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Loan Modification Failure

I have finally had it with loan modifications. People need to know the truth. If a loan modification request fails, you will likely end up being foreclosed on. If the bank has gone all the way down to the last month before foreclosure, there is no reward at the end to incentivise the bank to postpone what they may see as the inevitable.

I spoke with another former homeowner earlier this week that was negotiating in good faith with her lender, Wells Fargo, for a loan modification when out of the blue she was told that her house had been sold at a trustee’s sale the day before. In fact, the investor that bought the home paid only slightly more than the money the former owner put down when she purchased the home several years ago. Although the bank had issued notices of the trustee’s sale, the homeowner believed the bank would move the date of the foreclosure back and allow for a loan modification because that is what she had been told.

Almost everyday we are contacted by former homeowners that face the exact same situation. Yesterday, we were contacted by a potential client through www.lawyer.com/jason-wells.html with the following all too familiar tale, desperately seeking assistance to save their home and reverse the foreclosure that recently occurred:

My home was foreclosed today and we were in loan modification. I had no idea. The bank approved our mod., we were waiting for docs. I need help.

I could include many more. Each individual having had their house foreclosed on despite promises of hope from their lender.

Now, there are certainly loan modification success stories where a homeowner is able reduce their monthly payment, keep their home and lower their principal. Those stories however, are few and far between. Ultimately, only 1% of distressed homeowners (approximately 15 million) in the US have received permanent help from a loan modification program.  Of the 5.5 million modification applications that were started from April 2009 to the end of November 2011, only 910,000 received permanent HAMP modifications. Only 152,289 of trial modifications that were converted to permanent status are currently still active. Approximately 50% of trial modifications are canceled due to homeowner default or bank rejection after the trial period. See https://www.hmpadmin.com/portal/news/press.jsp

Are you impressed yet?

Let me explain further.  Usually,  “successful” modifications end up not being in the seller’s best financial interest.   The bank will actually make more money in the modification than they would under the original terms of the contract. That fact is not normally revealed clearly to the homeowner because truth in lending requirements are not followed in modification situations. Let me repeat that, Truth in Lending requirements are not followed in loan modifications. The banks are not held accountable for the terrible loan modifications that are negotiated. What the bank does is lower the payment by extending the underwater mortgage for usually 40 years. It will then lower the interest rate (possibly only for a defined time period) and there is a very slim chance that the bank will reduce the principal amount due, very slim.  Because there is no principal reduction, a loan modification is like putting a band aid on an amputated limb. The house is still deeply underwater and will likely be underwater in five to seven years if you need to move in the future.  We offer a calculator website that provides underwater homeowners with an analysis of how long it will take them to break even on their homes.

The Sad Truth . . .

Unfortunately, when speaking with these clients I am usually the bearer of bad news. There is very little to nothing that can be done to help individuals promised a loan modification by the bank and then foreclosed on instead. Most are out of luck completely. If they had come to us before the foreclosure, we may have been able to avoid foreclosure on their house altogether in a short sale or deed-in-lieu of foreclosure.

Please call us today with any questions.

To sit down with an experienced real estate attorney at the Wells Law Group, call (480) 428-3290 today. Our attorneys will discuss each of your available options and answer all of your questions.