A bank decides to push through a loan modification to lower a struggling homeowner’s mortgage payments. Sounds good, right? Yes, in theory. But there can be adverse affects.
Wells Fargo is once again under serious fire for submitting unauthorized changes to mortgages for homeowners in bankruptcy. We’ve been speaking with clients about home loans and modifications, and this recent news sparked the idea for out latest post about suspicious practices that banks can take to elicit money under the guise of good will.Wells Fargo is currently entangled in several lawsuits from customers who claim the bank filed paperwork to lower their mortgages without consent, according to a recent New York Times article. The changes lowered the customer’s monthly mortgage payment. But they also extended it, often for decades, resulting in tens of thousands of dollars in extra interest payments at the borrowers’ expense. These changes looked like they were benefitting borrowers, but in fact they were benefitting the bank’s bottom line. And changes to payment plans for people in bankruptcy are subject to the Court’s approval. The bank did not do that in this case, according to the lawsuits.
To make matters worse, these changes were also filed using “a routine form that typically records new real estate taxes or homeowner’s insurance costs that are folded into monthly mortgage payments,” according to the same article. Basically, the bank hid these changes by submitting them in routine filings so as not to raise any red flags.
Not only would the bank get money from its customers, but is also allowed the bank to receive money from government programs that reward institutions that modify loans for customers in debt. Ultimately, it puts families in bankruptcy at a higher risk of foreclosure and falling into arrears on loan payments. Borrowers who file for personal bankruptcy often do so to save their homes, and they work with the courts and appointed trustees to establish payment plans with creditors that will satisfy both parties. By changing borrowers’ payment plans without approval, Wells Fargo threatened this system. These new payment plans were far lower than those initially submitted to bankruptcy court by the borrowers. If those new payments were made without the court’s approval, the borrowers would have come out of the bankruptcy process with a plan that owed the difference between the two mortgage amounts. This would put the borrowers back into debt, starting foreclosure proceedings and a wealth of new problems.
Our office’s suggestions to clients filing for bankruptcy in New York are to actively monitor your mortgage payments and keep detailed records of payment modifications if they occur in your statements. Communications of loan modifications from banks should be submitted to your bankruptcy attorney for review. As is often the case, “good news” is not always good when all is said and done.
If you are a small business owner considering filing for Chapter 11 bankruptcy in Queens, New York, Contact the Law Offices of Bruce Feinstein, Esq. today for a Free Consultation.