Loan modifications and lender amnesia

Loan Modification Documents Lost

26 Jan Loan modifications and lender amnesia

Loan Modification Documents Lost

Remember secret writing with lemon juice when you were a kid? It seems that a loan modification may be just as invisible over time as that childhood exercise.

Loan modification requires reams of paper. Homeowners submit their information, the lender loses it, submit it again, and again, and…

Given the difficulty that the lenders and servicers have in keeping track of the endless documents they request of homeowners seeking loan modifications, I’ve wondered about what would happen if a loan modification was really granted.

How would institutions who can’t keep track of the payments you make or the papers you submit keep track of a loan modification made with so much less formality than the original loan?

I got the answer last week. It was what I suspected. They don’t keep track of the loan modification.

This came out in two different bankruptcy cases in which the homeowners had secured a loan modification before filing bankruptcy. In each case, the lender filed a proof of claim in the bankruptcy case based on the original, not the terms of the modified loan.

So, Big Bank has not updated its computer system, yet or at all, to reflect the new deal.

What’s to think they will be any better at retrieving the fully executed loan modification agreement than they were at keeping track of the application to modify? Most loan modifications are not recorded in the county real estate records. They simple reside in the servicer’s records.

Both from the perspective of a lawyer who can expect to handle such cases and from the view of each borrower who got a precious modification, it’s pretty scary.

It is eerily reminiscent of the last scene in the Raiders of The Ark, when the object of the whole adventure is crated off to a government warehouse?

Image courtesy of ttcopley.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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