Many mortgage lenders say they will negotiate a mortgage modification, then turn around and foreclose. Sometimes they will even enter into a "trial modification" and then foreclose. No one has really tried to stop them, until now.

A recent ruling by an appellate court in California has opened the way for fraud charges against a mortgage lender that promised to negotiate a mortgage loan modification, but used the promise as a pretense to get the homeowner to let down their guard. The lender then foreclosed.

The woman who filed the lawsuit was facing foreclosure back in 2008. She filed for Chapter 7 bankruptcy, and the automatic stay held back the foreclosure proceedings.

Once the woman got some financial assistance from her husband, she hoped to keep her house by converting her bankruptcy petition to Chapter 13 and resuming her mortgage payments.

When the lender, U.S. Bank, found out about the Chapter 7 petition, they made a motion to the court to have the automatic stay lifted regarding the mortgage. This is a typical move by a mortgage lender who wants to foreclose. The motion is often granted.

When the bank approached the woman about negotiating a loan modification, she was glad, but they said they couldn't negotiate unless she allowed the automatic stay to be lifted.

Since a mortgage loan modification would allow her to keep her house, the woman allowed the stay to be lifted and abandoned her plan to convert to Chapter 13, since she could achieve her home-preservation goal via the modification.

When the stay was lifted, the bank moved immediately to foreclose. They scheduled a public auction.

When the woman asked about the modification, the lender said someone would contact her by January 13, 2009. But the auction was scheduled for January 9.

One day before the auction, a "negotiator" contacted the woman with an offer: a higher mortgage balance and a higher monthly payment. She declined the offer.

The auction took place and the woman lost her home. The buyer was none other than U.S. Bank.

When the woman sued U.S. Bank, she lost at the trial level, but now the court of appeals has ruled that a promise to negotiate a modification is not met by making a unilateral offer.

Fort Lauderdale mortgage options attorneys hope that the court's reasoning and its ruling are duplicated across the country. The court's ruling throws into question the legality of hundreds of thousands of foreclosures, many of them in Florida.

Source: Forbes "Judge Rules Against Bank In Mortgage Modification Suit" 2/10/2011