Many loan modification candidates don’t realize it, but buried in the fine print on many loan doc contracts is the right for lenders to sell your house right under your nose – and without consent.
Here’s the deal.
Buried in the forms troubled homeowners need to fill out to qualify for a loan modification includes language that calls for them to “waive important notification rights.” The clause, according to reporting done by Kevin G. Hall of McClatchy Newspapers, enables banks to reject borrowers with no written notification, and it allows the lender to sell the house without telling the homeowner.
The language, inserted by the U.S. Treasury Department, could have an impact on the 759,000 trial loan modifications under review right now in the U.S. According to The Miami Herald, only 31,382 have been approved for a loan modification, which decreases mortgage payments for a trial period of three months. If the homeowner makes the payments, the homeowner may then “graduate” to permanent mortgage relief.
Hall cites the story of Evangelina Flores, a Fontana, Calif. homeowner who qualified for the three-month loan relief program, and made all of her payments. But shortly after paying her third monthly mortgage based on the new loan modification agreement, she received a knock on her door. On her doorstep were two representatives of a local lawyer’s office who told her the house had been sold, and she had three days to get out. The new owner had paid $78,000 for the house, which Flores had paid $352,000 to buy in 2006.
The sale was triggered by the fine print in Flores’ Home Affordable Modification Program application, created by the U.S. Treasury Department and widely used by mortgage lenders when working out loan modification deals. According to HAMP document, foreclosure "may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law."
In plain English, that means the homeowner may make all the required payments, and abide by all the stipulations required by the lender, and still see the house sold without his or her knowledge or approval. The language only covers homes that have already entered into the foreclosure process, according to the U.S. Treasury.
For the record, a U.S. Treasury spokesperson told McClatchy that the loan service in question was “non-compliant” for selling the home after Flores had successfully completed the application stipulations and made all her payments during the three-month trail period.
The takeaway for homeowners engaged in a loan modification process? Read the fine print carefully. Better yet, hire a lawyer and have him or her read it. It might cost you a few hundred dollars, and yes, money is tight these days. But you can consider it an insurance policy against having your home sold out from under you without your consent.