Is Suing Your Lender a Good Idea?

If you are mad, frustrated, stressed, confused and fed up with your bank and the loan modification process, you are not alone and it’s likely because your bank lied, and has given you the run around for months or years, and even broken laws — lots of them!

Banks are debt collectors, so be cautious in your dealings with them because making partial payments doesn’t mean you’ll save your home from foreclosure. In fact, according to Rep. Alan Grayson (see video below) servicers can make at least $6,000 for each foreclosure, so fraud is a now big business, and foreclosures are easier and more profitable than ever before.

Banks are known for erroneous loan modification denials and dual tracking, which means while they are supposedly helping you get a loan modification, they are still trying to foreclose on you. In fact, they’ve foreclosed on someone that never missed a payment! So, don’t believe your lender when they say they are going to help you because verbal promises don’t hold up in court.

What can you do if you’ve tried to get a loan modification, were denied, or were approved but your new payments aren’t affordable? In this post, we are going to attempt to clear up as many misconceptions as possible, and the pros and cons to filing lawsuits against your lender.

Suing Your Bank is Usually Not the Best Solution

The following offer is often marketed to distressed homeowners. Does it sound familiar to you?

“Want to save your home? Start by reviewing your original mortgage documents now, because the majority of mortgage contracts have flaws and fraud, which you can use to sue your lender. For example, look what happened in Yuba, where a jury awarded a homeowner $16 Million in a mortgage case! So, you may be entitled to monetary damages, principal reductions, or a free-and-clear “foreclosure proof” home – almost 100% success rate!”

Don’t believe the hype of that type of marketing.

Bottom line: suing your lender is unpredictable, complicated, costly, lengthy, and often results in failure. As such, anyone promising you a particular outcome that sounds too good to be true, usually is!

So, unless they can provide you lots of documentation to verify their claims, run the other way. In fact, even if they can provide you with documentation, it may be fabricated or meaningless, so you should have another third party or attorney review it as well.

Tip: Before hiring an attorney, you can learn more about your eligibility for the National Foreclosure Settlement by clicking here, and you don’t have to pay anyone a dime, either.

Banks are Used to Fighting These Battles in Court, and Typically Win

Why do most homeowners lose in court? Put yourself in the judge’s shoes. Yes, your lender broke laws, but you violated your mortgage contract and your “promise to pay,” so two wrongs don’t make a right. Meanwhile you received a huge benefit by living in your home for free, while not making payments.

legal-gavel

Banks also have billion-dollar legal funds, so their high profile attorneys are well funded, and statutes of limitations for your loan may be expired and/or fines for violations may only be a few hundred dollars, which wouldn’t even be enough to pay for your legal fees!

It seems even the government is fed up with frivolous lawsuits and lingering foreclosures by coming up with methods to expedite foreclosures in Florida as well as Michigan.

Then there’s the question of who owns your mortgage, can they prove it and “produce the note” in court, and if MERS (Mortgage Electronic Registration Systems) is involved, are their assignments and foreclosures valid? In fact, litigation with MERS, the largest mortgage holder in the country, is so common that they list recent successful cases on their “In the News” page.

So, do you need an attorney? Sure you do. In fact, your lender has lots of them, so it is prudent, and our recommendation is that you should always seek advice from an attorney or tax professional with any questions you have regarding your property, financing, tax liability and/or foreclosure.

But, do your homework before choosing a firm and keep in mind that retaining an attorney doesn’t mean you need to litigate against your bank.

Banks Have Paid the Price, but for Them, it’s “Business as Usual”

Banks have been sued for millions and billions of dollars for foreclosure fraud, and then sued again for millions for not helping homeowners get loan modifications, and millions for more fraud and guess what? Banks are still breaking laws and banks are still illegally foreclosing on homeowners, plus mortgage fraud is even increasing!

Furthermore, the money that banks are required to pay out for fraud appears to be going towards balancing their books (short sales and home-equity loans), rather than helping homeowners get loan modifications. As such, it doesn’t appear that even the government can control these “too big to fail” banks, so good luck taking them on yourself.

So, what’s the answer? Well even though these big legal wins are exciting and enticing, nobody should rush out and sue their lender because the same thing isn’t going to happen for everyone.

For example, the most historic judgment to date – the monumental $16.2 million verdict against PHH Mortgage, was dismissed by a California judge and reduced to nearly $160,000. So, just because you won the battle, doesn’t mean you won the war!

“Case law” is a result of prior court rulings, which attorneys can use in future cases to help build a case. However, case law doesn’t guarantee you will achieve the same outcome, because two judges can rule differently on the exact same matter.

Bottom line: these big wins used for marketing are often misleading because they aren’t telling the whole story. Your chances of winning comes down to the facts, the judge, and where applicable, the jury.

In fact, even the law firm that won the famous Yuba case mentioned previously is selective of the cases they take on, because according to them, 95% of lawsuits fail, which means you, too, should be cautious when considering litigation.

You can listen to the podcast here of Martin Andelman interviewing Steven Foondos, the managing partner of the law firm that took on the Yuba case on Andelman’s show, Mandelman Matters.

But, Aren’t Loan Modifications Scams, Too?

Oftentimes, the goal of litigation is to bring the lender to the negotiation table in hopes of getting you a loan modification, but if that’s the case, you may be paying more than you should because loan modifications are free and/or can be achieved using less aggressive methods. In fact, according to this Illinois attorney, “foreclosure defense doesn’t solve your problems by itself about 99% of the time,” because you need experts in BOTH financial and legal matters.

Loan modifications are getting easier, but homeowners working with their banks on their own still typically fail or get a payment they can’t afford, and default again within nine months. Here’s an example of a homeowner trying for two years and never being approved, and another that applied more than 10 times to receive a trial loan modification – which still doesn’t guarantee qualification for permanent loan modification.

Many service providers in this industry will magnify your pain points when it comes to a loan mod, and tell you that loan modifications are a scam and not much of a help. Well, according to recent government data, the median monthly savings from the Treasury program is $540, which is annual savings of $6,480. I know I could use an additional $6,480 this year.

What to Do Next if You’re Looking for Mortgage Help

We recommend getting a loan disposition analysis done, which is done on the same software platform banks use, so you can find out what programs you may or may not qualify for — and why ahead of time. This will clear up the feeling of uncertainty, and give you or your attorney something to push back if you get denied for a loan modification.

Once you have the report in hand, you can see your potential savings and determine for yourself how much of a benefit a loan modification can be for you and your financial stability.

Those savings could help you pay off medical bills, student loans, make home repairs, take a vacation, pay down credit card debt, or put your child through college. So, determine for yourself if it makes financial sense for you to get a loan modification, because noone cares more about your home than you and the litigation option, as said by my respected associate Martin Andelman, “is never quick, easy, inexpensive, or certain and it is always difficult, time consuming, costly, and you may lose.”

About Brett Robbins

Brett Robbins is the founder and CEO of The Homeowner Defense Network. The HDN offers systems that help homeowners discover what programs they may or may not qualify for and why in less than a week. The HDN also has a trusted network of mortgage relief service providers, and offers a proven credit education program.

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