Mortgage Modification Ashamed

In the bankruptcy case DiMare, Donna M.; In re (DiMare v. Ameriquest Mortgage Co., et al.), the debtor filed Chapter 13 bankruptcy and sued their original mortgage lender under the Truth In Lending Act.  The bankruptcy court sided with the lender and issued a summary judgment in the lender’s favor.

The details of the bankruptcy case and lawsuit:

On Feb. 20, 2004, the debtor refinanced the mortgage on her home in order to remove her ex-husband’s name from the debt. Within two weeks after the closing, the debtor received copies of the closing documents including five copies of the Notice of Right to Cancel. The debtor made three payments and then became delinquent. After discus­sions with the lender, the parties agreed to forbearance. The lender said it sent the debtor a forbearance agreement, which included a release. The debtor said all she received was a signature page, which she signed and faxed back.

It’s important to point out that this debtor made what turned out to be a huge mistake.  Never sign off on documents you have not seen, even if those documents are coming from a “reputable” mortgage lender.  The fact that this debtor signed off on missing papers illustrates how desperate she must have felt at that moment.  This is often the case when financially strapped homeowners try to negotiate with lenders without the help of an attorney.  In this situation the debtor should have requested that the mortgage lender send all the documents for her review before signing them.

In August 2005, the debtor refinanced the mortgage. She again fell behind on her payments. Unable to negotiate a forbearance agreement with the new lender, the debtor filed for Chapter 13 relief and sued the original lender for violating the Truth in Lending Act. The debtor alleged that she did not receive a preclosing disclosure from the lender, who countered that the disclosures were provided to her on Feb. 17, 2004. The lender asked for summary judgment. The court found that it could not grant summary judgment based on the release because the lender was unable to produce a complete signed copy of the agreement and the debtor claimed that she never received it. However, the lender was entitled to summary judgment because the debtor received adequate notice of her right to cancel the mortgage even though she did not receive a copy of the notice until after the date certain for rescission had passed.

This debtor probably should have spoke to a bankruptcy attorney the moment she began to fall behind on her mortgage.  Refinancing her mortgage was not going to fix her financial situation but bankruptcy may have offered some relief sooner.