I get asked this a lot. The client wants to know what is the success rate for loan mods. Sometimes they ask about short sales but less often. Most people would prefer to keep thier home if given a choice.

It’s an interesting question because it assumes that all loan mods are the same. They’re not.

If you call a scam non-attorney loan mod “consultant”, they will say whatever you want to hear. They are unregulated and unlicensed and are essentially practicing law without a license – which is a misdemeanor. I consider negotiating and giving legal advice about mortgage contracts, and related options such as foreclosure litigation/defense and bankruptcy, to all be the giving of legal advice. Often, the advice is wrong.

So, back to the question. Success rates. Here is the problem with the question. The unregulated unlicensed “consultants” tend to take everyone who can pay. Often these are out of state companies who are “fly by night.” They take a fee and you never hear from them again. They have no legal obligation to act as a fiduciary and are not constained by any professional ethical rules of conduct like attorneys. They have a very high failure rate as a result of this.

There are also those homeowners who choose to represent themselves and who inevitably make mistakes that cost them their loan mod approval. Many of these people are not eligible or have obviously insufficient income to start with.

Needless to say, all of these loan mods – by scammers or do it yourselfers – result in a very high amount of loan mods applications that fail. Usually, the reason is insufficient income or improper or untimely documentation.

My firm does not accept every potential client. If someone has a high risk loan mod, I’ll tell them that up front and discuss other options such as surrendering the property in bankruptcy (which gives the homeowner more time to make arrangements and which solves the problem of deficiency balances after foreclosure). If a homeowner still wants to try a loan mod, I might do it, so long as they understand what the risks are.

So, back to the success question: It makes little sense to ask the question in the first place. It mixes up apples and oranges and a lot of other fruits so to speak. Every individual has a different set of circumstances. Different financial statements, hardships, and goals or needs. A high success rate may be indicative of my firm selecting or prescreening clients who have better chances of getting approved in the first place (ie a lower DTI ratio). Firms with lower success rates may be indicative of taking everyone

I recently had 2 clients in foreclosure. One was a residential Mortgage foreclosure in the Westchester County Supreme Court. The other one is a four-unit residential property in foreclosure in the New York County Supreme Court. In both cases, my client had alleged that the bank representative told them to stop making payments in order to become eligible for a loan modification. Both clients were facing summary judgment and I submitted opposing papers including affidavits and memoranda of law. The case in the Manhattan Supreme Court went to oral argument recently. I have not received decisions in either of them but this is not the first time that I have heard clients tell me that banks told them to stop making payments. It is a common misconception among low-level bank employees that the only borrowers who are eligible for modification are those who are actually in default. The standards do not require an actual default but only that there is an imminent risk of default. There is often miscommunication between bank representatives and borrowers. This is made worse by the frequent assignments of loans between investors and servicers. Some clients have been given the wrong information and then cannot even figure out who owns the loan or who to speak to about it. These situations raise potential defenses based on breach of contract, fraud, estoppel, unclean hands, and frustration of performance.