During a Loan Modification Application, Can the Bank Continue With a Foreclosure Lawsuit?

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If you’re in foreclosure, getting a loan modification seems like a safe way to resolve your problems.  After all, loan modifications can lower your payments, interest and perhaps even the principal loan balance.  But, getting a loan modification is not easy and is, at best, a mine field.

The Two Departments Don’t Communicate

One huge problem is that the bank’s collection department and the loss mitigation department don’t communicate. 

If you’re in foreclosure, you know the various collection methods the bank uses: endless phone calls, letters, inspections and harassment.  If you’re working with someone at the bank who can provide foreclosure assistance, then you’re dealing with the bank’s loss mitigation department.  This means you’re communicating with two different departments at the bank; however, you cannot depend on them communicating with each other.

It’s easy to find numerous stories about approved loan modifications and settlements that did nothing to stop a foreclosure.  You see, collection departments at banks have the responsibility to oversee home foreclosures.  While loss mitigation departments have nothing to do with foreclosure cases.  As a result, they don’t communicate.

What’s more, collection departments communicate with outside counsel, so they could give the bank’s lawyer the go-ahead with a foreclosure sale at the same time the loss mitigation department approves the loan’s modification.

Follow These 3 Steps to Protect Yourself From Foreclosure

  1. Make sure all of your communications with the bank are in writing and sent by certified mail to ensure that they were received. A phone call will not protect your rights.
  2. Keep a log of the first and last name of the bank’s representative you spoke to.
  3. Keep detailed notes about all communications with the bank. This allows you to prove to the Court that you were involved in a modification if the bank moves forward with the foreclosure lawsuit.

The Foreclosure Lawsuit Remains Pending During Loan Modification Negotiations

You might assume that once a bank accepts your loan modification application that the foreclosure lawsuit is automatically stayed during the modification process.  However, this is rarely the case.  In most cases, foreclosure lawsuits proceed even with the modification application.

In addition, you may make the mistake of thinking that a trial or temporary modification is a permanent modification.  One condition of a trial loan modification is that the foreclosure lawsuit is not dismissed until you have completed all the steps to make the modification permanent.  You’re wrong if you expect the bank to halt the foreclosure lawsuit because you have applied for a loan modification.

Bottom line:  Applying for a loan modification does not stop a pending foreclosure.  But if you know the banks don’t communicate between departments and if you create a paper trail of certified mail, you can protect yourself during the loan modification process. 


Richard Fonfrias, J.D.

Chicago’s Financial Rescue

& Bankruptcy Lawyer

Fonfrias Law Group, LLC

If You Have Questions About Citations, or Other Legal Matters, Don’t Hesitate to Call 1 (312) 969-0730