With many of the homeowners feeling the pinch of economic depression, loan modification has become one of the most sought-after options to avoid foreclosure. Recently there has been a forum discussion that focuses on an issue, where the lender charges off the second mortgage even after approving modification of the loan.

The poster received a verbal agreement from the second lender for a trial modification plan. He paid the first trial payment on time as per the agreement. But the next month when he pulled his credit report, he found the loan account has been charged off. On contacting the lender, the poster learned that the former had again reinstated the loan. The second lender then asked him to make the next trial payment by Oct. 27, 2009, else he would again charge off the debt.

Following are the questions the poster asked the community:

1.    Does he have any ground against the second mortgage company that charged off the loan even after approving a trial loan modification?

2.    If the lender charges off the debt after Oct. 27, 2009, can the poster still negotiate with the mortgage company for loan modification?

3.    In case the second lender forecloses on the property, will the first cancel negotiations for the modification?

Trial modification plan & mortgage charge-off

It seems the second mortgage company erroneously reported the debt to the bureaus as charged off. It could also be possible that they charged off the debt as they thought they could not recover the balance on the loan. Though the poster paid his first trial payment in good faith, he has no ground against the second lender as there is no written agreement for the loan modification. The second lender is not legally bound to offer modification as the verbal agreement is not legally valid. So, the lender reserves the right to charge off the debt to whoever they want.

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