What is a Loan Modification ?

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, which allows the loan to be reinstated, and results in a payment the mortgagor can afford. Simply put, if you’re a homeowner who has experienced a financial hardship Loan Modification is a way of resetting the clock on your mortgage to you catch up.

The homeowner must be able to identify and document the hardship that caused them to fall behind on the mortgage. For example, unemployment, unexpected medical bills, or family emergencies are hardships that jeopardize your mortgage payments. If you can document these hardships with paystubs, bills, unemployment benefits paperwork, etc. you may be eligible for a loan modification.

When your mortgage company approves your application, you will receive a written modification agreement outlining the new mortgage rate, payment amount, terms, etc. At this point, all you need to do is close the deal. You’ll sign the documents (usually with a notary) and return the forms (and sometimes the first payment under the new terms) to the lender.

The process of applying for a loan modification can seem just as involved as when you first purchased your home. But if you’re struggling to make payments and you want to save your home from foreclosure then a loan modification is your best chance for a fresh start.

What is a Short Sale?

A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. If your mortgage is $100,000, but your home is worth, say, $90,000, you are $10,000 short, not including costs to close the sale such as real estate commissions, recording fees or title and escrow charges. It is possible to have a short sale if your mortgage balance matches the sales price because there are still closing costs that will throw the sale into "short" territory.

Sometimes, to avoid going through the cost of foreclosure, a lender will sanction a short sale by letting a buyer purchase the home for less than the mortgage balance while the home is in pre-foreclosure stage. A pre-foreclosure stage is one of the three stages of foreclosures.

Here are sample steps of a short sale:

Seller signs a listing agreement with a real estate agent subject to selling as a short sale with third-party (the bank) approval.The agent finds a buyer who makes an offer based on market value, which is often less than the amount of the mortgage.Seller accepts the buyer's purchase offer. Seller's lender accepts the buyer's purchase offer.Transaction closes when the buyer delivers the funds, the lender releases the lien and the seller delivers the deed.