Loan Modification Agreement Requires a Trial To Determine What Parties Actual Agreement Was

By Attorney Briane Pagel

Over the past 10 years, an increasing number of homeowners have had to modify their original loans to take into account new financial circumstances, and this trend will likely continue. But many times, the urgency of the need to stop a foreclosure or avoid a default on a loan will cause homeowners to enter into agreements which they do not fully understand, or which the lender has written in such a way as to confuse homeowners.

Lawton & Cates this month successfully convinced a federal judge to require a lender to stand trial on whether a loan modification agreement allowed the lender to raise the borrowers' monthly payment. The agreement allowed the lender to raise the interest rate, but the homeowners had believed any increases in interest would result in a larger payment at the end of the loan (known as a "balloon payment"), rather than an increase in each monthly payment. 

The federal court agreed that the agreement was unclear and ambiguous about what the parties intended, so ordered a trial, at which a jury will determine what the contract actually means. If the homeowners are successful, they may be awarded damages including a refund of any overpayments as well as their attorney's fees.

Loan modifications are a serious matter. If you are having difficulty with your mortgage, contact Lawton & Cates and ask to speak to one of our consumer protection lawyers.