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  • reversemortgageA panel of three judges in California ruled against a bank who promised to start loan modification negotiations in exchange of the borrower lifting their motion for bankruptcy and then failing to do so.

    This is good news for homeowners nationwide who are also suffering from the underhandedness of some servicers and lenders. The decision opens the way for further lawsuits against lenders who make a practice out of being less than truthful with their clients and even places a question mark on many of the foreclosures that are currently in process. Understanding what happened in this case is a good case example of how the law can protect you from greedy and dishonest lenders.

    Claudia Aceves purchased a mortgage with Option One Mortgage Corporation to purchase a $845,000 house. The increase in her mortgage’s adjustable rate made the monthly payments unaffordable. She filed for bankruptcy under chapter 7, which would allow her to discharge the debt on her home. However, her husband offered to help financially and she changed her bankruptcy application to a chapter 13 bankruptcy, which would allow her to adjust her debts, create a repayment plan and keep her home.

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    When the bank heard of this it contacted Aceves’ lawyer and offered to negotiate a loan modification if she lifted her motion for bankruptcy. She did. What Aceves did not know was that her bank had no intention to offer a loan modification and had already taken steps to sell her home in a foreclosure auction. Days before the auction was to occur the bank offered Aceves a unilateral “loan modification” offer that would increase her mortgage balance by $120,000 and her monthly payments up to $7,200. Naturally, Aceves did not accept. She lost her home and sued the bank for not honoring their promise to negotiate a loan modification. The first judge that heard the case failed in favor of the bank, but the Court of Appeals decided a unilateral offer was not a loan modification negotiation and the bank was in breach of contract.

    This decision creates a precedent for other homeowners who are treated in a similar way by banks who wish to unload “bad debts” and force foreclosures on properties on which a foreclosure is financially preferable than a drawn out loan modification the lender may or may not pay.

    If you are facing the possibility of a foreclosure contact HUD, at HUD.GOV and ask for a free foreclosure counseling service. Trained foreclosure counselors can explain what your options are and even help with negotiations with your bank.

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