A new ruling in a San Francisco circuit court has changed the law surrounding loan modification programs in that district, according to a foreclosure attorney close to the case. The ruling ends the practice some mortgage companies had been employing of using “trial refinancing” options to squeeze a few months’ extra payment out of homeowners they planned on foreclosing on anyhow.
A foreclosure attorney close to the case explains that the trial programs were offered to homeowners faced with foreclosure as an alternative to foreclosure proceedings, and many were happy to receive a loan modification they thought they would not be eligible for. Often the loan modification would involve a trial period of six months or so, with the idea being that it would move to a permanent modification if all went well and the borrower made their payments. But it wasn’t working out that way; instead, lenders would refuse to continue the refinancing period and move to foreclosure regardless of if the borrower had made all their payments under the new plan.
The circuit court ruled that banks would be required henceforth to make loan modifications permanent after completion of the trial period. This is a good step in the fight against foreclosure in the district, according to the foreclosure attorney.
The lenders do not seem thrilled by the ruling, according to the foreclosure attorney; they have released a statement to the effect that they will abide by the letter of the law if not the spirit, seeking ways to continue moving forward with foreclosures against people who have already completed their trial periods.