Am I Protected Against Foreclosure While Getting a Loan Modification?

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Often times people facing foreclosure are improperly advised by their bank that they have two divergent paths to pursue: modify the loan, or fight the foreclosure in the court system. This is a false choice. Regardless of future goals, homeowners should always answer a Foreclosure Complaint. My clients often find that they have a better chance of obtaining a modification by first defending their home in court.

Faceless phone operating agents on the other end of the line who tell homeowners on the verge of foreclosure that they qualify (or are eligible) for a loan modification know that their lender is simultaneously starting foreclosure proceedings. I've heard multiple variations of horror stories, but there are two basic plot lines.

In the first scenario, a homeowner falls late on mortgage payments and receives mail from their bank informing them that by submitting financial records they can obtain a modification and avoid foreclosure.

The second circumstance is the story of the homeowner who calls the bank in advance of going late on payments, explains the cause of the reduction in income and proactively requests for help so they can keep paying their mortgage. These homeowners are usually told they will be eligible for a modification only if they first default and miss three months of payments. After they go late, the homeowner usually receives the same package, indicating that by applying for modification they will avoid foreclosure.

There is a common character of both scenarios which is that the bank seldom enters through through the promised modification. I have heard stories of literally hundreds of New Jersey residents who spend months, or even years, communicating with their bank to modify the loan. The homeowners gather financial information and submit the paperwork time and time again only to be told the documents are in review, the documents were never received, or some other excuse from a faceless telephone agent. Many times in the middle of the process of applying for a modification, the homeowner receives a Summons and Complaint from the attorney for the bank, initiating the formal foreclosure proceedings that the bank hopes will result in the bank owning your home.

Countless times I have had homeowners come to me, far along in their foreclosure process and years into their modification attempts to tell me the reason they did not answer the complaint was because they were modifying the loan with the bank and were told by telephone agents of their bank that answering the complaint might jeopardize their modification. This is always bad advice.

Why would a bank file for foreclosure while simultaneously considering a homeowner for a loan modification? It is a hedge of bets, a guarantee that if a modification is not a viable solution the foreclosure process will have at least been initiated. The bank is taking that your attempt at modification will allow the bank to walk away with your home (whether or not entitled) without the scrutiny of a judge. If the lender has the homeowner convinced that the modification process is ongoing, and the foreclosure complaint goes unanswered, the bank is under no pressure to resolve the situation in favor of the homeowner.

If the homeowner passes up the opportunity to answer the complaint and defend the home, the homeowner may lose the opportunity to litigate for good. The homeowner may also miss out on the best chance to modify the loan. Worst of all, there is a greater risk of the homeowner losing their home entirely.

Often there are federal or state law violations from the origination of the loan, and there are usually procedural issues that will hinder the bank's ability to foreclose. A knowledgeable foreclosure defense attorney can identify those issues and put strong pressure on the bank.

Homeowners are far more likely to modify your loan with the assistance of an attorney than they are on your own, particularly if the homeowner temporarily defends his or her rights in Court. If the goal is to keep the home, then a homeowner needs to utilize all resources to convince the bank to modify. If any homeowner is served with a foreclosure complaint, they must reserve all of their rights by meeting with a knowledgeable attorney and answering the complaint. More often than not there will be viable defenses, and raising these defenses will provide additional pressure on the bank to resolve the case through modification of the loan.

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Source by Adam Deutsch, Esq