If you are a Pennsylvania resident who is experiencing financial hardship and are having difficulty making payments on your mortgage, you have legal options to lessen the burden of repayment and loss. Even if you are concerned that the value of your home is worth well below the value of your mortgage, you can pursue the remedy of a mortgage modification. A mortgage modification is a remedy that can assist in helping to prevent a foreclosure of your property.
What is a Mortgage Modification?
A modification is an agreement between you and a mortgage lender to modify certain terms of your existing mortgage or loan. Generally, under a modification, you may be able to:
- Reduce the interest rate;
- Change the length of the loan to a position better suited to you financially; or
- Lower the overall amount of payments you have to make.
A mortgage modification is only one type of loss mitigation tool when trying to deal with adjusting your repayment plan. Further, if you choose to pursue a mortgage modification, it does not mean you are not able to pursue other forms of relief.
A mortgage modification can be an option while at the same time engaging in bankruptcy proceedings or applying for a temporary suspension of payments due to financial hardship. While timing and the policies of the bank/lender are important in considering whether a mortgage modification along with another form of loss mitigation may be a good idea, you do have options available.
Your Rights to a Mortgage Modification and the Relation to Mortgage Foreclosure
During the housing crisis of the mid-2000s, many homeowners were forced through foreclosure. As a result of the crisis, Congress enacted several protections for consumers and borrowers. Two of these enactments were The Consumer Financial Protection Bureau (“CFPB”) and the Home Affordable Modification Program (“HAMP”).
An overview of your rights to a mortgage modification:
HAMP enabled homeowners to apply for a loan modification. Fannie Mae and Freddie Mac, two of the largest government sponsored mortgage holders, fell under the purview of HAMP. While HAMP ended in 2016, Fannie Mae and Freddie Mac, as well as the Federal Housing Administration, Veterans Administration, and Rural Housing Service, have ongoing loan modification rules and programs that servicers are still required to follow.
Specifically, Fannie Mae and Freddie Mac developed their Flex-Modification Program which offers similar assistance to the protections of HAMP. An in depth look at Fannie Mae’s program can be viewed here, and an in-depth look at Freddie Mac here.
Loan servicer participation in HAMP was voluntary for loans not owned by Fannie Mae or Freddie Mac. However, many servicers contracted with HAMP to be governed under its regulations. For additional help and information on servicers participating in HAMP, you can click here.
Currently, several privately-held loan-holders have similar loan modification programs. Bank of America, CitiMortgage, JP Morgan Chase and Wells Fargo are some of the private providers offering assistance programs. However, if your lender or servicer does not have a modification program of its own, you can also ask your provider for other forms of relief it may have available.
Furthermore, many local governments have enacted foreclosure assistance programs. Information on the Pennsylvania counties that have enacted assistance programs can be found on the PA County Programs Blog.
Dual Tracking – Your Foreclosure Case Must be Halted While in Modification Review
The Consumer Financial Protection Bureau offers various levels of consumer protection during the foreclosure process and affords fair treatment toward borrowers. One of the most important aspects of this type of consumer protection is the prohibition of dual tracking.
Dual tracking is when a service provider continues with foreclosure proceedings while at the same time evaluating a homeowner’s modification application or other loss mitigation alternatives. Dual tracking is now prohibited under federal law.
Under federal law, Regulation X of the Real Estate Settlement Procedures Act (RESPA) states that mortgage servicers cannot commence a foreclosure action until a mortgage loan obligation is more than 120 days into delinquency (12 C.F.R. § 1024.41). The period between the mortgage default or delinquency and when a servicer can begin the foreclosure process provides the borrower time to submit a loan modification application. Therefore, a servicer cannot commence a foreclosure action if a complete mitigation application is sent and is pending for review prior to the 120-day timeframe.
Further, even if a borrower is more than 120 days delinquent and submits a modification application prior to the servicer commencing a foreclosure proceeding, a servicer cannot start the foreclosure process unless:
- The servicer informs the borrower it rejects the application;
- The servicer informs the borrower that he or she is not eligible and all appeals efforts have been exhausted; or
- The borrower fails to comply with the terms of the modification, such as trial period for compliance (12 C.F.R. § 1024.41(f)(2)).
Lastly, if a servicer has started foreclosure proceedings and the lender, or its servicer, subsequently receives a modification application at least 37 days prior to a foreclosure sale, the servicer must not conduct a sale or move for foreclosure judgment or order of sale until it reviews the application and provides one of the three responses described in the paragraph above (12 C.F.R. § 1024.41(g)).
As with most forms of loss mitigation efforts, there are thresholds required to be met to obtain the protections of dual tracking. Modification applications must be “complete” in order to be considered for review before dual tracking become applicable. A further explanation of the general requirements for a modification are outlined below.
Benefits of a Mortgage Modification
A mortgage modification is designed for people struggling financially. Generally, other options such as refinancing are for those who are current in their payments and can show good credit history. Therefore, refinancing can be difficult to obtain if you are falling behind financially.
While you do not have a guaranteed right to obtain a modification, you can in good faith seek a right to qualify for a modification. Pursuing a mortgage modification can delay the foreclosure process on your property. If your property is equitable, that is it can be foreclosed upon and then sold at a fair market value to gain a profit, mortgage holders will often be eager to initiate a foreclosure. Therefore, applying for a modification can be a defense that can cause delay to the outright loss of your home.
Further, investors in the mortgage may be inclined to consider a modification as opposed to having to deal with months or years legal action pursuing a foreclosure to sell your home. A modification allows the mortgage holder to still receive monthly payments as opposed to putting up legal fees to fight court costs and incur a total loss of payment from the borrower pursuant to the foreclosure action.
With a modification, you can attempt to regain a more stable financial position and improve or reestablish your credit by using the saved money to pay off other immediate debts. In addition, the extended amount of time you can gain with a modification will allow you to prioritize your expenses or possibly secure other housing before foreclosure cuts off all other possibilities of relief.
Obtaining a Mortgage Modification
If you feel you are not well positioned to qualify for a mortgage modification, that does not mean you should ignore the idea altogether. While there are times lenders are not willing to offer a modification, a mortgage holder may also be as equally uninterested in filing a foreclosure action. The holder of your loan may have a huge amount of property assets to manage, and in turn, could be facing the risk of having to deal with multiple depreciating home values. In addition, the holder may realize your property is unmarketable for some reason and may not be able to resell within a time frame it finds suitable.
Preparation is key. An extensive review of your financial information, including debts, income, assets and expenses, as well as any future projections of income and expenses, in necessary to determine whether a modification will be accepted or denied.
A few things to consider when applying for a modification are:
- Timing – it is recommended you begin the application process as early as possible to prevent added costs and fees;
- Proving financial hardship and showing you cannot make your mortgage payments;
- Ensuring that you send a complete modification application (including all documents such as pay stubs, bank documents, a hardship statement) to your mortgage servicer adhering to all their guidelines and requirements;
- Maintaining communication and retaining all correspondence and paperwork from your mortgage servicer in case of lost documentation at a later point in the process.
There are many factors that go into the mortgage modification process. Click here to see a more comprehensive list of documentation you may need to provide.
Beware of Mortgage Modification Practices and Seek Counsel
The mortgage modification process can be a lengthy and tenuous process, so it is important for you to consult a competent and ethical attorney to assist you. Modification scams have been known to happen, such as taking up-front payment for modification services never rendered.
Additionally, banks may offer a reduced payment for a certain amount of time but not implement an actual modification agreement (i.e., a binding contract). In that situation, because you are making reduced payments you may think you have a reprieve only to find out later you did not properly enter into a proper mortgage modification. As such, it is best to seek counsel to guide you through the process and ensure you obtain some sort of long-term loss mitigation.
While it is within a mortgage servicer’s right to deny a mortgage modification, there are certain defenses that can be raised if applicable. Whether a borrower was properly evaluated for loss mitigation may lead to legal claims arising out of incompetence or bad faith.
Possible defenses may include:
- Failure to consider the borrower for a modification;
- Failure to honor the modification agreement; and
- Breach of oral promises regarding loss mitigation.
In turn, a breach of these claims may lead to:
- Breach of contract;
- Negligence; and
Suppose you are trying to negotiate a modification on your own behalf and are denied. These are just some of the types of legal claims you may be unaware of without proper consultation.
Fenters Ward Can Help
Speaking with an attorney to determine whether a mortgage modification is right for you can save you money and time in an already difficult financial situation. The dedicated attorneys at The Law Firm of Fenters Ward have the knowledge and the experience to help guide you through the mortgage modification process. For more information on mortgage modifications and assistance, contact us by filling out this contact form or by calling 877-259-WARD.
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