aspects of selling your house while getting a loan modification.

How much does a loan modification cost?

You should not pay any money to your servicer for a loan modification. A loan modification is a loss mitigation option that you are entitled to once you’ve begun to miss payments on your mortgage.

If your lender tries to tell you that you have to pay to apply for a loan modification, this is a red flag and you should consult with an attorney as soon as possible.

You should also be aware of companies trying to scam you into paying large sums of money to try and save your home. There are many large companies out there who request large sums of money in order to try and work with the bank on your behalf. 

While I always suggest people get help from a mortgage modification attorney before trying to modify on their own, it is important that you end up with a qualified professional or helpful organization. Always do your research to make sure that you have hired a reputable company or person to help you. 

If you are having trouble completing your modification and would like to discuss your situation, please feel free to call me at (425) 654-1674.

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