Help! Bank Foreclosure During Temporary Loan Modification Process

Over the last few days, we have received calls and e-mails regarding banks proceeding to foreclosure during the loan modification process.  The story usually goes like this:  "We talked to the bank about a loan modification, we sent the bank all of the paperwork it asked for, the bank said it had everything it needed and would process our loan modification request.  We waited and waited.  We called the bank weekly about our loan modification request.  We waited some more.  Months went by. We continued to call the bank.  The bank told us we were all set.  The next thing we know, the bank foreclosed on our house!"

Can the banks foreclose during the loan modification process?  The entire goal of HAMP is to keep borrowers in their homes.  Foreclosing during the loan modification process obviously does not achieve that goal.  The HAMP guidelines state: "Any foreclosure action will be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options.  In the event the Home Affordable Modification or alternative foreclosure prevention options fail, the foreclosure action may be resumed."

Borrowers who were foreclosed on during the loan modification process or after complying with temporary loan modification requests may be able to find some help in court filing a lawsuit against their lender for violating the spirit and provisions of the HAMP program.  As we reported here, class actions have been filed against BOA and Wells Fargo for failing to make temporary loan modifications permanent.   Some individual borrower lawsuits against banks are being reported in various parts of the country.  Whether or not a borrower can sue their bank for violating HAMP depends on the nature of the violation and the borrower's state consumer protection law.