For homeowners trying to avoid foreclosure, getting a loan modification (where the lender agrees to adjust the monthly payments to an affordable amount for the borrower) would seem to be the solution for beating foreclosure. Believe it or not, however, some lenders don’t follow through with these plans: the breaking a loan modification by a loan servicer is an unfortunate reality for many homeowners.
I’ve seen this occur in different ways. In the first scenario, the homeowner receives a trial payment plan (“TPP”), where the homeowner is approved for a modification and is required to make three payments under the new modified loan amount. The homeowner signs the required paperwork, makes the three payments, and expects to get the permanent modification. The loan servicer, however, refuses to give them the permanent modification, despite the homeowner doing everything that was required of them.
In the second scenario, the servicer “forgets” about the loan modification months, and sometimes even years, after the modification has begun. Believe it or not, some servicers simply refuse to outright honor a modification, despite the homeowner having been approved for this loss mitigation assistance.
Fortunately, the law is often on the side of homeowners in these matters. Many courts have held that breaking a loan modification is a breach of contract: a violation of a legally binding agreement that entitles the homeowner to relief in court. Homeowners in these cases can sue for damages, and ask for both monetary damages and the remedy of specific performance, which asks the court to reinstate the parties’ loan modification agreement. In one of my successful cases on such a matter, I was able to negotiate a reinstatement of a loan modification where the loan was brought current to the date of the settlement, as if the homeowner had been making payments all along.
Homeowners who are in one of these situations should contact a foreclosure defense attorney as soon as possible.