Bank Foreclosure During Loan Modification Process

Last week we briefly commented on the Treasury's proposed changes to the federal HAMP loan modification program.  One of the biggest changes to the program was designed to prevent foreclosure during the loan modification process.

We have been telling homeowners for quite some time that many of the problems with wrongful foreclosures and seizures stem from the failure of the servicers and lenders to have adequate internal and external communication policies and procedures in place to accurately and timely inform various departments and outside contractors and attorneys about the status of a loan or property.  Until this problem is remedied, we will continue to see wrongful foreclosures and seizures of borrower's homes.

The new HAMP directive (Supplemental Directive 10-02) does restrict lenders' and servicers' from foreclosing on a home during the loan modification process. Apparently, the stated Program goal of preventing home foreclosures was no enough to get this point across in the first place. 

The new Directive also addresses the internal communication problems so prevalent with lenders and servicers.   Under the Directive, servicers are required to establish procedures and processes to communicate with foreclosure contractors and attorneys about a borrower's loan modification status.   If past practice tells us anything, servicers and lenders will have a difficult time adhering to this new guideline.

Borrowers whose homes were foreclosed on while in the federal loan modification process may have rights to file a lawsuit against their lender and servicer under their state's consumer protection law. 

We will try to locate a good "cut and paste" copy of Supplemental Directive 10-02 and post relevant portions here in a subsequent blog.