Lenders do not want to foreclose but will file a Notice of Default to protect their interests, if necessary. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender.

Don't put it off, be embarrassed or ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, here are some loan modification options your lender might propose to you:

  • Time to make up your payments.
    Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you. This is called forbearance.

  • Forgiving a payment.
    If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.

  • Spread out the missed payments over a longer term.
    For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.

  • Changing the terms of your loan.
    If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a note modification.

  • Add the back payments to your loan balance.
    If you have sufficient equity and meet the lender's lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. This is called a refinance.

  • Make a separate loan to you.
    Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.

If you are pursuing a loan modification of any type make sure you keep notes with dates, times and actions that you and mortgage company took. Keep track of the bank employees and their phone extensions that you talk to every single time.

You have to be relentless… no one is going to care about your situation more then you. You are your own advocate. Good luck.

You have to want a modification more then the bank wants to give it to you. You have to stay on top of them every step of the way. Keep notes and follow up.
— Suze Orman