When your mortgage lender presents an offer in response to your request for a loan modification, step carefully through the minefield to avoid these common traps:

  • Take-it-or-leave-it traps, such as “pay the past-due penalties now or roll them over into the balance,” when the lender has a third option of dropping the penalties.

  • Additional legal protections for the lender, such as requiring that in the event the lender loses the original loan documents, you must assist the lender in reproducing them.

  • Time bombs, like step-rate increases that are too steep or too frequent to adjust to or balloon payments that come due before you have time to prepare for them.

  • A loan modification that results in a payment you can’t really afford or that makes your budget so tight you’re one major car repair or medical expense away from default.

  • An interest rate that can automatically adjust based on an index over which you have no control.