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Banks giving loan modifications but only if homeowners waive legal rights

Banks and lenders with new requirements

It has been a dramatic year in the lending industry with changing requirements[1], news that half of the housing market is now distressed[2], and endless infighting over how to resolve the robosigning debacle wherein banks illegally (or “wrongfully” if we’re being politically correct) foreclosed on homes[3].

Some homeowners have stood up against banks by going on hunger strike[4], suing back for millions[5] and even foreclosing on bank branches through loopholes[6] to the point that we’ve asked how the legal system is going to handle the onslaught of lawsuits[7] of all the victims (and even those that are not victims but putting their palms out anyhow). All that could change, however.

Rights wavers buried in fine print

According to a new study by Slate and ProPublica[8], banks are now choosing to be proactive and have “buried in the fine print” a rights waver so that a homeowner has to agree to never sue the bank for anything relating to the loan in order to get a loan modification.

On one hand, it sounds fair and is part of a standard settlement- the bank will change your loan, but you can’t sue them over it. On the other hand, it is a form of blackmail, especially in light of ProPublica reporting this practice has already been banned.

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Homeowners in a vulnerable situation?

The report implies that most homeowners won’t understand or realize they’re signing a waiver as it is not a separate form or given much attention, rather “buried” in fine print deep in the loan modification offer. Even if vulnerable homeowners do understand that they’re having to waive their rights, their choices may be limited- lose their home or lose their right to defend themselves?

ProPublica “identified eight banks and other mortgage servicers who offer help that limits homeowners’ ability to sue or fight foreclosure. When contacted, they offered a variety of responses. Some said the inclusion of the waivers had been a mistake and would stop. Some argued that language that seemed to waive the homeowner’s rights didn’t actually do so. One argued that a loophole in a rule barring the practice meant their inclusion in certain agreements was proper.”

No legal challenges. Yet.

The waivers have not been challenged in court yet, so it remains to be seen if they will hold up, but it seems highly questionable that the same banks (Bank of America, Wells Fargo, Chase and the like) that are losing lawsuits have responded by a back door waiver of rights that allows them to abuse homeowners in any way they deem “proper” given the homeowner has waived rights forever just to modify their loan.

Tell us in comments what you think of this rights waiver- is it a fair and acceptable part of a settlement with a homeowner (we’ll make this change but you can’t sue us for it later), or is it a gateway for further abuses in an industry whose ethics are consistently questionable?

Resources:
[1] “Government to mandate 20% down on all home loans – is housing doomed?”
[2] “Distressed homes now half of the housing market, is there a silver lining?”
[3] Robosigning debacle, stories of illegal foreclosures
[4] “Hunger strike in Austin over foreclosure comes to an end”
[5] “Military homeowners’ class action suit against Chase settled for $48 million”
[6] “Homeowner forecloses on Wells Fargo office, becomes folk hero”
[7] “How will the legal system handle the coming onslaught of lawsuits?”

[8] Slate & ProPublica story “Mortgage modifications: Some lenders ask homeowners to waive their rights in order to get mortgage relief”

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26 Comments

26 Comments

  1. Jacksonville short sale

    May 10, 2011 at 6:31 am

    I'm not surprised about this. After dealing with the banks over the past several years with Short Sales, I'd believe just about anything sketchy originates at banks first.

  2. Don Reedy

    May 10, 2011 at 9:10 am

    Fine piece of reporting on another virus infecting our industry. You have got to know that in rooms all around the country the banks are meeting to continue their quest to (as Burger King would say) "have it their way. Having it "their way" in fine print is why good real estate agents, good lawyers (stop laughing and wipe that coffee off the paper), and good common sense reporting are all that stand between contract law and the human condition. And for me, that's enough to say to consumers, if the print is small, get yourself a good pair of reading glasses. Can't say you weren't warned.

  3. MH for Movoto

    May 10, 2011 at 1:50 pm

    While I agree with "Jacksonville short sale" insofar as this doesn't surprise me a bit, I have a hard time seeing this as anything BUT blackmail. And that's the only way I can imagine it being successfully challenged.

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