Understanding Borrowers' Rights and Loan Modifications

Do Borrowers Have A Right To Modification Prior To Foreclosure

A number of mortgage lenders in the US were not loyal to their word and this led to many homeowners losing their houses through foreclosure. Many homeowners in the US want to know if there is anything that can prevent foreclosure. A loan modification can significantly reduce your payment and get rid of any debts you may have. In most cases, your lender is likely to consider revising the initial loan terms and conditions. The debt can be restructured and/or the loan period extended.

What is Loan Modification?

A loan modification refers to changes made to the initial loan agreement to make it easier for you to make your monthly repayments, offset your debt and keep your home. To qualify for a loan modification, you need to prove that you have a financial hardship or the lender’s mistake caused the loan problem. Your lender can initiate a loan modification for you or you can apply with the government. Some government mortgage plans reduce your interest rate as well as re-amortize your loan on condition that you are current on the mortgage. To qualify for other plans, you may be required to already be late on the mortgage. You should be clear and sure which type of loan mod you want to apply for.

Some Loan modifications offered by the US government

• HARP (Home Affordable Refinance Program): Allows you to finance your home through nontraditional means. The loan is suitable for homeowners whose properties have decreased in value and they cannot refinance.
• HAMP (Home Affordable Modification Program): This loan decreases your mortgage payment to 31% of your monthly gross income, thus making your payments affordable.

Many mortgage lending institutions offer loan modification services to homeowners in Utah. The lenders consider homeowners whose ability to repay the loan has been interfered with. To apply for loan modification, you need to fill an application form. A foreclosure lawyer or mitigation expert can guide you on preparing the application.

Facts about Loan Modification

• A successful loan modification will stop a foreclosure.
• Allows a homeowner to keep home for a longer time.
• Makes it easier for you to repay your monthly loan installments.
• Adjusts the terms and conditions of your mortgage loan.
• A loan modification attorney can negotiate on your behalf

Applying for a loan modification does not mean that the foreclosure process will immediately stop. Therefore, you cannot usually apply for a loan modification days before the foreclosure sale date. It is, however, evident that a loan modification can indeed prevent a foreclosure. When applying for a loan mod, you will be required to explain to the lender in detail the reason why you are not able to repay the loan. Be honest with your answers because the lender may ask for proof, such as your financial information including bank statements, pay slips, tax returns and so on. Many lenders will approve you for a loan modification if you have hardships like loss of income, medical bills, death in family, illness, reduced income, incarceration, property damage due to vandalism or natural disaster, etc. Getting a loan modification is not guaranteed. If your application was unsuccessful, you may need to find another way of stopping the foreclosure. If you do not want to lose your home, a loan modification is exactly what you need. Hire a loan modification lawyer, organize your house finances and prepare yourself to talk about your financial hardship to the lender. These are the three major things you must do to qualify for a loan modification.

Federal Laws That Protect Homeowners during Foreclosure

On January 10, 2014, new federal laws that protect homeowners in the foreclosure process went into effect. These laws protect consumers by:
• ensuring servicers provide assistance if a borrower is having difficulty making mortgage payments, and
• protecting borrowers from wrongful actions by servicers.

Why the Need for Laws Protecting Homeowners?

During the foreclosure crisis that began around 2008, the number of homeowners in financial distress increased exponentially and servicers simply couldn’t keep up with the increased demands for information and assistance. As a result, servicing errors were common and egregious. Now, under federal law, servicers are supposed to work with borrowers who are having trouble making monthly payments. Early Intervention Requirements: Servicer Must Contact the Borrower By Phone (or In Person) and In Writing If a borrower falls behind in payments, a servicer must attempt to contact the borrower to discuss the situation no later than 36 days after the delinquency, and again within 36 days after each subsequent delinquency, even if the servicer previously contacted the borrower. If appropriate, the servicer must tell the borrower about loss mitigation options like a modification, short sale, or deed in lieu of foreclosure that might be available to the borrower. But, if you filed for bankruptcy or asked the servicer to stop communicating with you under to the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to this law, the servicer doesn’t have to try to contact you by phone or in person. No later than 45 days after missing a payment, the servicer must inform the borrower in writing about loss mitigation options that might be available, and must do so again no later than 45 days after each payment due date so long as the borrower remains delinquent. The servicer does not, however, have to provide the written notice more than once during any 180-day period. If you’ve filed bankruptcy or asked the servicer not to communicate with you, it generally has to send a modified letter, subject to some exceptions.
Continuity of Contact Requirements: Servicer Must Appoint Personnel to Help the Borrower

The servicer must assign personnel to help the borrower by the time the borrower falls 45 days delinquent. The personnel should be accessible to the borrower by phone and able to respond to borrower inquiries. When applicable, the servicer’s personnel should help the borrower pursue loss mitigation options, like by advising the borrower about:
• available loss mitigation programs
• how to submit a complete loss mitigation application
• the status of a submitted application
• how to appeal (if the application is denied), and
• the circumstances when the servicer may refer a file to foreclosure.
• The servicer may assign a single person or a team to assist a delinquent borrower.

Restrictions on Dual Tracking

Federal law also restricts “dual tracking.” Dual tracking happens when a servicer simultaneously evaluates a borrower for a loan modification (or other loss mitigation option) while at the same time pursuing a foreclosure.

Restrictions on Starting Foreclosure In Utah

Servicers generally can’t start a foreclosure until the loan obligation is more than 120 days delinquent, which provides time for the borrower to submit a loss mitigation application. A borrower is considered delinquent starting on the date a periodic payment sufficient to cover principal, interest, and, applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid.

First Foreclosure Notice Or Filing?

In a judicial foreclosure, this means the foreclosing party can’t file a lawsuit in court to start the foreclosure until you’re more than 120 days behind. If the foreclosure is non-judicial, the foreclosing party can’t begin the foreclosure by recording or publishing the first notice until you’re more than 120 days late in payments. If your state’s foreclosure laws don’t require a court filing or any document to be recorded or published as part of the foreclosure process, the first notice is the earliest document that establishes, sets, or schedules a date for a foreclosure sale. Even if a borrower is than 120 days delinquent, if that borrower submits a complete loss mitigation application before the servicer makes the first notice or filing required to initiate a foreclosure process, the servicer can’t start the foreclosure process unless:
• the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
• the borrower rejects all loss mitigation offers, or
• the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.

Applicability of the Laws

These laws apply to mortgage loans that are secured by a property that is the borrower’s principal residence. The determination of principal residence status depends on the specific facts and circumstances regarding the property and applicable state law. For example, a vacant property might still be a borrower’s principal residence under certain circumstances, like when a service member relocates due to permanent change of station orders and was living at the property as his or her principal residence immediately prior to displacement, intends to return to the property at some time in the future, and doesn’t own any other residential property.

Foreclosure Defense Attorney

Since 2007, nearly 4.2 million people in the United States have lost their homes to foreclosure. By early 2014, that number is expected to climb to 6 million. Historically, the legal process of foreclosure, one that requires a homeowner to return his or her house to a lender after defaulting on a mortgage, has tilted in favor of the banks and lenders who are well-versed in the law and practice of foreclosure. Over the past few years, a growing number of homeowners in the foreclosure process have begun to fight back, by stalling foreclosure proceedings or stopping them altogether. The legal strategy employed by these homeowners is known as foreclosure defense. The simplest way to avoid foreclosure is by modifying the mortgage. In a mortgage modification, the homeowner convinces the lender to renegotiate the terms of the mortgage in order to make the payments more affordable.
A mortgage modification can include:
• A reduction or change in the loan’s interest rate.
• A reduction in the loan’s principal.
• A reduction or elimination of late fees and penalties for non-payment.
• A reduction in your monthly payment.
• Forbearance, to temporarily stop making payments, or extend the time for making payments.

The goal of the foreclosure defense strategy is to prove that the bank does not have a right to foreclose. The chances of success rest on an attorney’s ability to challenge how the mortgage industry operates. The strategy aims to take advantage of flaws in the system, and presumes illegal or unethical behavior on the part of lenders. Foreclosure defense is a new concept that continues to grow alongside the rising tide of foreclosure cases. While some courts accept foreclosure defense arguments, others find them specious and hand down decisions more beneficial to banks than to homeowners. A growing number of victories by homeowners in state and federal courts have altered the foreclosure landscape dramatically, giving optimism to tens of thousands of other homeowners in similar situations. And because many of America’s large banks have acknowledged unorthodox, unaccepted or even illegal practices in the areas of mortgages, loan modifications and foreclosures, they inadvertently have given homeowners additional ammunition with which to fight. A major strategy of foreclosure defense is to make a bank substantiate clear chains of title for a mortgage and a promissory note. If any link in either chain is questionable, it can nullify a lender’s ability to make a valid claim on a property. The foreclosure process varies somewhat from state to state, depending on whether your state uses mortgages or deeds of trust for the purchase of real property. A mortgage or deed of trust outlines a transfer of an interest in a property; it is not, in itself, a promise to pay a debt. Instead, it contains language that gives the lender the right to take the property if the borrower breaches the terms of the promissory note. If you signed a mortgage, it generally means you live in a state that conducts judicial foreclosures, meaning that a lender has to sue in court in order to get a judgment to foreclose. If you signed a deed of trust, you live in a state that conducts non-judicial foreclosures, which means that a lender does not have to go to court to initiate a foreclosure action. In a judicial state, homeowners have the advantage because they can require that the lender produce proof and perfection of claim, at the initial court hearing. In a non-judicial state, the lender does not have to prove anything because the state’s civil code gives it the right to foreclose after a notice of default has been sent. So in non-judicial states, a homeowner must file a civil action against the lender to compel it to provide proof of claim. Regardless of whether you signed a mortgage or a deed of trust, you also signed a promissory note, a promise to pay back a specified amount over a set period of time. The note goes directly to the lender and is held on its books as an asset for the amount of the promised repayment. The mortgage or deed of trust is a public record and, by law, must be recorded in a county or town office. Each time a promissory note is assigned, i.e. sold to another party, the note itself must be endorsed with the name of the note’s new owner. Each time a deed of trust or mortgage is assigned to another entity, that transaction must be recorded in the town or county records office.

Getting Help With Your Foreclosure

If you’re having trouble making your mortgage payments, consider submitting a loss mitigation application to your loan servicer. Once submitted, under federal law, the servicer has five days to tell you whether it needs more information so long as you submit the application 45 days or more before a foreclosure sale and, if so, what information it needs. Generally, the servicer is required to evaluate the application for all loss mitigation options within 30 days, as long as you submit the complete application more than 37 days before a foreclosure sale. Also, you may generally appeal a loan modification denial so long as the servicer received the complete loss mitigation application 90 or more days prior to a scheduled foreclosure sale. Remember, the servicer is required to review you for loss mitigation option only once, unless you bring the loan current after submitting your complete application.