People Facing Foreclosure Not Legally Entitled To Loan Modifications
A decision by a federal judge in Minnesota this past week will have ramifications on loan modifications throughout the country.
A lawsuit had been filed alleging that the Making Home Affordable Modification program violated the constitutional rights of people facing foreclosure. The reason was that people who were denied a loan modification under this program were not being given a written denial and an opportunity to appeal. The suit sought to halt foreclosures for people who may be eligible for a modification under this program until the government put in place a formal appeal process and other safeguards.
In her decision Ann Montgomery, a US. District Court Judge ruled that Congress never passed a law saying that people facing foreclosure were entitled to have their loans modified. In the guidelines for the Making Home Affordable Modification Program the mortgage companies had some leeway in determining whether a person facing foreclosure was eligible to have their loan modified.
Let’s take a closer look at this.
The reason that the suit was filed is that all too frequently mortgage companies have denied applications for loan modifications under the Making Home Affordable Modification Program without ever telling the people who applied for the modification the reason for the denial. The letter merely said their application was denied. In some instances a letter was not even sent.
The people whose applications were denied did not know why they were denied. Was it because they did not make enough money? Was it because the investors would get a better return if the foreclosure went forward? Was it some other reason? Another question arises – Were the mortgage company’s calculations correct?
The lawsuit sought to bring this to a head. The lawyers who filed it also sought class action status. That means that if they won, all people facing foreclosure would be covered by it.
The Judge’s Decision Was Correct.
Mortgages are not covered by federal law. They fall under state law.
The Making Home Affordable Modification Program was not the result of a law passed by congress. It was put in place by the Treasury Department. It was primarily designed to cover loans which were sold to Fannie Mae and Freddie Mac. The government technically owns both of these companies at the present time. Any mortgage company that agreed to participate in this program agreed to consider loan modifications on all of their loans not only those that they sold to Fannie Mae and Freddie Mac.
Nowhere in a mortgage contract between the mortgage company and the person getting the mortgage does it state that the person is entitled to a loan modification if they fall behind on their payments. The mortgage only specifies how the payment period will be accelerated if the payments are not made on time and how foreclosure will take place.
So US District Court Judge Ann Montgomery was correct in her decision.
Does That Mean That the Mortgage Company Won?
By no means. The decision merely means that this is not a federal matter.
Any person facing foreclosure who files an application for a loan modification has the right to know why their application was denied if the mortgage company denied it. I would expect that if they are being represented by a lawyer or an expert in loan modification, the lawyer or expert in loan modification would be on the phone immediately with the mortgage company asking why the application was denied.
If the mortgage company did not want to give them the reason, I assume that their lawyer or representative would continue to go up the ladder in the mortgage company, even to the president or CEO if necessary, to find out why. If that failed, they would bring it to the public’s attention.
I guess the problem arises for those people who are not represented. Many of these probably would just accept the denial and not try to find out why. They would allow the foreclosure to go ahead.
New Treasury Department Guidelines Will Help
The Treasury Department has issued some new guidelines. In October they required mortgage companies to send people who are denied a modification a written denial within 10 days. Earlier in November they started to require that a mortgage company stop a foreclosure when the person facing foreclosure challenges a denial and provides new information which may impact the denial.
What Should You Do?
If you get a letter from your mortgage company merely saying that your application for a loan modification was denied and does not give the reasons, call your mortgage company immediately. Ask them for the reasons for the denial. Ask them to send you a letter explaining the reasons. If you have a lawyer or an expert in loan modifications representing you, get the denial to them immediately and ask them to find out what happened.
Go through each reason for the denial and see if it is correct. If your mortgage company had the wrong information, get the correct information to them as soon as possible.
Remember – you should do all that you can do to save your home.
I hope that you have found this information helpful. If you want to learn more about the foreclosure process and steps you can take to save your home from foreclosure, my EBook has a lot of information on it. You can find out more about the book by clicking Stop Foreclosure.
Much Success,
Mark Elkins
Please, can you PM me and tell me few more things about this, I am really fan of your blog! I just subscribed to your feed.
Wonderful article I wish more people would read this so something could be done at the state level. Everyone should send a copy of this to their State Sen and demand that the State require these lenders to show the reason and document the reason for the denial. I as an attorney stay on the phone and get the reason. Those who are not represented should do the same. Stand up and demand a reason or a modification.