Loan Modification

A mortgage modification is a specific type of loan modification that applies to residential real estate. It typically involves the reworking or changing of the terms of an original mortgage contract.

For example, an option to modify a mortgage loan may be made available to the owner of a home once they have been making regular payments on their initial mortgage loan for a period of time. In some cases, individuals encounter a challenge with continuing to make the same amount of payments and may be permitted to modify their mortgage.

Although loans are usually modified due to a high interest rate or a monthly payment which has become too expensive for the borrower, it may also be possible to increase the amount of the monthly payment. One reason an individual may want to increase their loan payments is so that they can pay off the loan sooner and avoid having to pay back additional fees or more accrued interest.

There are certain mortgage terms and concepts which constantly appear during negotiations for a modification, which may include:

• Interest rates;
• Payment schedules;
• Back payments, such as when the homeowner has missed previous payments;
• Penalties for non-payment; and
• Possibilities for additional financing or obtaining a second mortgage.

In the majority of cases, the loan modification terms are governed according to contract law. This is because the conditions for a modification are typically included in the original mortgage agreement.

For example, there may be a provision which states that a mortgage modification may only occur after a certain specified amount of time has passed. Therefore, if no provision was specified when the parties entered into the original mortgage agreement, there may not be an option to modify the mortgage or the option may only be available in very limited or specific circumstances.

What are the Legal Issues Involved in a Mortgage Modification Lawsuit?

There are certain instances where it may be necessary to file a lawsuit because of a mortgage modification dispute. A mortgage modification lawsuit typically focuses on the issue of missed mortgage payments.

A mortgage modification lawsuit, however, may also involve numerous other legal issues, including:

• Foreclosure;
• Liens;
• Breach of the mortgage contract;
• Predatory lending; and
• Mortgage fraud.

A foreclosure occurs when an individual fails to make payments for a certain period of time and the lender takes possession of the property. A mortgage modification is commonly presented as an alternative to foreclosure actions or as a remedy to a foreclosure lawsuit.

If serious non-payment issues arise, a lender may sue in order to obtain a lien on a property. If it is granted, a lien will permit the lender to assume ownership of the home or property and then resell it to cover any debts owed on it.

Either party to a mortgage contract may be held liable for breaching that contract. If a breach occurs, it may result in the enforcement of real estate contract penalty clauses.

Predatory lending occurs when a lender seeks out a susceptible buyer, such as an elderly or first-time borrower. The lender then takes advantage of them by offering a loan with a significantly higher interest rate than what the loan is actually worth.

Both parties to a mortgage contract may be held liable for committing mortgage fraud. This most frequently occurs when a borrower lies on their loan application by making false statements, putting another individual's name on the documents, or fails to disclose crucial facts to the lender.

In the alternative, a lender may also commit mortgage fraud. This may occur when a lender forges the mortgage contract. If the forgery or fraud is discovered, the borrower will be able to assert it as a defense against the lender's foreclosure action. 

What are Some Legal Remedies in Mortgage Modification Lawsuits?

Confusion regarding mortgages and modification terms are often resolved by reviewing the loan documents which were signed between a borrower and a lender. These will typically state the original terms as well as other possible changes to the original agreement.

However, if the original loan documents do not clarify the legal issues, it may be necessary for the parties to file a lawsuit in civil court. A civil lawsuit may involve a party suing the other for economic losses. In some cases, the court may issue an injunction, which requires a party to either take certain actions or cease taking certain actions.

One of the most common legal remedies in a mortgage claim is a damages award which is given to cover financial losses. Often, a borrower is ordered to pay a lender what they owe in nonpayment.

Even after a lender has begun the foreclosure process, the borrower is given a grace period in which to pay missed payments. If the borrower fails to make up the missed payments by the end of the grace period, they may be reported to the credit bureau, which will likely cause their credit score to fall and their credit history be noted.

In some cases, a court may order the sale of a property if the owner continues to miss payments. The court may also impose a lien on the borrower's property which transfers title to the borrower in lieu of monetary payment.

Another possible remedy in mortgage claims are wage garnishments. With a wage garnishment, the court orders the borrower's employer to take a portion of their paychecks to be sent to the agency that processes their debt payments.

In some cases, the parties can agree to a new debt arrangement which would be more beneficial to all parties and potentially avoid a wage garnishment. The mortgage agreement will typically state whether or not it is possible to create a new debt arrangement for individuals who are behind on their mortgage payments.

The available legal remedies will depend on many factors, including the laws of the state, the terms of the original loan, and the financial background of the parties.

Has COVID-19 Affected the Legal Proceedings and Processes for Mortgage Modifications?

Many mortgage lenders are offering assistance during the COVID-19 pandemic, which will vary by lender. All a borrower has to do is contact their lender and advise them of their situation. Some lenders are offering forbearance plans to borrowers affected by the pandemic.

A forbearance is an agreement with a lender which allows the borrower to make a reduced payment or even no payment at all for a certain period of time. It is important to note, however, that interest still accrue and the skipped amount will have to be paid after the forbearance period.

Normally, a forbearance lasts about three months. However, during the pandemic, these times may be extended. If an individual is unsure of what to do, who to contact, or what questions to ask, an attorney is always happy to assist.