A mortgage modification is a specific type of loan modification for residential real estate. It generally involves the changing or reworking of the terms to an original mortgage contract.

For instance, the option to modify a mortgage loan may be made available to a homeowner when they have been making regular payments on the initial mortgage for a long period of time and now, for some reason, they have run into a challenge to continue the same amount of payments.

While loans are typically modified due to high interest rates or monthly payments that have become too expensive for the borrower, it is also possible to increase the amount being repaid. One reason someone might want to increase their loan payments is so that they can pay it off sooner and can avoid having to pay back more in fees or accrued interest.

There are certain mortgage concepts and terms that constantly show up during negotiations for a modification, such as the following:

  • Interest rates;
  • Payment schedules; 
  • Back payments (i.e., when the homeowner has missed previous payments); 
  • Penalties for non-payment; and
  • Possibilities for additional financing or obtaining a second mortgage.

In most cases, loan modification terms are governed according to contract laws. The reason for this is because the conditions for modification are generally included in the original mortgage agreement.

For example, a provision may state that mortgage modifications can only occur after a certain amount of time has passed.

Therefore, if nothing was specified when the parties entered into the agreement, there may not be an option to modify the mortgage or it might be limited to very specific circumstances. 

What are the Legal Issues Involved in a Mortgage Modification Lawsuit?

There are certain cases where it may become necessary to file a lawsuit due to a mortgage modification dispute. Mortgage modification lawsuits typically focus on the issue of missed mortgage payments.

However, mortgage modification lawsuits may also involve many other legal issues, including:

  • Foreclosure: Mortgage modification is often presented as an alternative to a foreclosure action or as a remedy to a foreclosure lawsuit;
  • Liens: Where instances of serious non-payment issues arise, a lender can sue in order to obtain a lien on the property. If granted, the lien will allow the lender to assume ownership of the home and permit them to resell it to recover any owed debts;
  • Breach of Mortgage Contract: Either party may be held liable for breaching the mortgage contract. If this occurs, it can result in the enforcement of real estate contract penalty clauses;
  • Predatory Lending: Predatory lending occurs when a lender seeks out a susceptible buyer (e.g., an elderly or first-time borrower). They may then take advantage of them by offering a loan with a significantly higher interest rate than what the loan is actually worth; or 
  • Mortgage Fraud: Both parties can be held liable for committing mortgage fraud. This most frequently arises when the borrower lies on their loan application by making false statements, putting another person’s name on the documents, or failing to disclose crucial facts to the lender.
    • Alternatively, a lender may also be held responsible for acts that constitute mortgage fraud. An example of this is when a lender forges a mortgage contract. If fraud or forgery is discovered, the borrower will be able to assert it as a defense against a lender’s action for foreclosure.

The legal remedies that are available for lawsuits regarding mortgage modifications often involve a monetary damages award. This will be issued when a party needs to be reimbursed for some kind of financial loss.

Additionally, aside from liens, there may be other non-monetary remedies available as well, such as for a judicial or forced sale of the property. In some cases, a complete seizure of the property may be granted.

Do I Need a Lawyer for Help with a Mortgage Modification Lawsuit?

On their own, mortgage modifications can be a very sensitive subject because they deal with personal issues, such as a person’s home and their financial situation. This is especially true when a person is in danger of losing both their house and more legal costs in the process. The topic becomes even more stressful when a dispute turns into a full blown lawsuit.

Mortgage modification lawsuits can sometimes involve multiple parties and may concern a number of different legal issues. When these factors are present during the proceedings, the case can become quite challenging and will generally require the assistance of a lawyer.

Whether you are trying to enter into negotiations for modifying your mortgage loan or are involved in a mortgage modification lawsuit, it may be in your best interest to contact a local real estate attorney.

A qualified real estate attorney will be able to provide you further legal advice regarding mortgage modifications, can participate in negotiations for one on your behalf, and can represent you in court in the event that a lawsuit arises.

Additionally, a lawyer will also be able to help you change or edit any relevant contracts and can discuss what your legal options are for obtaining the best available solution.