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Giving up rights for a loan mod

By Polyana da Costa · Bankrate.com
Tuesday, May 10, 2011
Posted: 12 pm ET

You're struggling to make payments on your mortgage and you learn that you've been approved for a loan modification or a forbearance agreement that will allow you to catch up on payments.

That might be great news but before you sign on the dotted line, read the fine print to make sure your lender is not asking you to waive your legal rights in exchange for the supposed help.

ProPublica, a nonprofit news organization, reports several mortgage servicers have been sneaking waiver clauses into loan modification and forbearance agreements that limit homeowners' ability to fight foreclosure or sue the lender for any reason related to the loan. The practice is not allowed in government-sponsored modifications such as HAMP and is banned in some states, including New York.

Not surprisingly, that hasn't stopped servicers from including the waiver clauses in their contracts.

"We've been seeing those waiver clauses since the very beginning," says Thomas Ice, a foreclosure defense attorney in Royal Palm Beach, Fla.

Ice says he often advises homeowners to refuse signing the waiver but many think they have no bargaining power and "feel this is their last opportunity to save their home, no matter what the consequences."

They think by signing the agreement they will reach a final resolution with the lender but that's not always the case. If you happen to default again in the future, the waiver would make it much easier for your lender to take over your property, he says.

"Some waiver clauses are particularly onerous in that, when the bank feels your payment is even one day late (which is something that they determine in their sole discretion), they can move for summary judgment on your house without even telling you or notifying you about the hearing," Ice says.  "So if your payment gets lost in the mail, or the bank incorrectly logs in the date of receipt, you may not know about it until the sheriff comes to put your furniture out on the street."

A typical waiver will read as clear as: "borrower has no defenses or counterclaim," but it can also come in less obvious forms such as "representations," says attorney Daniel Kaskel in Boca Raton, Fla.

That could be a paragraph stating the borrower acknowledges the particular lender is "the holder and the owner of the note" in dispute. It could be a statement saying the lender "is not in default" and has committed no wrongdoing and "the borrower has no defenses to lender’s claims." Any of those could harm a borrowers' ability to fight the lender in court.

What should you do if you're asked to sign a waiver clause?

Attorneys say you should try to negotiate with the servicer and ask it to remove the clause. You might be surprised to see that even though some lenders may resist it at first, they'll agree to your terms.

"We all agree that generally, homeowners shouldn't sign these," says Ginna Green, a spokeswoman for the Center for Responsible Lending. "Asking folks to waive their rights as a condition of a loan modification is a red flag and a sign -- among many -- that lawmakers and regulators need to keep their eyes on this industry."

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8 Comments
anie
June 20, 2011 at 6:25 am

What a crock! These banks and other lender companies need to be stripped of their power. We The People are the only ones that are going to do this. After all it is We The People that made the choice to put the current Administration in place and they are working behind the scenes on this. I urge all people to not take this lying down. keep putting pressure on Congress for a fix to this mess. The entire government is corrupt so you can't expect much but one of the ways to help fix this for the future is to get term limits in place. Six yr. stints and then a review of the person to see how they have preformed. Not good and they are gone. Otherwise, a second six yrs. and then they are gone. And by the way, let us have some relief from paying out big bucks on pensions and other perks to these so called do gooders who are playing God with everybody's life. As for these banking institutions, may you all rot in hell.!

mike ryder
May 20, 2011 at 9:59 am

It is not legally possible for someone to sign a waiver giving up your rights.These waivers will not stand up in a court of law. Fortunately and unfortunately the law is the law!!!!!!

mike ryder
May 20, 2011 at 9:53 am

They should have aimed higher

Jaded
May 18, 2011 at 7:55 pm

MERS is illegal and a scam. So were the pooling of the mortgages into derivatives which were sold on Wall Street. Foreclosures are dropping because lenders cannot foreclose on properties that went through the MERS system ... it's all over the news. The lenders/servicers have shot themselves on their own feet!

Homeless
May 11, 2011 at 9:49 am

NOT AT ALL SURPRISING...SUCH A SHAME.