How to Fight Wrongful Foreclosure Resulting from a Loan Modification

By Cecelia Thomas and Kisshia Simmons, Esq.

Dealing with a home foreclosure is perhaps one of the most traumatic experiences that a family can go through.  Many people have worked long and hard to become a homeowner and then their dreams could be taken away after receiving a foreclosure summons or complaint.  Many individuals receive these foreclosure notices when undergoing a loan modification.  Before losing hope, it is important to know the best ways to succeed in fighting these types of foreclosure cases.

What is a Loan Modification?

A loan modification is a permanent restructuring of the mortgage where one or more of the terms of a borrower’s loan are changed to provide a more affordable payment. With a loan modification, the lender may agree to reduce the borrower’s interest rate, extend the length of the term of the loan or convert from a variable interest rate to a fixed interest rate.  To be eligible for a loan modification, there must be a showing of financial hardship resulting in an inability to make loan payments.

Common Violations in Loan Modifications

Mortgage servicers handle loan modification applications from homeowners. Unfortunately, mortgage servicers can make serious errors when processing loan modification requests. These mistakes include failing to process the application in a timely manner, telling homeowners that they have to be in default in order to receive a loan modification, requiring a homeowner to resubmit information or processing incorrect information.  These mistakes can cause a number of problems for a homeowner, such as not getting a modification or even a wrongful foreclosure.

How to Fight the Wrongful Foreclosure?

After being served with a foreclosure summons or complaint, it is important to contact an attorney immediately, because you only have a limited amount of time to file an answer.  If you do not fight the foreclosure, the Court will enter default against you and the bank will be able to proceed to judgment and sheriff’s sale.  In this answer, you are establishing defenses to the foreclosure.

Another option is to file a counterclaim against the mortgage-holding bank on the basis of consumer protection laws. For example, there are State consumer protection laws like the Consumer Fraud Act in New Jersey (N.J.S.A. 56:8-2) and General Obligations Law 349 and 350 in New York.  These laws, in particular, prohibit false advertising, fraudulent business practices, and unfair treatment of consumers.  There are also federal statutes, particularly the Fair Debt Collection Practices Act that reign in banks and prevent abusive practices.  Other common counterclaims are Fraud or Breach of Contract.  These counterclaims in particular are possible defenses if the foreclosure is based on a loan modification.

If you are experiencing home foreclosure due to a loan modification issue, please do not hesitate to call us, we are here to help.

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