How Loan Modifications Cause Foreclosure

It’s bad enough that the loan modification process is not helping homeowners as intended, a failure I’ve reported in this blog many times.  Unfortunately, it’s even worse than that.  As numerous media outlets are now reporting, and as I’ve seen in my daily practice as a foreclosure defense attorney in Florida, temporary loan modifications often *cause* a homeowner who was otherwise not behind on mortgage payments to go into foreclosure.  

The New York Times has a real-life story, but here’s the simplified version:

The homeowner is making monthly mortgage payments as required, but finances are tight.  The homeowner asks the bank for a loan modification.  The bank says it needs to review the homeowner’s financial information to make a decision, but agrees to a temporary modification while the application is being reviewed.  The homeowner’s payments are temporarily reduced from $1,500/month to $1,000, pending the review process, which the bank says should take a couple of months.  The homeowner diligently makes the $1,000 payments each month and anxiously awaits approval on the permanent modification.  The process seems simple enough, so the homeowner is optimistic. 

Two months turn into six, then eight, then ten.  The homeowner keep making the required $1,000/month payments, never imagining it would drag on this long.  The homeowner keeps calling, and the bank keeps saying the permanent modification is being reviewed.  Then, bam.  The bank rejects the permanent modification, without explanation (or a flimsy explanation that shouldn’t have taken 10 months to disclose).  But instead of telling the homeowner to resume the $1,500/month payments, the bank requires the homeowner pay all of the arrearages.  In other words, the $500/month that the homeowner didn’t have to pay while the modification was being reviewed – those monies need to be paid, all at once, in one lump-sum, plus interest, late fees, attorneys’ fees, etc.  When the homeowner can’t/doesn’t pay that $7,500 lump sum (10 months x $500/month = $5,000, plus $2,500 estimated interest, late fees, etc.), the bank pursues foreclosure. 

This sounds impossible to believe, but this phenemonon is happening to homeowners all across the country.  Please, don’t fall prey to such “gotcha” tactics.”  Retain a foreclosure defense attorney to assist you through this process.

Posted in Main | 4 Comments »

4 Responses to How Loan Modifications Cause Foreclosure

  1. Maurizio says:

    I have a mortgage with Litton Loan Servicing. About 1 1/2 years ago I was having some difficulty paying all my bills. So I called all my creditors and to my surprise they all had options to help me, including my mortgage company, Litton. I never told Litton that I could not pay their bill. I was just looking to see who could help. They encouraged me to apply for a HAMP modification. After several months I got accepted into the trial modification period. I asked them what that was. They said it was the final step that takes no more than 4 months, just make your payments on time and you will be fine. I thought all was well. I made on-time payments. I stayed in touch like they asked. After 7 months of timely payments I called them as I often did to check in. Finally, after 7 months, they said I was denied for some unexplainable reason and owed them $3000 and that my home was in default!

    What kind of help is this?

    I could have paid my full mortgage and not ended up in this debt. I do not understand how this is considered help. I have been paying hundreds each month in credit card bills. Meanwhile, my mortgage company is reporting me delinquent. I was worried about my credit when I should have been worried about my house. I could have easily paid my full mortgage. I cant live in a little plastic credit card. Who came up with this plan to help people?

    I have spoken to dozens of people, mostly couselors and loss mitigation reps, some nice, some not. None of them suggested that I consider saving my house and not my credit cards! I don’t know who to trust anymore.

    The best part… The loss mitigation side of Litton is promising to resolve the mistakes and get me a modification BUT the original mortgage department side of Litton has been pursuing foreclosure and has now told me that my loan is being sold to Green Tree Servicing on January 1st. Green Tree is the company that’s being sued for killing someone with harrassing phone calls. I don’t expect they will work with me and make it all better.

    • Mark Stopa Mark Stopa says:

      If you’re facing foreclosure and credit card debt, you are a good candidate for a foreclosure defense/bankruptcy consultation. Give us a call for a free consult. 888-450-1549. Whatever you do, please don’t give up. Mark

  2. Pingback: Mortgage Modifications CAUSE foreclosure – a first-hand account | Foreclosure Defense & Strategic Default

  3. Diana Cessna says:

    The banksters sure know what they are doing court decided “cannot state a claim for breach of contract that was modified by oral representation”

    The TOLD you to make lower payments and TOLD you that there was help available if you followed all their instructions but they never put anything in writing. Why not?

    Message: don’t do anything unless it’s in writing, why is it so easy for people to forget that?

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