Foreclosure, Bankruptcy

“Wow!”  That was all I could think after reading this case.  Unfortunately, poor lender practices, especially in the foreclosure and bankruptcy context, have become all too common.  If you or someone you know had been dealing with a foreclosure, then you might be aware of the challenges that had to be overcome to gain some traction – the servicer saying they never received your documents, although you faxed them over 8 times; your trial payments were misapplied; you made 10 trial mod payments, only to have the lender deny a conversion to permanent modification.  Have you heard of the one where the lender offered a modification that homeowners accepted, accepted payments, sent over paperwork to convert to permanent, then tried to renege because it was an “error?”  Well, this is such a case.

In this case, the joint debtors had filed for chapter 13 bankruptcy.  As part of the bankruptcy strategy, the joint debtors engaged in the court’s loss mitigation program to attempt to reach a workout for their house for which the mortgage was in default.  The bank agreed to loss mitigation and, after discussion and exchange of documents, offered the homeowner-debtors a trial modification.  After a few trial payments, the bank sent to the debtors an offer to convert to permanent modification, which the debtors executed and sent back.  (There was some language in the modification paperwork that stated the agreement would not take effect until countersigned by the bank and returned to the debtors.)  In April 2015, with no objection made by any party, the court entered an order authorizing the loan modification.

After this order was entered, the debtors modified their chapter 13 plan to incorporate and reference the proposed permanent loan modification.  In May 2015, after no objection to the modified plan was made, the court confirmed the modified chapter 13 plan, which incorporated the court-approved permanent loan modification.

Shortly after the chapter 13 plan was confirmed, the bank filed a Notice of Mortgage Payment Change, wherein which it stated that the debtors’ monthly mortgage payment would be increased as of August 1, 2015 to the tune of about $1,200.00 more per month than was the loan modification described.  (The loan modification included common terms, such as a fixed interest rate over the life of the loan, so there was no reason for this mortgage to jump $1,200.00 a few months after the agreement took effect.)  The debtors subsequently filed an objection to the Notice of Mortgage Payment Change, and sought an order compelling the bank to comply with the terms of the approved loan modification.  Although the bank had never objected along the way – to the loss mitigation, to the offer of modification, to the conversion to permanent, to the confirmation of the modified chapter 13 plan – it claimed, in its defense, that the permanent modification agreement was never signed by the bank, that the terms offered in the modification were in “error,” and if it had to comply with the terms of the approved modification, that the debtors would be “unjustly enriched.”

The court did not buy it for one second.  Ultimately, the court ruled in favor of the debtors, indicating that the bank must comply with the terms it offered, “which it will indeed be required to do.”  Further, as the bank had already failed to abide by certain orders of the court, the court left open the possibility of sanctions and holding the bank in contempt for failure to abide any further orders.  In re Prada, 14-25315-EPK (Bankr. S. D. Florida, Dec. 3, 2015).

This case evidences some of the questionable tactics that lenders may undertake when dealing with those in foreclosure.  Additionally, it shows the power (and leverage) afforded to homeowners when they deal with foreclosure in the bankruptcy space.  The allure of attempting modification outside of the courts is great – there is no cost, it seems streamlined, and lender representatives makes it sound as if they are there to helpfully guide you.  Ask most people who have been on that trip, and they will tell you otherwise.  When it comes to your home, if it’s in foreclosure, seek the advice of an attorney, especially a bankruptcy attorney who may be able to provide some greater strategies to saving your home.

If you would like to speak to an attorney about foreclosure and bankruptcy, contact LORK, (718) 738-2324.

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