Q: Balloon loan reached maturity in April. Investor wouldn't grant a modification. Refinance 3+ months with lendor.

A: The fault for not paying the balloon off is yours as far as the existing lender is concerned. You owed the money by a due date under the note. You failed to pay when due. The report to the credit bureau is not legally improper from that lender's perspective, since you defaulted on your obligation. You had two options: pay it off with cash on hand; or borrow enough money from another lender to pay it off. While you are blaming the mortgage company you chose to refinance the existing loan for not qualifying you and processing the refi in time, you do not provide sufficient details as to why that has occurred. The new lender probably did not guarantee to approve and fund your loan by a specific deadline, or accept liability for not doing so, so you had best read all the fine print on the mortgage application. Further, if after making application 3 months before the balloon payment became due (you do not state how long before you did so), you did not finish providing all the backup documentation required by the underwriters to qualify, then the delay may be partly or all due to your actions, which will undermine your arguments. However, I suspect my initial observation is more likely going to sink any claim you have against the new lender: they have a legally enforceable contract provision adbsolving them of any liability for not funding your loan within a specific deadline. I do not see any liabilty on the part of your current balloon lender or the credit reporting bureaus for the entries on your credit report. If you can establish liabilty against the new lender, then you might sue for "impairment of credit."

A: I join Mr. Oakley in not understanding why you didn't perform under the terms of the loan you took. Was there a contractual obligation of the refinancing lender to grant your loan? I've never seen anything that looks like that, and I have trouble imagining how that could exist in a world we live in of commoditization of home loans. Basically, a lender cannot agree to lend you money before they determine that you meet the loan criteria. If, however, the second lender (assuming they are different than the first lender) had some contractual duty that they didn't perform timely, you should have the contracts reviewed by counsel. Even then, I think your claim would be limited by the Economic Loss Rule to the contract damages. In the meantime, you need to pay off the balloon, and if that means selling the house before it goes into foreclosure, you need to face the reality that late fees and legal fees are about to rise significantly, and your credit will be severely impacted. Perhaps you need to consult with a bankruptcy lawyer to forestall worse damage and get the loans back on track. You can then work on credit repair.

As I try to imagine a real life setting in which a consumer could get into such a mess that could give rise to a cause of action against the lender. Perhaps, if you were misled and sold the loan with misrepresentations in the Truth in Lending statement, there might be something in there. If so, you should consult Consumer Protection counsel.