ABSTRACT
Homeowners in financial distress or whose home has been damaged by natural disaster may avoid foreclosure if their lender agrees to modify the loan to reduce payments. Commercial loans may also be modified to avoid foreclosure or in response to changed circumstances or changing market conditions. Although loan modifications are generally beneficial to both borrowers and lenders, barriers to modification exist. The Consumer Financial Protection Bureau (CFPB) has addressed some of the roadblocks to residential loan modifications by regulating the procedures that mortgage servicers must follow in dealing with delinquent borrowers, but the CFPB and its regulations are at risk under the current administration. Furthermore, uncertainty in the law governing modification remains a barrier in most states. Unresolved legal issues affecting mortgage loan modifications include loss of priority caused by a modification, the need for recording a modification agreement in the real property records, and loss of the security interest if a modification is found to be a novation. Although recording a modification may not be a great expense for a commercial borrower, a residential borrower in distress may be overwhelmed by the requirement of obtaining an acknowledgment necessary for recordation.
This Article recommends that the CFPB continue to regulate servicer procedures for dealing with delinquent residential borrowers and recommends that states adopt the new Uniform Mortgage Modification Act, a Uniform Law Commission project for which I served as reporter. The Uniform Mortgage Modification Act, addresses the legal issues raised by modifications and clarifies the law, reducing transactions costs that are passed along to borrowers and facilitating modifications to avoid foreclosure. The Act creates a list of safe harbor modifications – common modifications that do not generally prejudice a junior lienholder. For safe harbor modifications, the modified mortgage continues to secure the debt, retains its priority, and is not a novation. In addition, recording a modification agreement is not necessary to retain the priority of the mortgage. By removing barriers to modification, homeowners and commercial borrowers can avoid foreclosure, and lenders can mitigate losses for delinquent loans.
Forrester Rogers, Julia Patterson, Facilitating Mortgage Modification to Save Homes and Mitigate Lender Losses (August 7, 2025).
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