Loan Agreement Modifications: Impact On Guarantees In Massachusetts

In Massachusetts, a loan modification may be pursued when a borrower is unable to meet the long-term commitment of the payment schedule and terms in the original loan agreement. The modification may lower the required monthly payments and be more affordable for the borrower. However, it is important to understand the implications of modifying a loan agreement, especially regarding any guarantees provided. In the case of bankruptcy, for instance, a lender cannot revive a guaranty obligation discharged with a subsequent modification or forbearance agreement, as seen in the In re Schwarz ruling. This suggests that a modification of a loan agreement may impact the discharge of guarantees, and seeking legal advice is essential to understanding the specific circumstances.

Loan modification process in Massachusetts

The loan modification process in Massachusetts is designed to help homeowners who are struggling to pay their mortgage or have defaulted on their payments. The process aims to prevent foreclosure and make monthly payments more affordable so that homeowners can remain in their homes. Here is a step-by-step guide to the loan modification process in Massachusetts:

• Communicate with your servicer: Contact your mortgage servicer's "loss mitigation" or "loan modification" department. Keep detailed records of your conversations, including the names and contact information of the representatives you speak with.
• Understand your rights: If your servicer or lender claims you are in default, they must provide you with a written notice. This notice should inform you of your right to cure the default within 90 days. During this 90-day period, you have the opportunity to make back payments or apply for a loan modification before foreclosure-related fees are added to your balance.
• Request a detailed accounting: You have the right to receive a detailed breakdown of your mortgage loan. If the servicer provides a computer print-out that is difficult to understand, ask for a clearer explanation of the amount you owe, including any attorneys' fees, costs, and late charges.
• Apply for a loan modification: To be reviewed for a loan modification, you may need to fill out an application with your mortgage servicer and provide documentation of your income, assets, and debts. This may include tax returns, bank statements, utility bills, and proof of income such as paystubs or benefit award letters.
• Understand the modification terms: Before signing any agreement, ensure you fully understand the terms of the loan modification. The Consumer Financial Protection Bureau (CFPB) has established standards for mortgage servicing, which can be found in the Code of Federal Regulations, Title 12, Chapter X, Regulation X (Part 1024).
• Seek assistance if needed: If you encounter problems working with your servicer or have issues with a state-chartered bank or credit union, you can seek help from the Massachusetts Attorney General's Office or file a complaint with the Massachusetts Division of Banks (DOB).

It is important to note that, according to Massachusetts law, it is not permissible for a mortgage broker to charge a borrower a fee or receive compensation for assisting in the process of obtaining a loan modification. Additionally, Massachusetts offers the Home Modification Loan Program (HMLP), which provides 0% interest loans of up to $50,000 to eligible households for the creation of accessory dwelling units or modifications that increase long-term, at-home independence for older or disabled adults.

Loan modification options

If you are a homeowner in Massachusetts facing difficulty making mortgage payments or are in default, you can consider applying for a loan modification. Loan modifications can help make your loan more affordable by lowering the required monthly payments and preventing foreclosure. Here are some steps and options to consider when exploring loan modification:

Communicate with Your Servicer:

Reach out to your mortgage servicer and speak with someone in the "loss mitigation" or "loan modification" department. Keep detailed records of your conversations, including the names and contact information of the individuals you speak with. Ask them about the possibility of modifying your loan and express your concerns about your current financial situation.

Understand Your Rights:

In Massachusetts, you have certain rights if you are facing default on your mortgage. You have the right to receive a written notice from your servicer or lender stating that you have 90 days to "cure the default." During this 90-day period, you have the opportunity to make back payments or apply for a loan modification before foreclosure-related fees are added to your balance. You also have the right to receive a detailed accounting of your mortgage loan. If you don't understand any part of the accounting, ask your servicer for clarification.

Apply for a Loan Modification:

To be reviewed for a loan modification, you will likely need to fill out an application with your mortgage servicer and provide documentation of your income, assets, and debts. This may include submitting tax returns, bank statements, utility bills, and proof of income, such as paystubs or benefit award letters. The goal of the modification is to make your payments more affordable and prevent foreclosure. A modification may lower your interest rate or extend the term of your mortgage loan, resulting in lower monthly payments.

Seek Assistance:

If you are having problems working with your servicer or need help understanding your options, you can reach out to the Massachusetts Attorney General's Office for assistance. They may be able to help with communication issues or provide guidance on loan modification options. Additionally, if you have issues with a state-chartered bank or credit union, you can file a complaint with the Massachusetts Division of Banks (DOB), which oversees state-chartered banks and some credit unions. You can contact the DOB by calling (617) 956-1500 or emailing [email protected].

Remember, each homeowner's situation is unique, and it's important to understand all the terms of any modification before signing an agreement. Loan modification can provide a path to make your loan more manageable and help you avoid foreclosure.

Loan modification and bankruptcy

If you are facing financial difficulties and are struggling to make your loan payments, you may be considering loan modification or bankruptcy. Both options can help you manage your debt, but they have important differences. Here is some information to help you understand the process and choose the best option for your situation.

Loan modification involves renegotiating the terms of your loan with your lender. This can include lowering your monthly interest payments and extending the duration of the loan. Anyone can attempt a loan modification, but approval is at the discretion of the lender. The process can be challenging, and lenders may make it difficult to obtain the necessary information or appointments. It is important to understand all the terms of any modification before signing an agreement, as you will be bound by those terms once you do. The Consumer Financial Protection Bureau (CFPB) has established standards for mortgage servicing that can provide guidance. If you are having problems with your servicer, you may be able to file a complaint or seek assistance from the Massachusetts Attorney General's Office or a loan modification attorney.

Bankruptcy, on the other hand, is a legal process that can provide a fresh start for individuals struggling with unmanageable debt. Depending on the type of bankruptcy, it may involve liquidating assets to pay off debts or creating a repayment plan to repay debts over time. With a Chapter 13 bankruptcy plan, for example, the filing of the bankruptcy petition automatically stops foreclosure action, and you will need to have the plan confirmed by a bankruptcy judge. Bankruptcy can be a complex process, and it is important to understand the potential impacts on your credit and financial future.

Both loan modification and bankruptcy can provide relief from overwhelming debt, but they have different implications and requirements. Loan modification may be a good option if you are facing temporary financial difficulties and need more manageable loan payments. Bankruptcy, on the other hand, may be appropriate if you are dealing with more extensive debt that loan modification cannot adequately address. Consulting with a bankruptcy or loan modification attorney can help you understand your options and make the best decision for your specific circumstances. These professionals can guide you through the process and ensure your rights are protected.

Loan modification and foreclosure

If you are facing foreclosure in Massachusetts, there are several options to consider, including loan modification. Loan modifications can make loans more affordable by lowering the required monthly payments. They can also be more favourable for lenders than the loss through foreclosure.

If you are struggling to pay or have defaulted on your mortgage, you can take action to avoid foreclosure. Communicate with your loan servicer to find out how to apply for a loan modification or other foreclosure alternative. You'll want to speak with someone in the "loss mitigation" or "loan modification" department, keeping detailed notes of each conversation. Make sure you understand all the terms of the modification before you sign an agreement. The Consumer Financial Protection Bureau (CFPB) has set standards for mortgage servicing, which can be found in the Code of Federal Regulations, Title 12, Chapter X.

If your mortgage servicer claims you are in default, they must give you written notice. This notice must state that you have the right to cure the default and 90 days to do so. This period allows homeowners to make back payments or apply for a loan modification before foreclosure-related fees are added to their balances. You also have the right to receive a detailed accounting of your mortgage loan.

To request a loan modification or other foreclosure alternative option, you must complete and return the form included with the notice, along with any supporting information, no later than 30 days from the date the notice was sent. Within 30 days of receiving your request, the foreclosing party must provide a written assessment of your ability to make an affordable monthly payment. This will include a written statement of your income, debts, assets, and obligations, as well as the creditor's net present value analysis of a modified mortgage loan and their anticipated net recovery at foreclosure.

The process for determining whether a modified mortgage loan is offered should take no longer than 150 days. Not more than 30 days after receiving the notice, the borrower must notify the creditor of their intent to pursue a modified mortgage loan, an alternative to foreclosure, or their intent to waive the right to cure and proceed to foreclosure. The right to a modified mortgage loan shall be granted once during any 3-year period, regardless of the mortgage holder.

If you have an issue with your mortgage lender, you can file a complaint with the Massachusetts Attorney General's Office's Consumer Advocacy and Response Division. If your issue regards a state-chartered bank or credit union, you may want to file a complaint with the Massachusetts Division of Banks (DOB), which oversees state-chartered banks and some credit unions, as well as Massachusetts laws and regulations about modification and foreclosure processes.

Loan modification and guaranty obligations

Loan modification is a process that can help borrowers who are unable to meet the long-term commitment of the payment schedule and terms in the original loan agreement. The terms may be modified to reduce the principal balance, interest rate, or both. It is a long-term solution that permanently revises a loan for individuals lacking the capacity to repay. It is usually initiated by a loan servicing company acting under a contract to the loan's owner.

Guaranty obligations are a promise by a guarantor to pay a borrower's debt to a lender if the borrower defaults. If a guarantor is unable to pay their debts, they may file for bankruptcy. This will result in the discharge of their guaranty obligations.

In the case of In re Schwarz, a bankruptcy judge ruled that when a guarantor's obligation to guarantee a debt is discharged in bankruptcy, the lender cannot later require them to enter into a new guaranty for the same debt. The circumstances present a trap for unwary lenders that could result in lender liability.

Therefore, it can be concluded that loan modification can discharge guaranty obligations in Massachusetts if the guarantor files for bankruptcy before the loan is modified. However, it is important to note that this may not always be the case, and the specific circumstances of each situation should be considered.

Frequently asked questions