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Mortgage Law Today: Understanding Your Rights in Mortgage Loan Payment Default Solutions

By: Michael R. Treanor, Esq.

As an attorney advising homeowners in financial distress, I frequently encounter two fundamental questions: "Are homeowners with mortgage loans actually entitled to special legal protections?" and "Are lenders truly required to be reasonable when reviewing requests for loan modifications?" The answer to both, with important nuances, is a resounding yes.

Relief.

Renewal.

Guidance.

Empowerment.

Strong Legal Protections for Homeowners

Homeowners, particularly those residing in their primary residence, benefit from a robust framework of federal and state legal protections. These safeguards are not merely aspirational policy goals; they are enshrined in various federal and state statutes and regulations designed to foster transparency, fairness, and stability within the mortgage market.

Key among these are:

  • The Real Estate Settlement Procedures Act (RESPA): This act mandates that mortgage servicers (the companies you send your payments to) respond promptly and accurately to borrower inquiries and correct any errors.

  • The Truth in Lending Act (TILA): TILA requires clear disclosure of loan terms and, in certain situations, grants borrowers the right to rescind (cancel) a loan.

  • The Dodd-Frank Act: This landmark legislation imposed stricter servicing standards, prohibited deceptive practices, and established the Consumer Financial Protection Bureau (CFPB) to enforce these vital rules.

  • The Fair Debt Collection Practices Act (FDCPA): Often applicable during foreclosure proceedings, the FDCPA protects homeowners from abusive or misleading debt collection tactics.


These laws collectively underscore the federal government's recognition that owning a home is more than just a financial transaction; it's a cornerstone of American economic security and family stability.

Are Lenders Legally Obligated to Approve Modification Requests?

It's a common misconception that federal law compels a mortgage lender or servicer to approve a loan modification. This is not the case. However, federal regulations do impose a critical obligation: servicers must fairly and promptly review loan modification applications once they are properly submitted.  The bedrock of this obligation is Regulation X, which implements RESPA.

Under this regulation:

  • If a homeowner submits a complete loss mitigation application more than 37 days before a scheduled foreclosure sale, the servicer is legally required to pause foreclosure efforts while the application is under review. This provides a crucial window for homeowners to pursue alternatives.

  • The servicer must evaluate the borrower for all available loss mitigation options and provide a response within 30 days.

  • Should the application be denied, the homeowner generally has the right to appeal the decision under specific conditions.

In essence, once a homeowner initiates contact and fulfills the application requirements, the servicer is legally bound to take the request seriously and process it in good faith.

Furthermore, in many states, courts also protect borrower's rights and can enforce a general duty of good faith and fair dealing. This is particularly relevant when a borrower enters a trial modification plan or if the lender repeatedly mishandles or unduly delays the review process. Indeed, courts have, in certain instances, sanctioned lenders for acting in bad faith during these critical modification discussions. A notable example is U.S. Bank Nat’l Ass’n v. Sarmiento, a 2014 case from the Appellate Division, Second Department, which highlighted judicial willingness to address lender misconduct during the process of negotiating with the lender to cure a default.

Bottom Line

Homeowners are far from powerless. Federal law provides significant protections, especially during periods of financial hardship. While a lender may not be forced to grant a modification, they are unequivocally required to conduct a timely and fair review of a borrower's complete application.

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In my practice, I've consistently observed that homeowners who understand their rights – and assert them clearly and persistently – are in the strongest position to protect their homes and negotiate viable solutions. If you find yourself struggling with mortgage payments or exploring your options, do not delay. Early action, supported by sound advice and meticulous documentation, can truly make all the difference

Michael R. Treanor, Mortgage Law Today: Understanding Your Rights in Loan Modifications, Mortgage & Consumer Fin. L. Rev., July 14, 2025.

Michael Treanor is founder of Treanor Advocacy, a law firm dedicated to the rights of borrowers and homeowners.

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