What are Loan Modification Fees?

Jessica Ellis
Jessica Ellis

Loan modification fees may be charged if a person tries to change the terms of his or her loan. These fees may be charged by the lender or by a third-party professional that negotiates the modification process. It is important to understand what a loan modification fee guarantees and what it does not; many experts highly recommend avoiding any companies that want an upfront loan modification fee.

Woman holding a book
Woman holding a book

When a person is in repayment on a loan, such as a mortgage or car payments, he or she agrees to certain terms at the outset of the loan. These terms may include the length of time it will take to pay off the loan, the interest rate, and the amount of monthly payments. If a person runs into financial trouble, he or she may not be able to abide by the original terms of the loan. Loan modification allows people to change the structure and plan of a loan repayment so they can continue to keep property through hard financial times.

Banks or lending organizations that offer loans may charge loan modification fees for any changes made to the structure of a loan. The amount may vary depending on the size of the loan or the extent of the changes, but can vary extensively between regions. It is important to note that there are few regulations that define how much a lender can charge as a loan modification fee. When signing up for a loan, be certain to check the lender's policy on loan modification fees to avoid future problems.

Some people suggest that a better deal can be struck by using a third party professional to deal with a modification, rather than handling the terms and discussion unaided. It is important to remember that banks and lenders are not required to modify a loan, even if a third party is used. If the lender chooses, he or she can simply seize the property or lien assets in lieu of dealing with modification issues. Using a third party company does not guarantee that modification will be allowed. For this reason, many reputable companies charge loan modification fees only if the modification is accepted by the lender.

Since the financial crash of 2008, many more people are faced with late payments, default, and the chance of foreclosure. An enormous industry of third party modification representatives has arisen since the crash, many reputable, but some little more than scams. Since a modification representative cannot guarantee that modification will be allowed, be wary of those who request a fee upfront. If the plan fails, a person with serious financial problems may find him or herself in even deeper financial trouble, as they now owe both the mortgage and the loan modification fee and have gained no benefit.

One possible exception to not paying upfront may be retainer fees for attorneys that provide legal loan modification help. Retainers are common in all legal practices as a means of hiring the lawyer to the job. Be certain, however, that the attorney is not simply calling upfront loan modification fees a retainer; if the lawyer is really just a representative of a third-party loan modification company, the situation may be no different from the dicey proposition of upfront fees.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a wiseGEEK writer.

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