Loan Modifications: What Are They Really? Part: 2

Dollar BillsThe first step in obtaining a mortgage modification is for the homeowner to apply to their bank, loan servicing organization or the investor holding their mortgage for a modification. This requires the homeowner to fill out a mortgage modification application and provide the documentation requested. The modification should also contain a hardship letter explaining that the homeowner has had a legitimate hardship situation that will motivate the bank loan servicer or investor to cooperate with them concerning obtaining a mortgage modification. In addition, most mortgage modification applications require the submission of tax returns, bank statements and pay stubs by the homeowner.

Home Affordable Mortgage Program (HAMP)

The federal mortgage lending program called HAMP is a program created by President Obama’s administration. This program does not work well. Approximately one homeowner in five is successful in obtaining a mortgage modification under this program. Many homeowners presume that they will be given a mortgage modification if they simply submit an application. This is simply not the case. The large majority of homeowners who submit mortgage modifications will never obtain a mortgage modification.

Banks and Financial Institutions

Many homeowners who come to my office presume that the financial institutions which hold their mortgages are interested in helping them. Unfortunately, that is generally not the case. The financial institutions which hold mortgages are interested in making money! If they find the homeowner does not meet their criteria related to the profitability of the mortgage, they usually will not grant a mortgage modification. Banks and other financial institutions are not social service agencies. They are financial institutions which seek to make a profit that benefits their shareholders. Not all homeowners are good candidates for mortgage modifications. However, there is a way of maximizing the potential of obtaining a mortgage modification. When homes are in foreclosure, and the homeowner retains counsel who submits numerous affirmative defenses and countersues the bank to set the mortgage aside, the banks and their attorneys pay more attention to the applications of these homeowners for modifications. This can increase the homeowners chances of obtaining a reasonable and fair mortgage modification. This is an example of the expression, “the squeaky wheel gets more grease.”

Bank Denied Interest on Note Due to Bad Faith Negotiations

Bank Denied Interest on Note Due to Bad Faith Negotiations

In a case recently decided in Kings County, New York, Justice Donald Kurtz, sitting in the Supreme Court Foreclosure Courtroom, ordered that all interest accrued on the note be forfeited because of the bank’s failure to negotiate a mortgage modification in good faith.

History of the Case

Wells Fargo Bank had started a foreclosure lawsuit. The case appeared on the Court’s calendar in Brooklyn before a referee. The referee determined the homeowner had submitted adequate documentation of his income to qualify for a mortgage modification under the Home Affordable Mortgage Program, also known as “HAMP” mortgage modification program guidelines. The bank had all of the necessary documents to review the loan modification application, however, the bank refused to grant a mortgage modification. The referee involved asked the bank to again consider reviewing the homeowner’s HAMP mortgage modification application. The bank again denied the HAMP mortgage modification. They also denied a traditional loan modification claiming the property was not being utilized as the principle place of residence as the owner.

Bank Representative Ordered To Appear In Court

The referee ordered the bank to produce a representative from its servicing organization in court to explain to the judge why they would not grant a mortgage modification. The referee took this action because he felt the homeowners were denied a mortgage modification even though they qualified for one.

The referee wrote a report stating the bank violated his directions which recommended they grant the homeowner a mortgage modification. The bank took the position they were not required to negotiate in good faith. Judge Donald Kurtz disagreed with the bank. He ruled the bank had a duty to negotiate in good faith under New York Civil Practice Law and Rules Section 3408(f). The judge confirmed the referee’s report and stopped all interest which accrued on the mortgage and note from the start of the mandatory foreclosure court conferences going forward.


If you take aggressive action with regard to mortgage modifications in front of judges or referees, you can put pressure on the banks to be cooperative and grant mortgage modifications.

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