Forbearance & Loan Modification Waivers Unenforceable

It seems to be standard operating procedure for lenders to force borrowers to sign away their rights in the form of a (sneaky) waiver when entering into a workout to retain the home (i.e. forbearance agreement, loan modification, etc).  Well, it appears these waivers are not enforceable – or at least with regards to federal laws that affect the “public interest” such as the TILA.  In Vermurlen v. Ameriquest Mortgage Company, No. 1:06-cv-828, 2007 the borrower entered into a forbearance agreement and Ameriquest included the following waiver:

“Effective upon the execution hereof, and notwithstanding any failure of Borrowers to satisfy any of the conditions precedent set forth above, Borrowers hereby agree that, without any further act, Lender is fully and forever released and discharged from any and all claims for damages or losses to Borrower’s property or person (whether these damages or losses are known or unknown, foreseen or unforeseen, or patent or latent) including, without limitation, tort claims, demands, actions and causes of action of any nature, whatsoever arising under or relating to the Loan Documents or any of the transactions related thereto, prior to the date hereof, …”

The court noted that “[i]n Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945), the Supreme Court addressed the question of waiver under the Fair Labor Standards Act. The Court held that “a statutory right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy”…“The public benefits from enforcement of TILA because it creates a system of disclosure that improves the bargaining posture of all borrowers.”  Therefore, such a waiver is unenforceable with regards to the TILA.

While the TILA rescission claim was dismissed for other reasons in Vermurlen; nevertheless, this is helpful case law for others who no doubt will find themselves once again battling against their lender after a completed loan modification down the road when a similar waiver was included.

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.