Avoid Loan Modification Traps, Pitfalls, and Scams
The Business Model of Loan Servicers is to Foreclose on Innocent Borrowers. Securitization is the reason lenders attempt to foreclose on homeowners even when giving them a loan modification is the right thing to do.
When a bank assigns the risk of a loan to the investors (certificate holders) of a Real Estate Investment Conduit Trust (SPV), the “bank” is no longer a traditional bank assuming the risk; instead the “bank” is merely a loan servicer benefiting from the mortgage payments.
Mortgage banks and loan servicers approve as few modifications as possible, complying, minimally, with statutes enacted to protect borrowers, while employing tricks to “cash in” on homeowners’ defaulted loans, in an attempt to foreclose on them.
Mortgage lenders, banks, and loan servicers benefit from foreclosures more than loan modifications because of something called “creaming the debt.” If a Bank modifies a loan, their penalties and fees might not get paid to them. When they foreclose, they get their penalties first, before the investors– which is the “creaming.” Oftentimes a bank can make more money from foreclosure than they can from servicing the loan.
When foreclosure becomes an option, the bank will seize the opportunity for increased profits from foreclosure. Foreclosure is the pot of gold at the end of the mortgage loan rainbow. Banks risk the chance of litigation because they know that very few people will take action and file suit against them or are aware of the many tricks and tactics they employ to push borrowers into foreclosure.
Here are six common tricks loan servicers employ against unsuspecting homeowners in order to push them into foreclosure:
Refusing Payments: Banks refuse a homeowner payment. The bank may offer a reason (for example, there’s a mistake on the account, they lost the payment, ext.) or they may offer no explanation at all. The bank may even offer the homeowner a loan modification. The bank does this to delay the homeowner from immediately contacting an attorney to pursue a breach of contract claim. The bank may take trial payments in an effort to further delay the homeowner until the arrears (also known as the forbearance) becomes so great that the homeowner is ineligible for a loan modification or unable to repay the arranges of the loan to bring their loan current and avoid foreclosure.
Switching Servicers during Modification: A homeowner applies for a loan modification with their loan servicer, makes trial payment(s), and the servicer transfers loan servicing rights to another loan servicer. The new servicer pretends to know nothing about the modification and delays the homeowner, often times for months, claiming they are missing relevant paperwork needed to approve the loan modification. No matter how many times the borrower submits the necessary paperwork the servicer refuses to approve the modification because servicers are paid up to $2500 by the government for each new loan modification submitted. So, they continually lose borrowers documents and reassign their files to new servicers or agents to resubmit the loan modification request as a new file; and thereby are paid multiple times, while delaying and denying homeowners loan modification applications. In some States it is a violation of State Law not to honor a modification from a prior servicer, so do not let your loan servicer to take advantage of you and your rights.
Breaching a Modification Contract: A borrower gets a loan modification that includes a balloon payment of, for example, $75,000 after 25 years. After paying on this loan modification for some time, the borrower receives a new modification request in the mail from the same servicer with a balloon payment of $100,000. No matter how many times the borrower calls the servicer about the existing modification; the servicer’s agent responds with a scripted response that does not acknowledge the prior modification and only refers the new modification amount. The borrower often feels like they are talking to a robot working for the bank. Eventually, if the borrower does not sign and execute the new modification, the bank will begin to refuse the payments on the previously agreed to modification and begin to foreclose on the property. Servicers will also create a fake paper trail to tell a different story than what is actually happening. If the bank is trying to stick a borrower with a new modification, the paper trail will show the borrower is refusing the modification and mention nothing about the old one. Eventually, the servicer will stop accepting payments unless the homeowner acquiesces to the new loan modification.
Extra Fees & Escrow Accounts: A borrower notices extra fees from nowhere resulting in the mortgage payment suddenly becoming unaffordable. The loan servicer refuses to accept any “partial payments” and continues to add more fees each month, increasing the amount the borrower has to pay to reinstate the loan, or bring the loan current. The servicer may offer the borrower a loan modification as a distraction in order to trick the borrower further into default. The borrower may think they are approved for the modification, and so they, oftentimes, will spend the money they would have put towards their mortgage or loan modification payment, resulting in the borrower being unable to pay the outstanding loan amount, if and when, the loan modification falls through. In addition, the servicers often times will pay the property taxes and then accuse the homeowner of not paying them so they can raise the interest rate on the loan and make the borrower pay forced place insurance at a much higher cost than the borrower was paying. Unfortunately, by the time borrowers find out about this it’s too late, and the amount owed is more than they can afford.
Giving False Notices about the Amount Owed to Cure the Foreclosure: In non-judicial foreclosure States like California and Texas, foreclosure is done by first recording a notice of default. The Notice of Default (NOD) states the amount of arrears the borrower must pay to reinstate the loan and bring it current. Mortgage loan servicers routinely overstate the amount to bring the loan current by up to $20,000 in an attempt to scare the borrower with the inflated amount needed to cure the loan, and to create a fake paper trail for the banks so they can claim more money from investors.
Dual Tracking and Multiple Modifications: Loan servicers are required to respond to a borrower’s loan modification application with either a denial or approval within a definite period. A denial must be in writing and must inform the borrower of the right to appeal. The loan servicer is not supposed to commit dual tracking (the practice of pretending to do a loan modification, while simultaneously moving forward with the foreclosure behind the borrowers back) nevertheless loan servicers, like Bank of America, routinely use this illegal technique to push borrowers into foreclosure. Although there are penalties for dual tracking, loan servicers are rarely punished for engaging in this illegal practice because they will often times deny a loan modification over the phone while encouraging a borrower to apply again, while quietly moving forward with the foreclosure action behind the borrowers back. Once the borrower becomes what’s known as a “serial modifier” the loan servicer can commit dual tracking without any statutory penalties…. And they will. Watch this real life horror story of one family’s ordeal with Bank of America and Dual Tracking.