My bank denied my mortgage modification application in California. Can I appeal?

Question

I live in California and submitted a loss mitigation application to my loan servicer to modify the first mortgage on my home. I have never applied for a mortgage modification or another type of foreclosure alternative before. The servicer denied my application. Do I have the legal right to appeal this decision?

Answer

Yes, probably. In California, a law called the Homeowner Bill of Rights (HBOR) generally gives borrowers the right to appeal a modification denial.

Under HBOR, in most cases, if the servicer denies a borrower's application to modify a first lien loan, the borrower can appeal. (Though, some servicers don't have to provide the right the 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 servicer's determination was in error.

Information Your Servicer Must Provide in the Denial Notice

Under HBOR, if your servicer denies your 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)
• if applicable, say that you were previously offered a first lien loan modification and failed to successfully make payments under the terms of the modified loan, and/or
• describe any foreclosure alternatives that are still available to you. (Cal. Civ. Code § 2923.6(f)).

The Servicer Can't 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)
• 15 days after denying your appeal
• 14 days after a first lien loan modification is offered after appeal but you decline it, or
• if a first lien loan modification is offered and accepted after appeal, the date on which you fail to timely submit the first payment or otherwise breach the terms of the offer. (Cal. Civ. Code § 2923.6(e)(1)-(2)).

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

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).

Other Laws That Might Give You the Right to Appeal the Denial

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

Getting Help

If you believe that your servicer denied your loan modification in error or didn't provide you with the proper opportunity to appeal the denial, consider talking to a foreclosure attorney to get advice about you what you should do in your particular circumstances.