Death and divorce don't get sympathy from loan servicers

• A successor becomes the owner of a home through a family transfer after a death or divorce.
• The successor is not the original borrower but now owns the home secured by the mortgage.
• Under federal law, the creditor cannot call the mortgage due, but troubles start when payments fall behind.

Death and divorce can be major hurdles when trying to modify a mortgage and keep a home in the family, consumer advocates say.

The National Consumer Law Center released a report today detailing troubles faced after a transfer of ownership as a result of a death or family breakup. Sometimes the survivors must live on less money and fall behind on payments.

"Often the successor needs a loan modification to bring the loan current and adjust the payment to an affordable level," the National Consumer Law Center stated.

But too often, mortgage loan servicers have made the process cumbersome or impossible for homeowners to handle on their own, advocates say. The documents required might be difficult or even impossible to obtain. For example, the loan service might want a probate court order when probate might not even be required in a particular state.

"Sometimes, the servicers are refusing to even speak to the individuals," said Libby Benton, staff attorney for Legal Services of South Central Michigan in Ann Arbor. "The protections that are in place right now aren't strong enough to allow homeowners to navigate the process by themselves."

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As a result, the costs skyrocket for those who are least able to afford to hire probate attorneys and deal with other fees involved in the process. Some people just give up and lose their homes unnecessarily.

The National Consumer Law Center has called for regulatory protections to prevent unnecessary foreclosures and help vulnerable families stay in their homes.

The Consumer Financial Protection Bureau has proposed rule changes that incorporate policies that would help successors avoid foreclosures but the CFPB still needs to finalize and implement the changes.

Justin Wiseman, director of loan administration policy at the Mortgage Bankers Association, said the industry trade group has filed a public comment letter with the bureau and is working with the CFPB in the "spirit of improving the rule."

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The mortgage industry says the situations can be complex, such as when two or three successors apply for different loan modifications on the same mortgage. Also, certain privacy issues might come into play and need to be addressed.

The mortgage industry said other federal laws relating to the privacy of borrowers would need to be addressed in the CFPB's final rule.

The issue is one that isn't on the top of mind for many consumers. The roadblocks can crop up, though, when one person is named on the mortgage loan but later that person dies or the couple is divorced. Then those left living in the home might face trouble if they run into financial difficulty and have trouble paying the remaining monthly mortgage payment.

The NCLC survey found some servicers would not postpone a foreclosure sale in order to review a successor for a potential loan modification. Another common issue: Servicers demanded the same documents repeatedly.

Consumers can run into a brick wall, advocates say, when some servicers even claim that no modification is possible when a parent dies and the adult child wants to keep living in the home.

Ann Arbor attorney Benton said her office worked with a woman in Ypsilanti in her late 50s. She had lived with her mother, who had taken out a loan in 2005. The mother died in 2013, but the daughter was unable to make the mortgage payments, ranging around $700 a month.

The daughter tried to arrange a loan modification on her own to keep the house. The servicer appeared to agree to a modification that would have brought the payment down to around $415, Benton said.

After accepting the first payment at the lower rate, the servicer then started rejecting payments for the $60,000 mortgage.

At one point, a sheriff's sale appeared imminent but was avoided when Legal Services of South Central Michigan became involved.

The Ypsilanti woman eventually got a loan modification, but her costs went up because the missed payments and interest kept accruing as the servicer rejected modified payments month after month.

Consumers in Michigan can find legal aid services at www.michiganlegalhelp.org.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com. Follow Susan on Twitter @Tompor.