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1st Mortgage wants to reset 30 year fixed in a mod but not as a new loan

Los Angeles, CA |

Is this legal? My bank has offered us a modification. They are dropping our interest rate from 6% to 4.5% for 3 years - BUT are resetting the note to start over as a new 30 year fixed (we've been paying 5 years). So the slimeballs are making up for their "modification" by adding more interest to the beginning payments by resetting the term.

To me, this should be a refinancing. The biggest question I have is is this LEGAL? they are essentially issuing a new loan and calling it a modification. If there are legal questions, do they have enough merit to bring to a judge if they eventually foreclose?

Attorney Answers 2

  1. Yes, this is legal. You do not have to accept the terms of the proposed loan modification. It is a modification. It is not a new loan nor is it a refinance.

    Even assuming there is a foreclosure in the future, most likely the lender will proceed by way of non-judicial foreclosure (trustee's sale) in the property is located in California. That means no court is involved, and no judge will rule on any legal issues.

    Frank W. Chen is licensed to practice law in the State of California. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.

  2. As my colleague has pointed out, yes this is legal. The parties to any contract may mutually amend the agreement as they see fit. That means the parties to agree to extend the time for performance (as it is here). Generally lenders reset to loan to a 30 year term in order to lower the monthly payment. if you feel it is not a good deal, you are under no obligation to accept the new terms.

    With regard to your second point, CA is a non-judicial foreclosure state. In other words, so long as you're in default under the terms of your note, the lender, through a trustee, may foreclose (and they never see a judge).

    Chances are you do not qualify for a re-finance of your property for several reason, the first being that there probably isn't sufficient equity in the property to refinance. Also, if you're getting approved for a loan modification, chances are that you're delinquent, which has affected your credit.

    Good luck to you!

    Attorney's response is not intended as legal advice and is intended for informational purposes only. Attorney's response does not create an attorney client relationship. Inquirer should seek the advice of a duly licensed attorney within that particular jurisdiction.

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