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June 3, 2014

By Tiffany R. Norman of TRN Law Associates

For many borrowers, getting a loan modification leads them to believe all will be right in the world of homeownership. However, that is not always the case. Some modifications are great temporarily, with a low 2% interest rate, but when they adjust after a few years to 5%, or higher, borrowers cannot afford their modification payments.

This can be seen with some loan modifications. In the past few weeks I have spoken to borrowers, and real estate agents, who are discovering issues with their loan modifications.

The problem I see with these modifications is they are a band-aid to prevent foreclosures for those borrowers that truly need help. For example, one of my clients received a modification of 4.11% for one year, which adjusts in the second year to the interest rate in their original note. That interest rate is 6.125%.

In order for their loan to be modified, they had to pay a deposit of $10,000.00. After a few months of paying their 4.11% interest, they are already concerned about being able to make their payments when the loan readjusts.

They are not alone. In several loan modification situations, essentially the borrower is renting the house from the servicer. The servicer receives a monthly payment and when the modification readjusts if the borrower is foreclosed upon, there is likely equity in the house, or it is worth more than at the time the modification was offered. This is a win-win for a servicer. It is better to “rent” to the homeowners, and keep the house occupied, knowing there is a high possibility the foreclosure will occur in the next five years.

For borrowers, what are their options?

  1. Loan modification– this is always an option. However, if a borrower is in California and has been given a modification, and is trying to modify that modification, they could face problems, such as being legally dual-tracked. If this is you, contact TRN Law Associates for a free consultation.
  2. Short sale– this is often times not what a borrower wants to do, since they want to keep their house. However, for several reasons it is better than a foreclosure. Further, with a short sale you will know when you need to move.  You do not need to worry that the sheriff will come to your house and lock your doors. This is a constant worry for a lot of my clients and can be avoided.
  3. Foreclosure– this really isn’t an option, but what will eventually occur when a borrower is not making their mortgage payments. Foreclosures can have lasting consequences, including the fact that if you have a second loan, you may still owe on that loan after a foreclosure. If you have questions, TRN Law Associates offers a free consultation.
  4. Deed in Lieu– this is not really an option, thus I will not discuss it in this article. If you want to know why, give me a call.


If you are behind on your payments, the smartest thing you can do is get help, immediately. Don’t wait until you no longer have options.

About the author Tiffany R. Norman:  As a “Super Lawyer,” “Top Attorney for Northern California” and “Top Female Attorney for Northern California,” Attorney Tiffany R. Norman assists plaintiffs with real estate litigation and bankruptcy matters. She has educated other attorneys regarding changes to the law at the San Francisco Bar Association on numerous occasions, and been a nationwide speaker to other attorneys on foreclosure issues on numerous occasions.  In addition, she gives seminars at real estate agencies and brokerage firms throughout California.

 TRN Law Associates, 415-823-4566,