Legal Violations in the Loan Modification Process May Delay a Foreclosure

If your loan servicer violated the law in the loan modification process, you might have a defense against a foreclosure.

Servicers sometimes make mistakes that violate federal law when processing borrowers’ loan modification requests. Any of the violations mentioned in this article could result in you missing out on getting a modification and maybe even lead to you losing your home.

If you’re facing a foreclosure, but the servicer violated the law in the modification process, you might be able to use the servicer's noncompliance as a way to delay or cancel the foreclosure.

Read on to learn about the federal laws that protect borrowers who're trying to get a loan modification and how to fight a foreclosure if you suspect the servicer violated the law. (To get tips on what to do—and what not do—in the loan modification process, read Do’s and Don’ts for Getting a Loan Modification.)

Federal Laws Governing the Loan Modification Process

New federal mortgage servicing regulations went into effect in early 2014. Among other things, these laws require servicers to provide borrowers with the opportunity to explore loss mitigation options, like getting a loan modification.

You could have a defense to a foreclosure if the servicer violates any of these federal laws, like if:

  • You didn’t receive a letter within five days (excluding legal public holidays, Saturdays, and Sundays) of submitting a loss mitigation application to the servicer acknowledging the servicer’s receipt of the application and notifying you whether the application was complete. If your application was incomplete, the letter must state the additional documents and information you must submit to make the application complete and give you a reasonable amount of time to send in the missing paperwork. (The servicer has to receive your application 45 days or more before a foreclosure sale for this law to apply.) (12 C.F.R. § 1024.41(b)(2)).
  • You didn’t receive a letter from the servicer within 30 days after it received a complete loss mitigation application from you with a decision on whether you qualify for a loss mitigation option. (The servicer must receive your complete application more than 37 days before a foreclosure sale for this law to apply.) (12 C.F.R. § 1024.41(c)).
  • You were denied a trial or permanent loan modification after submitting a complete application, but the servicer didn’t notify you in writing, didn’t state the specific reason for the denial in the letter, or didn’t advise you in the letter that you had the right to appeal the decision. (If the servicer receives your complete loss mitigation application 90 days or more before a foreclosure sale, you get the right to appeal the denial of a trial or permanent loan modification.) (12 C.F.R. § 1024.41(c),(d),(h)).
  • You submitted a complete loss mitigation application to the servicer, which was under review, but the servicer made the first notice or filing to start a judicial or nonjudicial foreclosure anyway—a violation of the federal law that prohibits dual tracking. (12 C.F.R. § 1024.41(f)).
  • You submitted a complete loss mitigation application to the servicer more than 37 days before a scheduled foreclosure sale, but it filed a motion for a foreclosure judgment or order of sale, or conducted a foreclosure sale, while the application was pending, which is also a dual-tracking violation. (12 C.F.R. § 1024.41(g)).

(Read about other common errors that servicers make when processing loan modifications.)

Applicability

These laws apply to loans secured by a property that’s the borrower's principal residence. Most servicers must comply with these requirements, subject to a few exceptions, like small servicers. (12 C.F.R. § 1024.30).

Also, you should be aware that a servicer generally doesn't have to review multiple loss mitigation applications from you during a foreclosure. But if you bring the loan current sometime after submitting a loss mitigation application, you may submit another one.

Fighting the Foreclosure

If you think the servicer violated the law and want to challenge the foreclosure, the way you go about it depends on whether the process is judicial or nonjudicial.

Judicial foreclosure. In a judicial foreclosure, the servicer files a lawsuit in state court. You'll receive a foreclosure complaint, petition, or similar document, along with a summons that gives you a specific amount of time to respond to (answer) the suit. You can bring up the violation in your answer to the lawsuit. (To learn more, How to Fight a Foreclosure in Court: Judicial Foreclosure.)

Nonjudicial foreclosure. With a nonjudicial foreclosure, the servicer forecloses without going to court. So, you'll need to file your own lawsuit to bring up any violations. (To learn more, read How to Fight a Foreclosure in Court: Nonjudicial Foreclosure.)

Getting Help

The laws mentioned in this article are just some of the federal laws that regulate how servicers must handle loan modification applications, and your state might impose additional requirements. If you think your servicer has violated the law and you want to delay or stop the foreclosure, consider talking to an attorney who can advise about all relevant laws and provide advice about what you can do in your particular situation. A foreclosure defense attorney might be able to use a servicer's violation of the law as a way to delay the foreclosure, make the servicer start the foreclosure over, or gain some leverage in the loss mitigation process. Also, a lawyer can tell you if you have any other potentially valid defenses to the foreclosure.

If you need more information about different ways to avoid foreclosure, make an appointment to talk to a HUD-approved housing counselor. A HUD-approved housing counselor can provide free foreclosure avoidance counseling and assistance if you’re struggling to make your mortgage payments. (To learn more, read Get Help Avoiding Foreclosure: Using a HUD-Approved Housing Counselor.)

Talk to a Lawyer

Start here to find foreclosure lawyers near you.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
FACING FORECLOSURE ?

Talk to a Foreclosure attorney.

We've helped 75 clients find attorneys today.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you