A “loan modification” is a permanent change to the conditions of a mortgage. Most of the time, this involves lowering the borrower’s monthly payments. Loan adjustments are extremely common, especially in Fannie Mae or Freddie Mac mortgages, FHA-insured mortgages, and VA-backed mortgages.

The servicer may cut the interest rate, convert the loan to a fixed rate, waive a portion of the principal, or extend the loan term to minimize payments. However, mortgage servicers occasionally break the law when processing borrowers’ loan modification requests, which may lead to foreclosure.

Read on to discover more about mortgage servicers’ common errors in loan modification.

Common loan servicing blunders

• Failure to Notify the Borrower of the Application’s Completion

After a borrower files a loss mitigation application to request a modification, servicers occasionally neglect to notify borrowers when their application is incomplete.

A “complete” loss mitigation application is when the borrower delivers pay stubs, bank statements, and an income and expenses spreadsheet. If you submit your application 45 days or more before a foreclosure auction, the servicer must analyze it, determine whether it is complete, and notify you within five business days.

• Failure to Review the Application in a Timely Manner

Borrowers may face lengthy delays after submitting a detailed loan modification application to the servicer. Federal law requires the servicer to consider a complete application more than 37 days before a foreclosure auction.

If you submit your application less than 37 days before a foreclosure auction, the servicer is required to assess it in accordance with the mortgage loan holder’s or assignee’s requirements. Your application must be thoroughly reviewed by the servicer. It will not prevent the foreclosure sale from proceeding.

• Miscalculations

Miscalculations cause modification errors. 

In 2018, Wells Fargo revealed that a computer problem prevented them from altering 625 mortgages. The bank used a loan modification program that calculated legal expenditures erroneously. Because of the miscalculation, several borrowers were ineligible for Fannie Mae, Freddie Mac, or HAMP modifications, leading to hundreds of foreclosures.

• Servicer’s Request for Resubmission of Papers

Servicers occasionally misplace loss mitigation documentation from borrowers. The servicer may compel the lender to resubmit the information.

For your safety, keep track of the papers supplied to the servicer, who received them, and how they were delivered. If the servicer misplaces the documentation, resend it. 

If you decide to dispute the foreclosure because the servicer did not follow loss mitigation procedures, you may need this information.

• Not Making Trial Modifications Permanent

Following a trial period, many loan modifications are made permanent.

A trial lasts three months. When three trial payments are made on time, the adjustment becomes permanent.

Borrowers who make all trial payments may not always be able to secure a permanent modification. When the servicer offers a trial term and a modification, failure to provide a permanent change often violates the modification agreement.

• Servicing Transfer Issues 

Complications arise if the servicer changes in the middle of the modification procedure, such as if the new servicer refuses to honor the previous servicer’s loan modification.

Federal legislation mandates the following transfer stages: 1) Acknowledging an application, 2) evaluating a complete application, and 3) pending loss mitigation offers.

• Acknowledging An Application

If the transferor servicer fails to acknowledge receipt of a borrower’s loss mitigation application and identify relevant evidence within a minimum of five days, the transferee servicer has 10 days to do so.

• Evaluating a Complete Application

The borrower’s loss mitigation application must be evaluated by the transferee servicer within 30 days of the transfer date, not the date the transferor servicer receives the application in its entirety.

• Pending Loss Mitigation Offers

The transferee servicer must allow the borrower to utilize the pending loss mitigation option prior to the transfer date and must honor the remaining term in order for the borrower to accept the transferor servicer’s offer.

Seek Guidance

Indeed, even professionals violate specific mandates. If your mortgage servicer performs any of the modification mistakes or legal violations mentioned above, seek guidance from a foreclosure attorney. This is the best way to get legal representation for your case.

Are you looking for a debt relief lawyer? Angela R. Owens is an esteemed debt defense lawyer, specializing in debt settlement and bankruptcy law. Contact us today at (972) 360-3253!