Many people facing foreclosure have successfully made the trial mortgage modification payments required of them, but they've been unable to get their banks to make the modifications permanent. For example, California homeowner Martin Galvan and family made 14 monthly trial payments to JPMorgan Chase (JPM), totaling some $30,000, before receiving notice last week that their house would be sold in foreclosure. The sale is set for Jan. 7.

Back around Thanksgiving, I described Arizona homeowner John H.'s ultimately unsuccessful struggle to convert three successful trial modifications into a permanent modification; CitiMortgage (C) foreclosed on his house.

Two other struggling homeowners, Paul and Michela Meyers of New York and the Bogar family of Vermont, were more fortunate. Judges in their foreclosure cases ordered their banks -- Wells Fargo and Bank of America -- to make their trial modifications permanent. With luck, those sorts of orders, which according to my sources are relatively rare, will become more common.

As of now, BofA (BAC) has not responded to requests for comment. CitiMortgage's comment was included in John's original story. A Wells Fargo (WFC) spokesperson says: "Given that this is still in active litigation while we consider our options, we are unable to discuss the case or the Meyers's situation." And a Chase (JPM) spokesperson says of the Galvans' case: "We have worked with the customer over a number of months to get timely and complete documents, have reexamined their situation multiple times, and communicated investor decisions that were made using government guidelines."

Here's a closer look at these stories, which share key features, and at some of the obstacles -- beyond too few competent staff at the banks -- to getting successful trial modifications converted.

Told to Default to Get Help

The Galvans' and Meyers's paths to foreclosure began like John H.'s: After losing income but still current on their mortgages, they reached out to their banks and asked for modifications. The banks -- JPMorgan Chase for the Galvan family, Wells Fargo for the Meyers family -- told them that they had to default before they could be helped with a modification. According to Martin Galvan, the conversation went something like this:
In October 2008 I told Chase that I needed a modification because my wife was laid off and business at the hair salon I own was down sharply, and we had exhausted our savings. I was current but wouldn't be able to be for much longer. Chase said I have to be behind before they can help me. I said, Are you telling me to stop paying my mortgage? and the Chase representative answered: I can't tell you to do that. But listen to the key word in what I'm saying. You have to be behind for us to help you.
Galvan said two different Chase representatives gave him the same advice. He and his wife were very upset at having to default to get help because in nearly 20 years of being homeowners, they had never missed a payment. (They purchased the house they live in now in 1999. It's second home they've owned, their "move-up house.") But they needed the modification, so they defaulted.

Ultimately they were given a trial modification that was supposed to become permanent three months later. After the three months, Galvan started doing everything he could to get the modification made permanent.

"Don't Know What We're Doing"

Galvan, like John H. and the Meyers, was repeatedly told to resubmit financial paperwork. Because Galvan, like John, was a small-business owner, that meant repeatedly incurring accounting fees to generate the required profit-and-loss statements. Often the paperwork was lost. Galvan was told to go to a Chase branch and have the branch fax the papers for him, since that way the modification department couldn't deny receiving them.

Galvan spoke to numerous Chase representatives who often gave him conflicting information. Frustrated, he went to a counseling session Chase hosted at a hotel near the Los Angeles airport and says the counselor told him that with all the modification programs, "we don't know what we're doing right now."

This past November, in his last round of communications with Chase, Galvan was told that his modification would not be made permanent because he couldn't sufficiently document his income in order to prove he could afford the modified mortgage -- despite over a year of making successful payments.

Galvan sent still more information, and then didn't hear anything until getting the notice of the sheriff's sale last week. Several days after that, Galvan was given the official denial of his modification.

Bad Faith by Wells Fargo

Michela Meyers testified that she needed a modification after her husband, a New York City police officer, lost his second job and was unable to get as much overtime as before (she can't work due to health issues). So, she contacted Wells Fargo for a modification. Several representatives said the bank couldn't help her unless she was three months behind in her mortgage, she testified. So they defaulted.

On Sept. 1, 2009, they were offered and accepted a loan modification. On Sept. 2, Wells Fargo started foreclosure proceedings. The Meyers successfully made their trial payments, but instead of giving them a permanent modification, Wells Fargo changed the payment and required a new trial period.

The Meyers successfully completed this trial, too, but again Wells wouldn't make it permanent. The bank's stated reasons for rejecting the Meyers varied, and the foreclosure process continued.

The Meyers eventually ended up in front of Justice Patrick A. Sweeney of the New York Supreme Court, who oversaw several efforts to get a settlement between the Meyers and Wells Fargo. Ultimately, Justice Sweeney found Wells Fargo had acted in bad faith, and ordered Wells to make the modification permanent.

Fannie to the Rescue?

The Bogars took a very different, and longer path to making their trial modification permanent, according to Grace Pazdan, their Vermont Legal Aid attorney. The Bogars fell behind on the mortgage of their Vermont home and were given a foreclosure notice by Countrywide Home Loans. They repeatedly called Countrywide, hoping to work something out, but got nowhere. The Bogars finally contacted the Vermont bank regulator, BISHCA, and explained the situation.

A few days later, Countrywide offered the Bogars something that it should have at the very beginning: a HomeSaver Advance (HSA) loan. The Bogar's loan was backed by Fannie Mae, and Fannie Mae's Servicing Guidelines require servicers to offer qualified families like the Bogars an HSA loan before starting foreclosure.

The HSA loan brought the Bogars current, and they stayed current by making two monthly mortgage payments, plus a bit on top to start repaying the HSA loan. After they made their second payment, Bank of America, which by now had taken over Countrywide, sent the Bogars a second set of HSA paperwork. When they contacted BofA, the Bogars say that BofA told them not to sign the new papers.

Countdown to Eviction

But then a couple of weeks later, BofA refused to take the Bogar's third monthly payment, citing their failure to sign the second set of papers. And worse, BofA completed the foreclosure, which started a six-month clock ticking for the Bogars: If they could bring the loan current or otherwise work it out with the lender, they would keep their house. If not, at the end of the six months, the house would be sold.

The Bogars kept trying to make a deal with BofA to save their home. The bank told them they would be considered for a loan modification, and had the Bogars submit and resubmit (and resubmit and resubmit) information. Eventually, BofA told the Bogars they didn't qualify for a HAMP modification, but didn't say why. Shortly after that, the Bogars spoke to a bank representative who said they did qualify, but to wait while the paperwork was processed. The next time the Bogars called, they were told their account was labeled "legal" and customer service could no longer talk with them.

At this point, with the six months almost over, the Bogars contacted Vermont Legal Aid. Pazdan asked the court to undo the foreclosure, on the grounds that the Bogars were current after the HSA loan and BofA was wrong to reject their payment and continue with the foreclosure.

While Pazdan's motion was pending, BofA suddenly offered the Bogars a trial HAMP modification. Although the offer was made in February, the trial period was for April, May and June, so the first payment wasn't due until April 1. Nonetheless the Bogars sent it in immediately. In mid-April, the judge vacated the foreclosure judgment, and, since a modification plan was in place, asked the parties to come back in August and report on the status.

Bank of America's Alternative Reality

The Bogars made the May and June payments on time, but BofA didn't make the modification permanent. Although July was beyond the trial period, on Pazdan's advice, they made the July payment on time, too. Pazdan asked BofA's attorneys why the modification wasn't becoming permanent, and their answer was revealing: An email that claimed to represent the Bogar family's performance during the trial period.

The email was incorrect in every respect. It claimed that the payment due dates were Feb. 24, March 24, April 24 and May 24; that the Bogars had made only three payments; and that each time their payment was late. As noted, the trial modification agreement covered April, May and June, and the Bogars paid July as well. As to the timeliness of the payments, the Bogar's canceled checks show BofA cashed the April payment on March 3, the May payment on April 29, the June payment on June 2, and the July payment on July 1. When Pazdan gave BofA's attorneys this information, they responded that they would look into it.

August was drawing near, and the modification still wasn't made permanent, so the Bogars made the August payment, which BofA cashed on Aug. 3. As the August date for the status conference the judge had set approached, Pazdan told BofA's attorneys that she was going to ask the judge to order BofA to make the modification permanent, and she did. On Sept. 29, the judge granted Pazdan's motion from the bench. In his written order a few days later, the judge gave BofA 30 days to make the modification permanent.

The judge's order was no magic wand, however. Before BofA was willing to send the Bogars the appropriate papers, BofA required them to resubmit information and go through credit counseling. Only then, nine days after the 30 days had run out, did the Bogars receive the permanent loan modification. At least it was in time for Thanksgiving.

A Key Problem: Communication

Much has been written about the odd relationship between the foreclosing banks and their attorneys, but not much has focused on the nitty-gritty practical consequences of it, and how it undermines modification efforts.

Foreclosing banks generally communicate with their attorneys through software provided by third parties like Lender Processing Services, and mostly say things like: I need document x; document y has been filed; I need more time to get z done. So little substantive communication occurs between the banks and their foreclosure attorneys that one frustrated judge ordered HSBC to tell its attorneys to call it as needed.

As a result, Pazdan explains,
"Defending foreclosures is very different than any other civil case because in a normal negotiation you present the strengths of your case and the weaknesses of the other side's, and they respond in kind, so the ultimate settlement reflects the merits of each side's case. But when negotiating a foreclosure -- usually aiming at sustainable modification -- the banks' attorneys seem to be unable to present the legal merits or weaknesses of their case to their bank clients and have that information shape the settlement decisions.

As a result, the banks' settlement decisions seem wholly unrelated to the actual merits of their cases. That also makes it difficult for us as homeowner advocates to advise our clients because we can't predict what the other side will do, given the merits of the case. The merits just don't matter."
"What's Really Frustrating"

And that inability of the foreclosure counsel to get their bank clients to listen to what is happening in each case is at least in part what leads to outcomes like John H.'s, the Meyers's, the Galvans', and the Bogars'. "What's really frustrating," Pazdan points out, "is that if the Bogars hadn't made their way to Legal Aid, their home would have been foreclosed on by now, and yet there's no question they can make the modified payments."

The same could be said for the Galvans, the Meyers, and sadly, because he was foreclosed on, John H. Let's hope Chase makes the Galvan family's modification permanent voluntarily, or that the family's attorney finds a way to persuade a judge to order Chase to do it. Unfortunately, a new California statute makes it virtually impossible for homeowners to get attorneys to help them with modifications, reports The New York Times.

Nor is the problem limited to these families. Arizona and Nevada recently sued Bank of America over failed loan modifications.

How many people who can pay modified mortgages are going to lose their homes?

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I used the reverse mortgage in order to free up the equity in my home and this has been one of the best decisions.

July 18 2013 at 2:24 PM Report abuse rate up rate down Reply

I would suggest to J P Morgan Chase, that one consideration that they may think about is not asking for all the paper work up front. If you can't get the modification done in 30, or 90 days then don't ask for those documents until you are ready to work the file. Maybe just ask for the Modification request form, 4506T, and the hardship letter. Once your ready to to assign the file to a case manager, then let the customer know that its time to fax the documents. Repeatedly asking the customer to fax or mail docs over and over again is very irritating to the people that are in default and in such a horrible position, and the value of their homes fell through the floor at no fault of their own. So the oppition of selling isn't even tere.
You should remember why we are in this position, and what is happening to the people that are loosing their homes because of so many miss cummunications. It really is sad when a customer can't talk to the same representative when they are dealing whit their biggest investment and their personal homes.
I have been working on a modification since 4/29/10. I have had to fax four completed applications with the I just faxed its amazing. To this date there has not been a decession made about my loan other then a forclosure sale date. My experience has just been horrible, however my most recent communications have indicated that thay are still working on modification. My loan has been assigned and have yet been able to speak with that person.
The representatives that I have talked to have all been very nice, however that doesn't get the job done. Remember I haven't got to talk to the same representative more then one time, yes each time I call its someone different and you get different information. Unbelievable! I hope the upper management realizes what you are putting your employes through.......... Please sit back and think about what is really happening in your loan modification department.
Thanks for listening to my frustrations.

March 13 2011 at 1:54 AM Report abuse rate up rate down Reply

I had a horrible experience with CitiMortgage. I was making trial mortgage modification payments for 18 months and there was no end in sight. Someone posted the Making Home Affordable's phone # on the internet and I called and they helped push my modification through to permanent. They have counselors that work with you and they conference your mortgage company on the phone with you. They are incredible and it is a FREE Service. CitiMortgage still didn't pay my taxes that they were holding in escrow but at least my mortgage has been permanently modified. Here is the Phone # for MHA - 877-300-5454. Again, it is a FREE service and all the counselors were AMAZING. I hope this helps!!!!

See full article from DailyFinance:

January 28 2011 at 4:32 PM Report abuse rate up rate down Reply

Sam thing hapened to me! Lost the doc's or they cant locate them! Then they tell me it timed out and didnt tell me till months later! Then they said I would have to start all over and send in all the Doc's again! They should be sued and I will probly do that!

January 03 2011 at 5:30 PM Report abuse rate up rate down Reply

Just want to scream: People here just don't know the bottom line. The bottom line is "Who owns the Loan"? The Pretender Lenders who went out and inflated the homes and lied to the people, bundled the mortgages up like a bundle of Sunday papers. Nothing Recorded notes lost or destroyed sent them to Countrywide who then sent them to MERS again notes lost or destroyed along with Deeds of Trust. MERS recording all this and sending them all over the World, broken up into little pieces in some cases. Over 25,000 people having their hands in this and manipulating MERS. So Who now owns the Loan? Who is in possession of the Note? Nothing Recorded at the Recorders Office, Transfer of the Notes from one person to another and who knows. Banks don't know and in some cases it would take months to find out who actually owns the loan and it would be a tedious job. Once found out who owns the Note it woud be only Recorded at MERS with no Real Paper. Oh you have those who just got up and left their homes cause of being underwater. Who really wants to pay on a home that just dropped a hundred thousand dollars. Then ya have the ones who left cause of other issues like, loss of pay, sickness, laid off, or just plain lost their job. So now you have people who left on their own or those who would have been foreclosed on, no matter what. But now you have empty homes that have NO PAPER TRAIL .. Nothing Recorded, No REAL DOCUMENTS and the Title Companies can't give clean and clear Titles. THIS IS THE F'n MESS WE ARE IN. So now you have those who should be foreclosed on Really can't be according to LAW. You have those Who should NOT BE FORECLOSED on but are. You now have empty homes being broke into and robbed and Counties not collecting Taxes. Now there is one more .... You have those who have no problem paying their loans but have no idea they are not paying the "Holder of the NOTE" .... Try and sell your Home! Who is to blame ... we the stupid people who had no clue ... How could we have known? MERS was not even known by most people. Most people like me, thought that Note was at the bank I was making my payments too. Didn't You??? Who is to blame ... The Government, State and Federal, who swear to up hold the LAW and to serve and Protect? Hell they didn't know most of this either. They were and still are ignorant of the facts as we are. Who is to BLAME ....THE BANKS .. plain and simple. The Government now knows about it ... But does not know how to fix it. They have tried and have given the Banks the means to fix it .. yet they refuse too. Or is it .... they can't either because ... THEY DON't OWN THE PAPER. NOTES and DEEDS of TRUST. AND THEY CAN'T FIND THEM.

December 23 2010 at 1:11 PM Report abuse +1 rate up rate down Reply
1 reply to Wayne's comment

Very good Wayne you took the time to say it right. Those loans you talk about where you blame the bank for doing what Congress allowed them to do giving loans to people that could not afford them is called passing the buck. Greed is to blame. Congress knew the result before they voted to deregulate so the blame lies with them. Why must Congress regulate to insure our money one might ask ? Would you give money to anyone and hope they do the right thing with the money ? We elect congress to regulate not to sit on their duffs gambling with our monies. Why do you think we regulated in the first place because we knew what would happen if we did not. So blame Congress for deregulation I do not blame stupidity I blame deceit.

December 23 2010 at 1:44 PM Report abuse rate up rate down Reply

SOooo what next ? Toxic loans and deflation//The perfect economic storm. We raised property taxes hiring more police and firemen paying them more , we appraised most homes too high going to far in debt, we used equity to make purchases and now we need our fed to pay the bill with less tax and more debt,,BAIL OUTS. The question is if you do not live in denial --->can this be fixed can we save what is left ? Will the poor ever be allowed again to recieve toxic loans to fuel the economy. History 101 !

December 23 2010 at 11:55 AM Report abuse rate up rate down Reply

Our government insured mortgage backed CDO notes as legal tender setting off a buying frenzy for this guaranteed paper , GLOBALLY ! Paper trail 101 (deregulation). Banks laid out the ground work getting Clinton and Congress to back the sale of these mortgage backed CDO's in 1999 setting off the housing bubble. Our governments risky idea was to give bleeding heart loans to the poor then resell the paper creating a source of income for easy money. Anyone running a country with any brains new the risk we were taking giving loans to the poor. How can you blame the poor if it was the governments idea to lend them mone. Read Clintons lips if you do not believe. Now you know the risk. You can offer the poor money and they will take it. You can offer a guaranteed 6% return guaranteed to investors on this money and they will take it. Investors would borrow money at lower rates and buy these notes from the USA. No brainer.

December 23 2010 at 11:34 AM Report abuse rate up rate down Reply

You know half o you dont even understand what these people are having problems with. You just assume there deadbeats and losers. When its the banks who offered ARM loans on homes that are the bad guys. Most of these Adjustable rate mortgages are also LIAR loans. In which a banker would artificialy inflate a persons income in order to get a loan for the person who couldnt afford the loan to begin with. Im not saying the people who took these arm loans are faultless. They are in fact quite stupid. What i am saying is that the banks are liars and thieves and without moral checks and balances.

December 23 2010 at 7:05 AM Report abuse +1 rate up rate down Reply

I tried twice just to get a Mod from Chase, gave up both times, let alone getting a permanent reduction. I qualified but the lead time and resistance by Chase were simply too much ! A nice program idea but total failure for this Family.

December 23 2010 at 7:01 AM Report abuse +2 rate up rate down Reply

What planet have you people been on lately???? The Treasury Dept. in 2009 allowed these so called " too big " to fail banks to shift ALL OF THEIR TOXIC loans to Fannie Mae and Freddie Mac - then VOILA they were all profitable in late 2009. Add this taxpayer insult to the fact that the Federal Reserve has loaned TAXPAYER $ to these same banks through keeping interest rates artificially low - thus the banks don't NEED your deposits and give you a pittance in interest, all the while taking you tax dollars and loaning it to these banks at ZERO % interest. The piper will have to be paid someday and it will be in the devaluing of the dollar - by how much is anybody's guess. Why do you think the Communists in China gave the U.S. a lecture on being careful with our spending habits?

December 23 2010 at 6:40 AM Report abuse +3 rate up rate down Reply