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Bank reportedly modified mortgages, despite repayment plan

During the years of the Great Recession, many homeowners in Illinois and across the nation negotiated with their lenders to modify their mortgage, in order to avoid foreclosure. However, some homeowners who filed for Chapter 13 bankruptcy during that time and whose mortgage lender was Wells Fargo reportedly found that the bank not only modified their mortgage without the homeowner's consent, but also significantly extended the homeowner's mortgage obligations.

Some of these homeowners have since filed a lawsuit against Wells Fargo. So far seven lawsuits have been filed, including one class-action lawsuit. The class-action lawsuit was filed by a couple who entered into Chapter 13 bankruptcy in February 2014. In this type of bankruptcy, a person's debts, including their mortgage, are reorganized in a way that allows them to pay them off over the course of several years. Subsequently, in November 2015, the couple found that Wells Fargo, the financial institution their mortgage was under, filed a "stealth modification" of the couple's mortgage, even though the court had already approved the couple's Chapter 13 bankruptcy repayment plan.

In a Chapter 13 bankruptcy, any changes to the approved repayment plan require court permission and the approval of the debtor. The couple in this case stated that they did not consent to the alterations to the terms of their mortgage. The change reduced the amount the couple paid on their mortgage each month from just over $1,400 to $1,270. Per the couple's Chapter 13 repayment plan, the couple agreed to pay the rest of their mortgage, amounting to $145,000, over the course of 14 years. However, due to the "stealth modification," the couple was now obligated to repay the mortgage over the course of 26 extra years. This also meant that the couple went from owing $55,000 in interest to as much as $129,000 in interest. Moreover, the "stealth modification" came with the implied caveat that the couple's home would be foreclosed upon if the couple did not accept the new terms of the mortgage.

It remains to see what the results of these lawsuits will be, but what is important to take away is that if a debtor has a court-approved Chapter 13 repayment plan, their mortgage may not be modified unless the debtor and the court agree to do so. Those who have experienced similar situations may want to seek the advice of an attorney.

Source: Consumerist, "Wells Fargo Accused Of Adding Years To Modified Mortgages Without Telling Borrowers," Ashlee Kieler, June 15, 2017

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