New York homeowners emerging from COVID-19 forbearance agreements are
encountering significant legal challenges, particularly concerning substantial mortgage
arrears and difficulties in securing loan modifications. Key issues include:
1. Accumulated Mortgage Arrears Post-Forbearance:
o During the pandemic, many homeowners entered forbearance plans,
temporarily pausing mortgage payments. As these plans conclude,
homeowners face the daunting task of addressing the deferred payments,
leading to substantial arrears. This financial strain complicates efforts to
negotiate loan modifications, as lenders may be reluctant to restructure
loans with significant outstanding balances.
2. Lenders' Reluctance to Modify Loans Due to Home Equity:
o Some lenders are hesitant to offer loan modifications to homeowners with
considerable equity in their properties. The rationale is that foreclosure
proceedings could allow lenders to recoup the loan amount by selling the
property, thereby capturing the existing equity. This approach leaves
homeowners vulnerable to losing their homes despite having substantial
equity.
3. Impact of Rising Interest Rates on Loan Modifications:
o The current environment of increasing interest rates poses additional
challenges for homeowners seeking loan modifications. Higher rates can
lead to increased monthly payments under modified terms, making it more
difficult for homeowners to manage their finances and avoid foreclosure.
Legal Considerations and Case Law:
Homeowners facing these challenges may explore legal avenues to protect their
interests:
Breach of Contract and Good Faith:
o Homeowners can argue that lenders are obligated to act in good faith
when considering loan modifications. In Wells Fargo Bank, N.A. v. Meyers,
108 A.D.3d 9 (N.Y. App. Div. 2013), the court emphasized that lenders
must negotiate in good faith during mandatory settlement conferences in
foreclosure actions.
Unconscionability:
o If a lender's refusal to modify a loan leads to unjust enrichment or is
deemed unconscionable, homeowners might have grounds for legal
action. In Emigrant Mortgage Co., Inc. v. Fitzpatrick, 95 A.D.3d 1169 (N.Y.
App. Div. 2012), the court found that enforcing a mortgage agreement
under certain conditions was unconscionable, thereby providing relief to
the homeowner.
Recommendations for Homeowners:
Hiring an attorney who specializes in foreclosure defense litigation can enable a
homeowner surmount the challenges of mortgage arrears that built up over covid by
doing the necessary financial planning to qualify for loans that are much large than pre-
covid. The procurement of a specialist also increases a homeowners chances
significantly in saving their home and keeping the equity in their home from being
confiscated by the lenders in foreclosure.
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