Can a mortgagor waive foreclosure defenses in a modification or forbearance agreement?  Historically, lenders have routinely included such provisions in return for borrowers entering into a loan modification or forbearance agreement.  The argument favoring barring waivers is that (a) waivers are overly broad and eliminate the borrower’s ability to save the house later when unrelated claims of future conduct cause a foreclosure, (b) homeowners cannot determine whether a waiver is a worthwhile trade-off, (c) allowing for waivers rewards misconduct on the part of lenders.

Recently the U.S. Department of the Treasury and the Consumer Financial Protection Bureau (CFPB) have sought to curtail this practice.  Note that under HAMP (Home Affordable Modification Program) modifications are prohibited from containing waivers.  Complicating matters is the fact that some servicers of loans did not elect to participate in HAMP.

The U.S. Department of Justice sanctioned limited waivers with respect to the Servicemembers Civil Relief Act litigation. Fannie Mae requires lenders to waive claims against borrowers.(See SVC 2012-19) for guidelines directing servicers to release borrowers from liability from any deficiency upon successful completion of a short sale or deed-in-lieu of foreclosure.  In an attempt to standardize and have consistency in the law, the CFPB states that an agreement between borrower and lender may not be used to prevent the borrower from bringing a claim in court for alleged violations of federal law.  To confuse you event more, the Office of the Comptroller of the Currency (OCC)  entered into an agreement with several large lenders which also limited the use of waivers.

The bottom line is that to waive foreclosure defenses is no longer routine and is no longer permissible.


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