Real, who rested star man Cristiano Ronaldo, were beaten 2-0 by an injury-depleted Borussia Dortmund team at Signal Iduna Park but the Spanish giants still progressed to the final four after winning 3-2 on aggregate.
Despite booking their spot in the next round, Modric was at a loss to explain the team's poor performance.
"I don't know what happened," Modric said.
"It may be that we were complacent because we won 3-0 and we started thinking it would be easy. I don't know.
"We need to learn from this match. We always say we need to learn but we never do."
Real, record nine-times winners of Europe's prestigious club event, will appear in a fourth consecutive semi-final.
But Croatia midfielder Modric felt that the club's achievement was overshadowed by their lacklustre display.
"Of course we're happy we've reached the semi-finals but we aren't happy with how we've played, especially in the first-half," he said.
"We can't allow what happened in the first-half. But we improved and we are in the semi-final."
Real have lost at the last-four stage three years running, including a 4-3 aggregate loss to Dortmund last season.
The last time Real advanced to the final, they lifted the trophy after triumphing 2-1 over Bayer Leverkusen in 2002.
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