For a while, homeowners having trouble with their mortgages were not faring well in the courts. A couple of years ago, one even held that homeowners who had received a formal foreclosure notice could not challenge the bank’s authority to sell their house. They could not make the bank show that it owed the mortgage or that they owed as much money as it said they did. They had to choose either to pay up or to risk losing their home.
At least in one area, the tide seems to be turning. Every lawyer working with homeowners has heard stories of banks promising to offer mortgage modifications but not following through. The bank would give the homeowners a trial payment period and tell them that if they paid on time for four months or so, it would offer them a loan mod. The homeowners paid right on time, but upon asking the bank about the modification, they got nothing back. Instead, the next they heard, the bank was selling the house.
For a while, homeowners challenging these foreclosures in court did not do well. The banks argued, and the courts agreed, that the bank’s promises were not an enforceable contract. The homeowners promised to do nothing but pay their mortgage, which they were already supposed to do. Also, the banks promised to do no more than make an offer.
In any other cases, the banks’ arguments would be perfectly sound. Every contract requires both parties to give something up and get something back, and the homeowners weren’t giving up anything they hadn’t already promised. And the courts only enforce what the parties have agreed to; they can’t force the parties to agree. An agreement to agree, or to make an offer, is no agreement at all.
But now the banks are losing. By accepting money under the Troubled Asset Relief Program (or TARP), they subject themselves to HAMP, the Home Affordable Modification Prorgrams. And HAMP requires them to make a good faith offer.
Any homeowner who has lost a home, or is threatened with foreclosure, after the bank offered a loan mod should see an attorney right away.