Mark Stopa has been fighting this fight along with the rest of us and he just did a spot on piece on loan mods…
Keep it up!
I’ve repeatedly expressed my frustrations with the loan modification process, or lack thereof, on this blog. Honest, well-intentioned homeowners cannot get a bank representative to communicate with them. Many such homeowners were actively induced to default, purportedly to become eligible for a modification that, in my experience, never arrives. Even in those rare instances where a loan modification is offered, it’s typically not a meaningful modification – the homeowner is essentially making the same monthly payment that he/she was paying all along. What does that accomplish? What’s the point?
Unfortunately, it’s even worse than that. As this article illustrates, banks often want homeowners to enter a modification just so a subsequent foreclosure will be easier for them! I’ve seen this often enough that I feel comfortable opining:
Banks aren’t offering modifications to help homeowners – they’re offering modifications to help themselves!
Lest you disagree, consider the loan modification agreement that just came across my desk. Like most modifications I’ve seen, three aspects of this agreement are just brutal for homeowners:
1) All foreclosure defenses are waived. Under most loan modification agreements, if a homeowner signs, then defaults on the modification agreement, the homeowner agrees that all defenses to foreclosure are waived. Essentially, if the homeowner defaults on the modification agreement, the bank can dribble up to the basket and slam-dunk a foreclosure without opposition.
“But the bank doesn’t own and hold the Note,” you argue. Maybe so, but since the homeowner warrants otherwise in the modification agreement, the homeowner is barred from challenging the bank’s standing after defaulting on the modification agreement (or that’s what the bank will argue, anyway).
What does this mean? Essentially, the homeowner takes what may be a very defensible foreclosure case – one where the bank may be unable to prove it owns and holds the Note and Mortgage – and turns it into an easy case for the bank by signing a modification agreement. In my view, the banks are offering modifications to make it easier for themselves to foreclose! It’s a one-sided agreement – for the banks!
With this in mind, if the modification agreement doesn’t entail a significant reduction in payments, what’s the point? In my view, modification agreements generally aren’t a good idea (the way they’re currently set up) unless the homeowner is absolutely certain that he/she can make the requisite payments indefinitely into the future. After all, once you default on a modification agreement, chances are it’s “game over.”
2) The foreclosure lawsuit remains pending. In most lawsuits, when the parties enter a settlement agreement, the lawsuit is dismissed. Sometimes, the suit is dismissed with a court order that reserves jurisdiction to enforce the parties’ settlement agreement, but this is standard fare – lawsuits are dismissed when the parties settle. Unfortunately, that’s not how it works with loan modification agreements in foreclosure cases. To illustrate, the modification agreement in my hands says “The Lender agrees to suspend all foreclosure activities so long as I comply with the terms of the Loan Documents.” Hence, if the homeowner defaults – or if the Bank asserts the homeowner defaults – all the Bank has to do is resume prosecution of the existing foreclosure lawsuit, which remains pending. It doesn’t matter if the default occurred six months after the modification or two years – all the bank has to do is resume the existing foreclosure case. And since the homeowner has waived all defenses, obtaining a foreclosure judgment truly is the equivalent of Shaq dunking the ball on an 8-foot basket without any defense.
(Judges, I respectfully submit you should do something about this. How many pending cases are on your dockets where nothing has happened because the parties agreed to a loan modification but the bank refuses to dismiss? I’d suggest an Administrative Order that requires dismissals of foreclosure lawsuits where the parties enter a Loan Modification Agreement. There is no reason for cases to remain pending for months or even years when the parties have amicably resolved their dispute.)
3. The bank makes no representations whatsoever. You know what scares the heck out of me with these modification agreements, more than anything else? The bank that is receiving the money does not make any warranties or representations whatsoever – not even a representation that it is the rightful owner and holder of the Note and Mortgage! Lest you think that’s “no big deal,” consider this.
We all know that most Notes and Mortgages have been transferred or assigned from one bank to another, many times over. Often the banks don’t know who owns/holds the Note and Mortgage, much less prove it. If the Bank you’re entering a loan modification with does not represent, in writing, that it owns and holds your Note and Mortgage, then what’s to stop another bank from emerging, months down the road, and suing you for foreclosure on that same Note and Mortgage? Unfortunately, absolutely nothing. That’s why, if it were my client, I’d require the bank to sign the loan modification with a written representation that it owns and holds the Note and Mortgage and is the party entitled to collect mortgage payments. I’d also demand to see the original Note. Without these precautions, my clients may be handing out money to an absolute stranger – one with no right to collect – and with what I know, that’s not a risk I’d feel comfortable recommending.
But even that’s not good enough. In addition to this representation, I’d want the bank to indemnify my clients from any losses they incur as a result of another bank making a successful claim on that Note and Mortgage. In other words, if another bank sues my client for foreclosure, after the modification agreement, the bank that modified with us should bear the losses, not my clients. To ensure the bank would be able to foot this bill, I’d also want some financial disclosures, especially if the bank was one I’m not familiar with.
In sum, if you’re a homeowner facing foreclosure and the bank is offering you a loan modification, I’d be very careful about what you’re getting. Read the fine print closely. If your payments aren’t going down significantly, you’re waiving defenses, the foreclosure lawsuit remains pending, and the bank isn’t making any written representations, chances are the modification agreement is designed to help the bank, not the homeowner.
You can check out Mark in more detail here…
Anyway, in other words, they are stealing your money and setting you up to fail…
Ever wonder where all your trial payments went while you were waiting for the permanent modification?
Have you noticed the whole time you were making those payments you were being reported delinquent?
Did you catch all the late fees piling up every month?
Yea, me too.
After they decline you for your modification, although you have done EVERYTHING possible, and you get foreclosed upon anyway, ever wonder why all those “trial payments” never reflected on your amounts due and owing…
Thousands upon thousands of dollars lost into the abyss…
They trick you into getting all your financial information to calculate how long they can string you along until you have exhausted every last resource, 401k, kids college fund, your cookie jar etc., and once they sucked you dry, they foreclose.
As Capt Jack puts it…
Savings drained – check, 401ks all gone – check. Kicked out of their homes – check. “Lenders” made whole many times over via Credit Default Swaps – check. Homeowners foreclosed and “lender” buys back property for pennies on the dollar – check.
Don’t believe me? Ask one of the tens of thousands of Americans that had it happen to them…
Then, on top of all that, they use all your financials that you submitted to profile you on how to collect the “deficiencies” for decades…
Sound crazy? Of course it does…
Try this America.
If you decide to go through with submitting your loan mod package with all your financial information, WATERMARK all of the documents you submit to the “lender” with something like “THIS INFORMATION IS FOR LOAN MODIFICATION PURPOSES ONLY”
Cause that’s what it’s for right?
Watch what happens…