Lee Legal

On December 1, 2010, Chris Dodd’s final Senate hearing before his retirement featured testimony from senior Fannie Mae and Freddie Mac executives, who blamed mortgage servicers for triggering the mortgage meltdown.  As a bankruptcy lawyer practicing in Washington, D.C. and Virginia, I have had several clients report the following scenario to me. 

The homeowner misses a mortgage payment, and the lender threatens to begin the foreclosure process.  The homeowner calls the lender to try to work out a plan.  The lender states that the loan is now being “serviced” by either an in-house department or an outsourced servicing company.  The homeowner gives the servicer a call.

The servicer states that, under either the lender’s company policy or some unspecified “federal program,” the homeowner will be able to “qualify” for a modification program, however, the homeowner must miss three or four monthly payments in order to qualify.  The servicer advises the homeowner not to pay the mortgage and to call back in two months.  Nothing is provided in writing.

The homeowner does as instructed, and the application for modification is initiated.  The homeowner provides all of the requested financial information, and fills out a slew of forms.  The homeowner is granted a “temporary modification,” which she is told should become permanent after three months of timely payments.  Again, nothing is provided in writing other than the application.  The lender signs nothing.

Three months later, after making timely payments, the homeowner calls the servicer to verify that the temporary modification has been made permanent.  The servicer then informs the homeowner that the lender’s insurance underwriter has rejected the modification.  A new three-month temporary modification application is issued (more documents to provide, more forms to be filled out).  This second modification is several hundred dollars more than the original modification. 

Rinse and repeat.   Three months later, the second temporary modification is also rejected.  A new modification is drafted, and this time, the monthly payment is no longer affordable.  The homeowner declines to sign.  Foreclosure is initiated. 

At this point, the only options available to the homeowner are either (1) to accept the foreclosure or (2) to file for Chapter 13 bankruptcy protection.  Where is the sense in this process if it is intended to reduce, as Freddie’s Donald Bisenius claims, “unnecessary delays in an already lengthy foreclosure process”?  The scenario outlined above seems to me simply a way to drain an already strapped homeowner of a few months of payments, allowing time for the lender to work through its severely backlogged queue of already-pending foreclosures.  If you are facing foreclosure in D.C. or Virginia, call Lee Legal at (202) 448-5136 to learn your options.