Question

I live in California and submitted an application to my lender, Bank of America, to modify the first mortgage on my home. I have never applied for a mortgage modification or another type of foreclosure alternative. Bank of America denied my application. Can I appeal?

Answer

Yes. In California, a law called the  Homeowner Bill of Rights (HBOR), which became effective January 1, 2013, gives you the right to appeal the denial.

Your Right to Appeal a Loan Modification Denial Under HBOR

Under HBOR, if your loan servicer (the company you make your payments to) denies your application to modify the loan on your first mortgage or deed of trust, you can appeal. You must submit the appeal within 30 days from the date of the written denial. In your appeal, you’ll need to provide evidence that the mortgage servicer's determination was in error.

Information Your Servicer Must Provide in the Denial Notice

Under HBOR, if your loan servicer denies your mortgage modification application, the servicer must:

• explain your right to appeal (including the amount of time you have to appeal)
• if the investor (the owner of your loan) is the one that denied your request, give you the specific reason for the denial
• provide the monthly gross income and property value it used to calculate the  net present value (NPV)  (if it denied your application because of a NPV calculation), and
• describe any foreclosure alternatives that are still available to you (Cal. Civ. Code § 2923.6(f)).

The Servicer Cannot Proceed with a Foreclosure During the Appeal Period

The servicer is not allowed to continue foreclosing (for example, by recording a notice of default or notice of sale or holding the foreclosure sale) until:

• 31 days after notifying you in writing about the denial (if you don’t appeal), or
• 15 days after denying your appeal (Cal. Civ. Code § 2923.6(e)(1)-(2)).

(Learn more about  general foreclosure laws and procedures in California.)

If You Reject an Offer or Default on the Agreement After an Appeal, the Servicer Can Continue Foreclosing

If the servicer offers you a loan modification after your appeal, you must accept it quickly (within 14 days), make the first payment on time, and live up to the loan modification terms. (Cal. Civ. Code § 2923.6(e)(2)). Otherwise, the servicer can continue to foreclose.

Right to Appeal: Only for a First Mortgage on a Home You Live In

You can appeal a loan modification denial only if:

• you're trying to modify your first mortgage or deed of trust  (learn about  the difference between mortgages and deeds of trust)
• you live in the property, and
• the property has no more than four units (Cal. Civ. Code § 2924.15(a)).

This means you don’t get a right to appeal a denial if you applied to modify a second mortgage or a HELOC, or if you don’t live at the property.

Right to Appeal: Only for Loan Modification Denials

The right to appeal under HBOR only applies to loan modification denials, not denials of other foreclosure prevention alternatives, such as short sales and deeds in lieu of foreclosure. See  Ware v. Bayview Loan Servicing, LLC, 2013 WL 4446804. (Learn more about  short sales, deeds in lieu of foreclosure, and other alternatives to foreclosure.)

Smaller Servicers Are Exempt

Under HBOR, large servicers (such as Bank of America) must have an appeal process in place. However, smaller servicers (those that foreclosed on 175 or fewer residential real properties in California per year) are exempt from this provision of the law. They do not have to provide an appeal period for denied modification requests.

Sunset Date

The statute giving homeowners the right to appeal a loan modification denial is scheduled to remain in effect until January 1, 2018. After that date, it will sunset (end) unless the legislature extends the date.

Other Laws That Provide a Right to Appeal a Loan Modification Denial

In the past, many homeowners found themselves faced with a loan modification denial and no way to appeal the decision. Both the federal government and the national mortgage settlement have tried to address this problem as well.

• The federal government implemented  new mortgage servicing rules as of January 2014  requiring servicers to give homeowners 14 days to appeal a loan modification denial. This appeal right kicks in only if the servicer receives your loan application 90 days or more before the foreclosure sale date.

• Under the national mortgage settlement, in certain circumstances if a servicer denies a loan modification application for a first mortgage, it must provide borrowers with the right to appeal. The borrower must appeal within 30 days from the date of the denial letter. (Read more about the terms of the settlement in Nolo’s article  National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)

When to Hire an Attorney

If you believe that your lender denied your loan modification in error, did not provide you with the proper opportunity to appeal the denial, or continued a foreclosure during the appeals period, you should consult with an attorney immediately who can advise you what to do in your particular circumstances.

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