Most people know that mortgage loan modifications are available in some cases. These are covered by HAMP ("Obama Plan") as well as through the mortgage company (private modifications).
There is a lot of controversey surrounding modifications. One of the dirtiest tricks, which will go down as one of the worst things ever done to average homeowners by big corporations, is mortgage companies tricking homeowners into not paying their mortgage. Homeowners seeking better loan terms call the mortgage company and ask for consideration for a modification. The mortgage company representative tells the homeowner that a modification cannot be considered unless the homeowner defaults on his or her loan.
The trusting homeowner defaults even though he or she had the money for the mortgage payment and intended to pay. When he or she calls to ask about the modfication, she or he hears that the loan is in foreclosure status. In the blink of an eye, the home is tied up in court and, in many cases, ultimately lost to foreclosure and bought back by the lending bank at a bargain price.
In other cases, homeowners send paperwork many, many times but are told it was never received. While the homeowner is standing at the fax machine, sending the paperwork for the twentieth time, the mortgage company runs into court and completes a foreclosure.
Finally, mortgage companies sometimes deny the modification outright. Often, the homeowner receives no official notice--the information may come via a phone call when the homeowner inquires about the status of a modification application. Sometimes, no answer is ever given or a "temporary modification" is never made "permanent."
HAMP and similar programs do not mandate that mortgage companies play fair. To the contrary, most programs turn the other way as mortgage companies run amok with excuses for their inexcusable conduct.
Fortunately, there are other legal theories available to homeowners. A few are set forth below, but you should consult with an attorney if you believe you have been treated in an unfair way.
1. Use the mortgage company's inaction defensively. If you are in foreclosure, take paperwork proving you have sent every document requested to the mortgage company, but still have gotten no answer. Some judges will delay entering a foreclosure judgment until the mortgage company provides an answer. This assumes you are in a judicial foreclosure state. This tactic will not work in the states where the mortgage company can automatically sell your home without going to court. Remember to document your allegations; judges are used to desperate people (understandably) saying anything to delay foreclosure. Be the person who has all the documentation in order!
2. Assert violations of the Equal Credit Opportunity Act (ECOA). The act requires lenders send you a letter to tell you that your request to change the loan terms was rejected and to explain why the request was rejected. This only applies if you requested the modification while your loan was current.
Another section of the ECOA forbids discrimination--and it does not matter whether your loan was current when you applied for the modification. Consider whether your loan was denied for a prohibited reason. Denial for a prohibited reason can include the lender's stereotyping of the area where you live. It is illegal for the lender to discriminate against you directly, but also to discriminate based on the racial make-up of your neighborhood. At this point, it is fairly clear that lenders deny modifications in African-American and Hispanic areas more frequently than in areas that are predominantly white. This is also known as "redlining."
3. Fair Housing Act--The Fair Housing Act prohibits discrimination in the same way as the ECOA.
One terrific aspect of a fair housing case is that one can file a complaint at no charge with HUD ( www.HUD.gov ) or a state human rights organization. This makes it easier for individuals to assert the important right to be free from discrimination in housing.
Do not assume the lender has done everything right. Raise questions when it appears your modification request did not get fair consideration.
