Loan Modification Risks: Understanding Utah’s “Statute of Frauds”

Loan modifications are changes made to an existing loan’s terms beyond the specifications of the original agreement. With mortgages, loan modifications are often used to help homeowners catch up on their obligations and avoid foreclosure. Examples include:

  • Reducing the interest rate
  • Reduce the amount of the principal
  • Extend the terms of the loan
  • Apply a cap to monthly payments
  • Homesaver advances

Although ostensibly intended to assist borrowers who are experiencing financial problems, loan modifications have been getting a lot of bad publicity recently, thanks to lawsuits brought by consumers alleging that their lender misled them. Common complaints include allegations that the mortgage company recommended or encouraged borrowers to default on their mortgage to qualify for assistance, only to demand a huge sum of money afterwards.

Here’s a typical example. You’re struggling to make your mortgage payments, so you’ve approached the lender to obtain a mortgage loan modification. The bank representative has suggested that you seem to qualify and are presently under review for a modification approval. Then one day you receive a Notice of Default and realize you are now in foreclosure. Whatever happened to the loan modification you were practically promised?

If this happens to you, you want to determine whether the modification you agreed to with your lender can be enforced in court. It all hinges on how the modification is regarded under Utah’s “Statute of Frauds.” This state statute is a rule of law that requires certain contract types to be in writing and signed by all parties in order to be binding and enforceable. The premise is that oral agreements don’t supply adequate proof of what terms were agreed to, while written contracts contain a firm record.

For loan modifications, this can be problematic because lenders never actually sign these documents. They simply send out the paperwork and express willingness to honor the modification until they suddenly and unilaterally terminate it – which they can, because they never signed it. In the meantime, unwary consumers have come to rely on the modification and change their payment habits accordingly, only to be struck with an unexpected notice of default.

If your modification agreement was strictly verbal, it is nearly impossible to make a case under the Statute of Frauds. Your only chance of winning is if you were current on your mortgage before entering into the loan modification agreement. If you have documentation to back your claim, you may be able to prevail in court even if the lender did not sign anything, especially if evidence of performance by both parties exists.

If you have been placed in foreclosure because you believed a loan modification was in effect and modified your payments accordingly, contact us at Arnold, Wadsworth & Coggins today. We will confirm whether or not you have a case and, if you do, go the limit to get you the result you deserve.

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Written by Arnold Wadsworth Coggins

Arnold, Wadsworth & Coggins Attorneys is a premier Utah law firm serving the Wasatch Front in the areas of family law, bankruptcy, criminal law, and civil litigation. Our attorneys provide clients with exceptional legal representation and personal attention. With over 35 years of trial practice and litigation experience, we bring big firm expertise at affordable rates