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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 111526
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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I have a question concerning a loan modification program,

Customer Question

I have a question concerning a loan modification program, the terms of which I believe are illegal. My loan servicing company initially offered me a loan modification program with a payment that constituted over 56% of my income. I initially paid it, then quickly realized they were in error, and had my then-attorney confront them about the mistake. They admitted their error and re-calculated the loan mod payment to an appropriate amount. I began to pay the mod, executed the paperwork -- which they likewise executed and accepted. Several weeks after the first payment was due, I was served with intent to foreclose paperwork. My then-attorney contacted their attorney, and neither she nor he were ever heard from again. A year later, I aggressively pursued the loan servicing company, demanding answers for the screw up on my loan mod and demanding they correct their error and re-instate. They assigned a new relationship manager, who informed me that both prior mods, which they had screwed up themselves, were shown in my record as "failed," despite the fact it was entirely their error. She had me complete new loan mod paperwork, which I did. However, this time they have approved a loan mod in which there are all kinds of strange conditions: 1) they claim they are reducing my interest payments by $650K, which will therefor show up as income to me. 2) if I sell the house for a profit, they will claim 25% of whatever that profit is; 3) I will be responsible for paying for other fees via balloon payment. None of this was attached to any loan mod I've heard of. Can you please advise if this is legitimate? Thank you.
Submitted: 1 year ago.
Category: Real Estate Law
Customer: replied 1 year ago.
I hasten to add that I am seriously considering just turning the house over to them. It requires nearly 100K in repairs, having survived Hurricane Sandy and other natural events. and I am sick and tired this nonsense.
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

1) Unfortunately, in any loan forgiveness, any forgiven interest is considered taxable income as is any forgiven principle according to the IRS and Tax Court in Robert J. Brooks v. Commissioner, TC Memo 2012-25, Jan. 26, 2012.

2) The sale of the house and their entitlement to any proceeds is legal and subject to negotiation by you. They can ask for a refund or recoupment from proceeds of any sale for any forgiveness granted, which would then be deducted from your taxes of course as well.

3) This can be an issue, balloon payments can be indications of predatory loans, so this is something that needs to be examined more carefully.

Furthermore, if you already have signed agreements, you can likely force them to abide by the last signed agreement and it is something you may want to also consider.

I would not sign this and I would strongly consider getting another local consumer protection law attorney to deal with this as it has some aspects that could potentially raise flags for predatory loans and could also be a breach of the other contract for modification you signed and an unfair and deceptive practice.

Customer: replied 1 year ago.
Thank you for the information. What I do not understand -- and will get from them tomorrow -- is why these conditions were not part of the original two loan mods entered into, and why, now, they are conditions. I agree that holding them to the corrected loan mod is the most practical and reasonable solution, but, to be honest, I am leaving the house and want to just walk away in a manner that requires paying nothing to them. I was taken for a ride on this house and have spent hundreds of thousands of dollars fixing things, only to get smacked down by Sandy and the storms directly afterward. We have never recovered, and I am just plain sick of being a home owner. I am somewhat familiar with the deed in lieu of foreclosure option, but do not know if it will allow me to just hand the house back over to them without having to pay anything. At one point, this house appraised at nearly twice the value for which it was purchased. It now appraises at the value for which I bought it, and now requires at least another $100k of repairs. Very, very depressing. Thank you so much for your help.
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your reply.

They have to agree to the deed in lieu of foreclosure. You can try what is called jingle mail where you send them the keys and deed with a quit claim filled out making them the owner and tell them you are giving the house back, but then they can still reject it or accept it.

You would likely need to try to find another way out, such as selling, because if not they can foreclose and sue you for any deficiency judgment.

That is why forcing them to stick to the last contract is likely your better option to fight first.

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