New foreclosure law to help end loan mod run-around

New foreclosure law to help end loan mod run-around »Play Video
Loan modification programs are supposed to help you prevent foreclosure and for many, the programs have worked. But since they started in 2008, they've been the target of complaints about lender mistakes, negligence, and indifference.

"I think some of it truly is incompetence and being overwhelmed," said Seattle attorney Melissa Huelsman.

"But I think there's a lot of intentional incompetence. Certainly these modification programs have been inexistence now for three years. If they wanted to, they could have sufficient staffing and competent people on the other end who knew what they were doing, who didn't lose everybody's faxes and emails and receipts." Huelsman added.

Huelsman worked with other consumer advocates at Columbia Legal Services to get House Bill 1362 passed in Olympia. She says the new foreclosure law should help put an end to the loan modification run-around.

Under the new law, if you think modifying your mortgage loan will help you stay in your home, you first meet with a certified housing counselor or attorney, much like the procedure already in existence.

But here's where things change. If loan modification seems feasible, the counselor or attorney refers you for mandatory mediation with your lender and/or other entity that controls your loan, not just an employee or representative with no power. An outside mediator in present and confirms that your lender is acting in good faith. Unlike the current process at many institutions, as long as you're in mediation, the foreclosure process stops.

"So you can't have any of this nonsense about, 'Oh, we don't have the authority to do that. Gosh, the owner of the loan really won't let us.' The entity needs to be there with authority," Huselsman said.

She says the new law stops lenders from keeping homeowners busy with paperwork while quietly proceeding with foreclosure- then denying loan modification just days before the house goes up for auction. If it turns out you do not qualify for a loan modification and you must accept foreclosure, the new law gives you more breathing room to take the next step..

"You would have a good three or four months to then figure out what you're going to do," Huelsman said.

The new law, known as the Foreclosure Fairness Act, doesn't take affect until mid-July. But in a separate, federal development , a number of major banks just signed a consent decree with the U.S.Comptroller of the Currency- agreeing to clean up their foreclosure, refinance and loan mod procedures. If you're in the loan modification process, remind your lender about the federal agreement and the new state law. Ask them to stop foreclosure proceedings until the loan modification process is complete.

For more information:

Banks reach agreement with federal regulators