Maria owns a home in Daly City, California. She approached a company, which advertised its services for loan modification. She was advised by the person handling her case not to pay her monthly mortgage payments anymore. She was told that her unpaid mortgage bills would be packaged into the new modified loan. Her unpaid mortgage then accumulated for a few months. Eventually, the bank foreclosed her property and she is now being evicted. She was very surprised with the foreclosure as she was led to believe that the bank would not foreclose on her home. What lesson can we learn from this?
The existing mortgage loan between the homeowner and the bank is a CONTRACT. It is a valid and existing contract with obligations and rights, as well as remedies available to both parties for violations of the contract terms. One of the remedies that the bank has when a homeowner fails to pay the mortgage payment is, of course, to foreclose on the property should the homeowner fail to keep up with the mortgage payments.
The loan modification process, on the other hand, is really nothing more than just a renegotiation of that existing loan contract between the homeowner and the bank. Hence, unless the bank agrees to modify and the homeowner signs that modified loan agreement, the terms of the original home loan is still enforceable. All remedies available, including foreclosure, would still be available to the bank should a homeowner fail to pay the mortgage premium.
For a loan modification to be approved by a bank normally the homeowner has to show financial hardship. It is also usual (although not necessary) for the homeowner to be a couple of months behind in mortgage payments. If the bank agrees to a loan modification then normally the accumulated unpaid mortgage will be included in the loan modification agreement and the accumulated unpaid mortgage will be spread out over the life of the new loan. The risk, however, is that should the loan modification process be unsuccessful, then the homeowner will already be a few months behind in mortgage payments. It is oftentimes, very hard for homeowners to catch up with a few months of unpaid mortgage. Foreclosure undertaken by the bank and enforced on homeowners with several months of unpaid mortgage should therefore not be a surprise.
As homeowners, we necessarily do everything that we can to save our home. We do hope and that the modification process will be successful as our delinquent mortgage payments can be packaged in the modified loan to be paid out over the life of the new loan making it more affordable for us. However, there is really no guarantee that a loan modification application will be approved by our lender If, for any reason whatsoever, our loan modification application is not successful, then we can expect the bank to enforce its rights by foreclosing on the property against homeowner behind in mortgage payments.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com.)
