I live in California and applied for a mortgage loan modification from my lender, PNC Bank. This is my first time applying for a mortgage modification. My understanding was that PNC Bank was still considering my modification application, but I just received a notice of foreclosure sale. I called PNC and it said it denied my application. I never received anything in the mail about this. Doesn’t the bank have to let me know if they reject my application for a mortgage modification?
Yes. In California, under the Homeowner Bill of Rights (HBOR), which became effective January 1, 2013, the bank must send you a written notice if it denies your request to modify your home loan.
Information Your Servicer Must Provide in the Denial Notice
Under HBOR, the denial notice must contain the following information:
An Explanation About Your Right to Appeal the Denial
The notice must explain your right to appeal the denial, including the amount of time you have to appeal. (Under HBOR, you get 30 days from the date of the notice to appeal.) It must also provide instructions about how to make your appeal (Cal. Civ. Code § 2923.6(d),(f)).
What happens if you don’t appeal the denial. If you don’t appeal, the bank can continue the foreclosure process (by recording a notice of default or notice of sale, for example) 31 days after it notifies you in writing about the denial (Cal. Civ. Code § 2923.6(e)(1)). (Learn more about California’s foreclosure procedures in Nolo’sCalifornia Foreclosure Law Center.)
What happens if you appeal the denial. If you appeal, but the bank still denies your request for a modification, it can continue with the foreclosure process 15 days later (Cal. Civ. Code § 2923.6(e)(2)).
The Reason for the Denial
The loan servicer (the company you make your payments to) must explain the reason for the denial in the notice.
If the investor (the owner of your loan) is the one that denied your request, the notice must give you the specific reason for the denial (Cal. Civ. Code § 2923.6(f)(2)). Some common reasons for denial are:
- You forgot to sign the financial worksheet, hardship letter (or affidavit), or the 4506-T tax form.
- You did not send in the correct documents to verify your income (such as a profit and loss statement if you’re self-employed).
- You previously had a modification, but you failed to make payments under the terms of the agreement.
- The investor denied the modification based on the net present value (NPV) results.
Explain the NPV Calculation
If the reason you didn’t qualify for a loan modification is because of the NPV calculation, the servicer must tell you the monthly gross income and property value that it used to calculate the NPV (Cal. Civ. Code § 2923.6(f)(3)).
What is NPV? When a servicer evaluates a borrower for a loan modification, it looks at financial information about the borrower, the loan, and the property (such as the borrower’s income, the unpaid principal balance on the loan, the property’s fair market value, etc.). It then makes a comparison between
- the estimated cash flow the investor will receive if the loan is modified, and
- the investor’s cash flow if the loan is foreclosed.
If the investor would be better off if the servicer forecloses on the loan, rather than modifies (this is called NPV negative), then the servicer doesn't have to modify the loan. (Learn more about the NPV calculation.)
Tell You About Foreclosure Alternatives
The notice must also describe any foreclosure alternatives (such as a short sale or deed in lieu of foreclosure) that are still available to you. In addition, it must let you know what you need to do to apply for those options (Cal. Civ. Code § 2923.6(f)(5)). (Learn more about short sales, deeds in lieu of foreclosure, and other alternatives to foreclosure.)
Large Servicers Must Send Denial Letters
Under HBOR, a large servicer (one that forecloses on more than 175 residential real properties per year in California) must send you a denial letter if it denies your request to modify a first mortgage or deed of trust loan. However, smaller servicers are exempt from this requirement.
Remedies if Your Lender Violates HBOR
If a mortgage lender or servicer violates HBOR, you may:
- seek a court order stopping the foreclosure (called an injunction), or
- if the foreclosure sale has already taken place, sue for damages. If a court finds that the violation was intentional, reckless, or resulted from willful misconduct, in addition to damages you might also get triple damages or $50,000 (whichever is greater) and attorneys' fees and costs (Cal. Civ. Code § 2924.12).
What You Should Do
If your loan servicer did not notify you in writing about the denial and, as a result, you missed the deadline to appeal (or the servicer is violating the law by continuing with the foreclosure during the appeal period), you should contact an attorney immediately.