Hafemeyer Law

Loan Modifications: Not all they are cracked up to be

This country has gone through a financial crisis and there are many businesses and banks that have dissolved. As banks failed, other banks bought mortgages and began collecting mortgage payments from homeowners. Unfortunately, the repercussions to homeowners of the closing of the bank that held their mortgage may still be unknown.

Homeowners assumed that the new mortgage company purchased the mortgage and did all the necessary paperwork to take ownership of the loan. This may not have been the case. As a homeowner, a letter comes in the mail saying your mortgage has been sold and now all payments should be sent to a new address. Most homeowners do not question the change and automatically begin making payments to the new creditor.

However, some have found that the new mortgage company did not legally own the mortgage.

Fast forward to a homeowner whose mortgage has been sold and they seek a modification of that mortgage due to financial hardship. When a loan modification is sought, the bank requires the homeowner to sign an agreement that encompasses the terms of the modification. Commonly in these agreements, the bank agrees to forego any foreclosure proceedings in exchange for the homeowner beginning to make the new payments in compliance with the agreement and giving up any defense to a future foreclosure. A default on the part of the homeowner typically gives the bank the right to immediately re-open the foreclosure proceeding.

In the circumstance where the loan has been sold, it is possible that the mortgage company involved in the modification is not the legal holder of the loan. If this is the case, the rightful holder of the mortgage can file and proceed with the foreclosure even though the homeowner is making their payments as required by the agreement with the other mortgage company.

If a homeowner is seeking a loan modification, it may be a good idea to have the agreement reviewed by legal counsel. Ensuring that the bank that is offering the mortgage modification is the rightful legal owner of the mortgage is essential.

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