Whether you have found yourself in default, foreclosure, or simply anticipate a future inability to make your monthly mortgage payments, seeking an in-house loan modification may be your last resort. Those who have found themselves in the throes of this difficult and often merciless process may be surprised that some lenders and loan servicers will not even take the time to consider your request. With what reasons may a lender forgo reviewing a loan modification request on the merits, and how can a New York foreclosure and loan modification attorney assist you in overcoming such a denial?
If you have faced the denial or rejection of a loan modification request, before considering a short sale or exploring your legal options, you should inquire as to whether your mortgage is insured. Generally, when discussing loan modification denials, there are three types of mortgages1 :
A loan insured by the Federal Housing Administration (FHA) is called an FHA-insured loan2, and servicers of such loans are required to adhere to FHA servicing guidelines, including guidelines related to modifications. Because FHA loans require that buyers carry mortgage insurance to protect the lenders (and borrowers) in case of default, they are serviced differently than conventional loans. If you know or believe you have an FHA-insured loan and a lender has denied or rejected your modification application, you can contact the Federal Housing Administration directly for servicing and modification assistance. Similarly, loans insured through the Department of Veterans Affairs (VA-insured loans)3 are protected through legislation such as the Servicemembers Civil Relief Act4 as well as additional servicing requirements. If, however, you find yourself without either protection, you likely have a conventional loan.
If your loan is not federally insured, you must seek a traditional modification through your bank. Unfortunately, whether your bank chooses to offer a modification, and if so, what type of modification, is almost completely up to your lender. Typically, those applying for loan modifications must submit hardship letters along with a plethora of income and asset documentation, including, but not limited to, the following:
Lack of documentation is a primary reason that a private lender will reject a loan modification request. Lenders are generally required to notify borrowers of missing documents and provide them with the opportunity to produce such, but it is not always the goal of a lender seeking financial gain to assist you in this process. If submitted in full, however, private lenders still have a handful of methods to deny or refuse a loan modification. The question in New York is whether the denial of such a modification was in accordance with reasonable commercial standards or was not meritorious.
Those seeking loan modifications as a result of financial hardships are generally asking their lenders for lower monthly payments. Because this typically necessitates lower interest rates, extending the mortgage terms, or even partial loan forgiveness, modifying a loan as opposed to foreclosing on a home is generally not in a lender’s financial interest. Accordingly, lenders may refuse to consider a modification request if you have not proved “financial hardship,”5 which can include loss of a job, illness or disability, or loss of a spouse.
For example, if you own three homes, a boat, and four cars, your lender will likely deny your request for a loan modification because it considers your payments affordable in relation to your assets. Although lenders will consider certain household expenses in determining your assets, including car payments, credit card debt, and second lien payments, certain excess expenses will be excluded.
Furthermore, a lender may deny your loan modification request for the opposite reason—you cannot afford even the modified payment. In this case, you will have to either increase or reveal additional assets to qualify. If your loan modification is not denied or rejected on financial grounds, however, a lender may be permitted—or even required—to deny your request for some additional technical reasons:
If your loan is not federally insured, fighting for a modification can be cumbersome. However, protection comes from the New York state foreclosure process. If your lender or loan servicer has denied or refused a loan modification request and instead filed a foreclosure complaint, the court is required to hold a compromise hearing under CPLR 34087 that is designed to ensure all previous loan modification offers were made in good faith. The term “good faith” is subjectively defined as the states of mind of the parties during the modification process. This includes honesty in purpose, faithfulness to the obligation, observance of reasonable commercial standards of fair dealing in the business, and lack of an intent to defraud or seek an unconscionable advantage.
To meet this standard, the lender must present the court with an itemized breakdown of all amounts claimed to be due and owed on the defaulting mortgage note, including all relevant files concerning the modification request. This should include a list of all documents claimed to be missing that may have prevented technical consideration of the modification, and the borrower must be given an opportunity to provide such documentation as a means of having his modification processed on the merits.
If the court finds that the lender acted in bad faith, it may order the lender to reopen a borrower’s modification request. This may stay the foreclosure litigation, and if the defendant qualifies for a modification under the monitoring of the court, the foreclosure complaint itself may be dismissed. For this reason, even before a foreclosure complaint is filed, a Long Island foreclosure attorney can work with your bank to ensure that a technical denial was not in subversion of reasonable commercial standards. While some denials, such as the prohibition on modifying loans on condemned property, cannot be overcome, an attorney can ensure proper adherence to New York law.
Whether you are in the process of working with your bank on a loan modification, have recently received a 90-day foreclosure notice, or a foreclosure complaint has been filed against you, it is important to note that New York courts support and encourage a meritorious modification process. As such, your lender must adhere to strict standards of good faith negotiations intended to help you make fair, affordable payments on your mortgage. If your loan modification request been rejected or denied, contact Ronald D. Weiss, P.C., Attorney at Law. He is your premier foreclosure and loan modification attorney on Long Island, specializing in Nassau and Suffolk Counties, and he can analyze the specific facts of your case to determine whether your lender is abiding by federal and New York modification standards. Contact him today online or at (631) 271-3737 for a no-risk consultation.