Can your mortgage company change the terms of you loan without your approval or signature?

UPDATED: Sep 2, 2011

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Can your mortgage company change the terms of you loan without your approval or signature?

I have an ARM loan with 8.25% interest, about three years ago I received a letter from the bank stating they were going to “lock” in my loan for 5 years so it would not adjust up when the market started falling. Several months later I noticed that they had it listed on my statement as an interest only loan. Last month I got a letter saying that my rates were adjusting and my payments were going up. I then got several notices stating I was 3 months behind in payments I’m not now they are saying they are changing it back to an ARM loan. Can they keep doing this??

Asked on September 2, 2011 under Real Estate Law, Colorado


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

A loan is a contract in essence--it is an agreement between two parties, the lender and the borrower. As with any other contract, one party may *not* alter the terms and conditions without the agreement of the other. So in general, what you describe is not legal. Cases where it could happen, however, are:

1) If the original terms of the loan gave the lender the power to change the loan, either at will, or under certain circumstances and within certain parameters.  A party can agree to give the other party the power to change the terms later, so if the loan agreemen gave the lender this power, they could do it.

2) If you in fact agreed to some modification or change, either explicitly or even implicitly, such as by how you responded or did not responde to a lender communication. There may be a factual dispute about what was said and agreed to, by whom, but it is possible you agreed without fully internaizing the fact that you were agreeing.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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