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Loan Modification Lawsuits: Step by Step



A loan modification is a process whereby eligible homeowners negotiate changes in the terms of their mortgage agreements with their lenders that offer them more favorable payment conditions, such as a lower interest rate, reduction of the principal, forgiveness of late fees or arrearages, or a longer time to pay. In some cases, however, a lender, individual, or business that misuses the loan modification process can face a loan modification lawsuit.

Distressed homeowners who feel they have been scammed, or that their loan modification application has been inexplicably turned down despite having met all the requirements, may wish to follow a step-by-step process to sue lenders or individuals who may have defrauded them.

Allegations Against Lender or Scammer

There are a number of allegations that can be brought against a lender, business, or legal or financial professional in a loan modification lawsuit. These include:

  • The bank claims it lost your documentation.
  • An extension granted by a lender during a trial modification is suddenly withdrawn, despite payments having been timely made, and results in foreclosure.
  • The original loan was predatory.
  • A leaseback scheme initiated by a business or individual causes loss of your home.
  • A fake modification program was initiated by a lawyer or alleged financial consultant.
  • There was a breach of contract.

Before Filing a Lawsuit

The step-by-step process of filing a loan modification lawsuit includes your filing a complaint with a particular agency that regulates the industry or business. This could be your state's Attorney General's Office or the Federal Trade Commission (FTC). If your complaint is against a real estate broker, you can file a complaint with your state's Department of Real Estate. A complaint of unethical or illegal conduct by an attorney can be filed with the state's bar association.

Any of these complaints can be resolved individually. The FTC, bar association, attorney general’s office, or real estate commission will investigate your complaint and could impose sanctions on the offender such as a suspension or loss of professional license. An offender could also face prosecution in court if there are criminal violations, but there is generally no civil remedy for you individually, although your complaint can prevent others from being harmed.

Civil Remedy

There is no time limit for these agency investigations once you file your complaint, so you should promptly consult with an attorney to avoid missing any time limits for filing a civil lawsuit. Lawsuits can take years to resolve, and you can use the results of the agency's investigation in your individual lawsuit.

When meeting with your attorney, bring all your documents, correspondence, email, and any other evidence of your dealings with the lender or individual. Your attorney could attempt to talk to the lender and inquire about your allegations and see if there are lawful reasons for their actions or any satisfactory remedy. If none exist, your attorney may bring the lawsuit.

The Legal Process

Once the lawsuit has been filed, the defendant lender, business, or individual has to respond within a certain time. If an answer is filed, then the discovery process begins. This is a process whereby the parties request production of certain documents to prove the allegations made or to defend against them, and to depose individuals involved in the loan modification procedure.

After the time for discovery has passed, the court will set a trial date along with required alternative settlement procedures such as mandatory arbitration or mediation. If these do not result in a settlement, then a trial is the only other option.