Denied a Loan Modification? Know Your Options.

app denied

For many distressed homeowners, the idea that there may be light at the end of the tunnel keeps them going. Many homeowners who want to keep their homes decide to apply for a loan modification from their mortgage lender.

A loan modification application should be submitted with the help of a NJ attorney who has experience in real estate matters. By applying for a modification to your current mortgage loan, you’ll essentially be asking your bank or lender to make some changes to your loan that would make sense in order to help you keep your home. Some changes include: lowering the principal amount due on the loan, extending the life of the loan by a few years, late fee forgiveness, and (sometimes) a lower interest rate. A lower interest rate can usually only be obtained with mortgage refinancing – during which the borrower is given a completely new loan and the old mortgage loan is null and void.

Your lender will approve your loan modification application on a trial basis before it can become permanent. This allows the lender to be sure that the modifications are sufficient and appropriate, and ultimately, that you are able to make good on your end of the agreement. Usually, the trial period lasts anywhere from three to six months, and applicants must be sure to make their trial payments on time and in full. Usually, the practice is that when the applicant meets all of the conditions set out in the Trial Period Plan (TPP), the trial modifications become permanent, and the loan modification is officially granted.

I Complied with the Rules in My TPP but was Still Denied a Loan Modification!

Until recently, borrowers who felt they were wrongly denied a loan modification under the federal Home Affordable Modification Program (HAMP) had no legal course of action. Even if their bank or lender obviously violated the rules set out in HAMP, borrowers who were (wrongly) denied loan modifications really couldn’t do a thing about it!

Recently, however, it has been upheld in the NJ Appellate Division that borrowers who were denied loan modifications erroneously (through no fault of their own) can now pursue state law claims against the lender in question.

It has been set out that a written trial modification plan (a/k/a trial period plan; TPP) does indeed constitute an official offer by the lender in question to then make permanent loan modifications if and when the borrower follows the TPP completely.

This is good news for distressed home owners who have applied for and been granted loan modifications on a trial basis only to be denied the ability to make those modifications a permanent part of their mortgage loan.

Several court cases have already surfaced regarding this issue. The decisions offered up do state that no borrower has a “right” to being granted a loan modification. However, they also state that if a lender offers a borrower a trial payment period with a promise in writing to permanently modify the loan if all terms of the agreement are met, that the lender shall be required to acquiesce.

It was also noted that lenders must use clear language in any trial payment period agreements that they draw up so that borrowers have full understanding of precisely what is required in order for their trial payment period to become a permanent loan modification.

If you think you may benefit from a loan modification, you can learn more at: Buying, Selling & Keeping Your Home – A Real Estate Seminar for Everyone, April 25, 9:00AM-1:00PM. You can also call our office for a free consultation if you would like to discuss applying for a loan modification or if you feel you have been wrongly denied one.

 

 

Image credit: Got Credit
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