Loan modifications, which involve a permanent change to one or more of the terms of a mortgage, are often the only means homeowners who've fallen behind on their mortgage have to save their home. But they are quite difficult to get, and sometimes the bank denies that they've received a complete loan modification application, depriving the homeowner of vital protections against foreclosure.
To be eligible for a loan modification, a package called a Request for Mortgage Assistance, or RMA, must be submitted to the mortgage servicer. The RMA includes tax and income documents as well as an affidavit explaining the hardship that caused the default.
Your mortgage company is not supposed to move forward with foreclosure when you have a complete loan modification application accepted and under review. Doing so would be engaging in something called dual-tracking, which is prohibited by mortgage servicing rules from the Consumer Financial Protection Bureau (CFPB).
If Loan Mod Application is Incomplete, It's Not Dual-Tracking
But if they don't accept your application as "complete," then it's not dual-tracking when they move forward with foreclosure.
The problem is that, according to a 2013 paper by the California Monitor of the National Mortgage Settlement, “none of these laws defines “complete” in a way that accurately reflects the back-and-forth communication that must occur to modify a loan.”
The CFPB, as well as RESPA and TILA regulations, define complete as when the bank receives all the documents that it requires. That leaves a lot of room for interpretation.
In some situations an application is clearly complete with no room for interpretation. In others, such as for homeowners who are self-employed or have income that's difficult to prove, “complete” is more complicated.
Sometimes it seems that the bank is needlessly refusing to accept an application as complete so they can move forward with foreclosure. This is what's been called the “complete application" scam.
Common Loan Modification Completion Problems
Here are some of the common problems associated with getting an application for a loan mod accepted as complete and avoiding foreclosure:
- Not all documents submitted. Servicers don't just hand out loan modifications because they like the cut of your jib. The documents in your RMA are supposed to show that your default-causing hardship is over and that you have the income to afford a mortgage payment if it's reinstated. If any of them are missing, the application can be denied. The bank could “capitalize on one missing document to nullify a modification and move to foreclose instead.”
- Documents not up to date. The documents in an RMA are not evergreen. Things like bank statements have to be current, and can become outdated and newer versions have to be resubmitted if they become available while the application is being reviewed. Having to send in the same documents over and over is one of the most common complaints from homeowners trying to get a loan modification. If the documents are not all up to date, then the application may not be considered complete.
- Lost Application. This was a problem in the early days of the foreclosure crisis. People went to all of the trouble of submitting an RMA, and the bank said they never received it or lost it. Maybe they honestly lost it amid the mountain of other applications, but a lot of people found it a little too convenient to be plausible. Rules have since changed, and there are greater regulations on mortgage servicers. The lost application excuse isn't as common now as it used to be.
- Not enough time to review the application before sale date. There's a rule that a mortgage servicer must consider an RMA if it's submitted at least 37 days before a scheduled sale date. We've seen complete applications submitted more than 37 days before a sale date and still been told that there isn't enough time to review it before the scheduled sale date. In those cases we have to fight their decision.
- Bank accepts application but the sale date isn't canceled. Even though it's not supposed to happen, sometimes homeowners still get dual-tracked. At at some point your mortgage servicer will hire an attorney to manage your case. If there's not good communication between them, and with the courts, a sale date could not be adjourned or canceled even when an application is complete and under review.
It can be a battle to get a servicer to accept an application as complete so it can be reviewed and avoid a foreclosure sale if one is scheduled. Problems for the homeowner can happen either by chance or from their bank and their attorney cutting corners to make their job easier or more profitable.
While working to help our clients avoid foreclosure, we've encountered virtually every problem that could occur. There's a way to deal with each of them, whether it requires reapplying or filing an emergency motion with the court.
Foreclosure is very serious. Fortunately there are laws and regulations to protect you and give you a fair chance to keep your home. Now that you know what can go wrong, you have the opportunity to avoid these problems.
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