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've never applied for a mortgage modification or another type of foreclosure alternative before. But 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 borrower's application for a first lien loan modification is denied, the borrower gets at least 30 days from the date of the written denial to appeal and to provide evidence that the mortgage servicer's determination was in error. Though, some smaller loan servicers don't have to give you a chance to appeal the decision. (Cal.Civ.Code § 2923.6).

So, you should submit your appeal to your servicer within 30 days from the date given in the denial letter. In your appeal, you'll need to provide evidence that the servicer made a mistake when denying your application.

Information Your Servicer Must Give You 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 the servicer used to calculate the net present value (NPV) if it denied your application because of an 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
• if applicable, describe any foreclosure alternatives that are still available to you, and a list of the steps you must take to be considered for those options. If the mortgage servicer has already approved you for another foreclosure prevention alternative, it needs to also give you the information necessary to complete the foreclosure prevention alternative. (Cal. Civ. Code § 2923.6(f)).

The Servicer Can't Proceed with a Foreclosure During the Appeal Period

The servicer isn't allowed to continue foreclosing, like 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)).

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
• you live in the property (that is, the home is owner-occupied), 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

Federal law generally requires servicers to give homeowners 14 days to appeal a loan modification denial. In most cases, this appeal right kicks in if the servicer receives your loan application 90 days or more before the foreclosure sale date. If a complete loss mitigation application is received less than 90 days before a foreclosure sale but more than 37 days before a foreclosure sale, the servicer must give you at least seven days to accept or reject a loss mitigation offer. (12 C.F.R. § 1024.41).

Getting Help

If you believe 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.