Sitting in an office where lots of people call on the phone, send emails to us, and come in for a visit — all related to foreclosure issues or underwater mortgages in South Florida, it may well be that we have a different view on things than some other people. This is not a statistical analysis, but it sure seems like there are lots of Florida banks that are rejecting mortgage loan modifications these days.
Read the news, and things appear to be so optimistic. The Florida Attorney General Pam Bondi distributed the monies from the big settlement with the major mortgage banks – soon there will be millions of dollars (theoretically) available to help Florida home owners to deal with mortgage issues. Banks seem to be more amenable to making deals with their borrowers; consider how friendly Bank of America seems to be these days in helping close short sales.
Still, reasonable modification requests are being rejected by banks. Some folks are concerned that this is going to force them into bankruptcy. Bankruptcy (chapter 13) is an option that’s on the table for many homeowners who cannot keep making those monthly payments and who cannot get the bank to negotiate with them. However, there is no need to jump right into bankruptcy when there are other options, which are less extreme, still on the table.
Why are Florida Banks Rejecting Modifications?
Loan modifications take the old mortgage and revamp it. Interest rates – the cost for borrowing the money – are changed, and the bank takes a lower interest rate in order to lower the mortgage payment. It’s like the bank accepts a sales price for its product instead of the old, full price that was part of the original deal. There are times, as well, when loan modifications mean a change in the principal. If there has been appraisal fraud, for example, then the value of the home reflected in the original note was erroneous, and the modification may be done to correct the error.
Banks should like modifications because it’s a better deal for them than foreclosing on the property and having to deal with real estate that the bank will then have to upkeep and sell. In South Florida, with the bottle neck foreclosure docket, modifications also mean resolution can happen much faster than the standard foreclosure route. We’re talking years of difference here. Literally.
There are loan modifications that are offered by banks and then there are loan modification programs created by the federal government. HAMP is one of those programs. Each bank has its own criteria for mortgage modifications, establishing things like the minimum income the borrower must have in order to approve a mortgage modification on one of its home loans.
Larry Tolchinsky’s Tip:
Sad to say, one of the first reasons may be that the loan modification has been denied to many Florida homeowners is that they have tried to make a deal without the help of a Florida foreclosure defense attorney. These are Wild West times here in the Florida real estate marketplace and each bank is riding its own road. Knowing what the bank wants to see and what that bank has done in past modification situations can make all the difference to a home owner who is approaching the bank for a change in the mortgage loan.
However, even when a Florida foreclosure defense attorney works with the Florida homeowner to get that loan modification, it’s no guarantee that there will be a modification of the home loan. Banks are notorious for nixing modification offers even when all the paperwork has been filed with them and everything appears to add up, numbers-wise.
Just this month, the Huffington Post published an article written by Paul Kiel of ProPublica discussing the problem of HAMP (Home Affordable Modification Program) not having enough eyes on the banks to make sure that they were complying with the government rules and standards set specifically to get American homeowners some relief from foreclosures on their homes. HAMP was set up specifically to make mortgage modifications happen.
However, as the HuffPo investigation reveals, the federal government did not audit these banks promptly and what happened? Two-thirds of the mortgage modification requests through HAMP were DENIED by these banks. Shame on them, right?
Seems that the banks were deciding what they had to do in order to comply with the federal government program, regardless of whether or not this jived with the program documentation or the spirit of the program, which was to get modifications done.
Homeowners Are Suing Banks for Not Accepting Home Loan Modifications
And around the country, homeowners are angry enough that they are filing lawsuits against their mortgage lenders who have denied them a loan modification. That’s right: instead of filing bankruptcy or waiting for the foreclosure process to begin, some home owners in parts of the country are going to the courthouse to fight these banks for denying the modification offers.
For example, Stacey Fletcher up in Yorkville (that’s near Chicago) has filed a federal lawsuit against OneWest Bank for failing to modify her mortgage loan according to HAMP guidelines. Seems a bank representative told Fletcher to stop making mortgage payments so she could qualify for a Home Affordable Modification Program modification of her home mortgage. She did so, and soon she was okayed for a 3-month trial payment plan and told that if she was approved after that 90 day test period, then the modification would be permanent. Didn’t happen, and so Stacey Fletcher has sued – and the bank’s motion to dismiss her suit has been denied by the federal court judge.
This lawsuit by Ms. Fletcher is following along the same aggressive, fight-back at the bank stance that Lisa Wigod took in her lawsuit against a denied mortgage loan modification up in Illinois and the battle that Amira Jackmon is fighting with Wells Fargo in a legal courtroom over in California.
These home owners are filing lawsuits against their mortgage lenders for failing to agree to a mortgage loan modification. Some are seeking breach of contract damages and some are going further and suing for intentional tort damages (fraud) which bring with them the possibility of punitive or exemplary damages.
Are you mad enough over your denied loan modification to sue the bank over it? Rest assured, there is someone here in Florida that is that just that angry and will be following the example of these three brave home owners.
Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at email@example.com, or (954) 458-8655. If you have a specific situation, please call or email Larry because he can’t answer specific fact questions in general comments. He’s happy to take your call.