mortgage servicing Archives - Northern California Bankruptcy Lawyer

The Absolutely Essential Step Before You List Your Home For Sale

Selling your home? Before you interview a realtor, before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

You want full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you when your sale closes.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement, that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Start with your loan because, while federal law requires them to make full disclosure if you ask, they get 30 business days to do so.

So it may be a month and a half before you have their first response. And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close. Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan. Time lines were shortened; broader inquiries were permitted. And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

Be in writing
Identify the borrower, the loan and the property address
Indicate that the property is your principal residence
Set out the information you seek
Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up. The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request. Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment. Don’t ask for it over the phone. You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is. It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture. Fees, fees, fees. For too many servicers, the money is all in the fees. Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you can turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

If you get a response and you don’t agree with it, call the servicer. Complain to the CFPB. Ask a HUD certified housing counselor for help. Get an attorney.

Consumer rights are only meaningful if they are used.

Fix Mortgage Troubles After Chapter 13

By Cathy Moran

The mortgage servicer took less than 30 days to change its story, big time.

In three weeks time, the servicer went from telling the bankruptcy court, under penalty of perjury, that the loan was current, to telling the homeowner that she was $50,000 behind.

The whole story appears here.

Three weeks!

And there, in a nutshell, you see the utter disarray in mortgage loan accounting when a bankruptcy is involved. (Actually I doubt the accounting is any better outside of bankruptcy, but that’s another story.)

Home loan after Chapter 13

Trouble with your home mortgage right after you’ve completed a Chapter 13 is a real bummer.

You get current through years in Chapter 13, make the payments after you file, and then are slammed with a statement saying you’re behind. Or worse, you get a foreclosure notice.

The problem was widespread enough that the national bankruptcy rules committee wrote a rule trying to head off the problem. That’s how we got FRBP 3002.1.

The rule requires lenders with a lien on your home to provide notice while you’re in Chapter 13 of changes to your payments and of fees and expenses added to your loan. Then, at the end of the case, they need to file a response indicating whether they agree that you are current post – filing on the loan.

Yet time after time, mortgage servicers, the folks who are supposed to keep track of your payments on your loan, tell the bankruptcy court that you’re current in a filing signed under penalty of perjury. Then they turn around within weeks, and sing a different tune. In one of my cases, weeks after telling the bankruptcy court she was current, Big Bad Bank said she was $50,000 behind.

And it’s happened many times just this year. The servicers either don’t know, or don’t care, what they tell the court about the loan.

While it’s supremely galling, you are not without power to sort the situation out. Even though your bankruptcy case is over, you have unexpected friends: bankruptcy law itself; the bankruptcy judge; and your attorney.

How to make your mortgage loan right

The folks who wrote the rule must have had a premonition that the rule requiring disclosure and transparency wouldn’t alway work. Here’s what they wrote in the official comments to the Rule.

If, after the chapter 13 debtor has completed payments under the plan and the case has been closed, the holder of a claim secured by the debtor’s principal residence seeks to recover amounts that should have been but were not disclosed under this rule, the debtor may move to have the case reopened in order to seek sanctions against the holder of the claim under subdivision (i).

In short, get the matter back before the bankruptcy judge.

The Bankruptcy Code contemplates that you might need to reopen a closed bankruptcy case to seek relief. There’s a procedure for reopening the case. You may have to advance the filing fee, but you should be able to either get it refunded by the court, or collect it from the servicer.

Lender faces trouble in court

In my view, the lender who filed a statement with the court saying the loan was current and then sent a mortgage statement claiming an arrears arising from the period of the bankruptcy has two problems.

One problem is that matter of judicial estoppel, the idea that a party can’t take one position before the bankruptcy court and another in a state law foreclosure action. If there were unpaid amounts at the end of the bankruptcy case, the Rule 3002.1 procedure was supposed to flush those out before the bankruptcy case was closed, and resolve them.

The second problem is that attempts to collect debts discharged in bankruptcy violates the discharge injunction. And there are well established remedies for contempt of a federal court order.

It’s tricky when the lender retains its lien on the property. It’s a central tenet of bankruptcy law that liens pass through bankruptcy unaffected, unless the court takes specific actions to alter the lien.

So, homeowners want monthly statements after their bankruptcy. New rules even require it. But those statements have to be correct and consistent with what the lender told the court under Rule 3002.1.

Relief and recompense in court

The bankruptcy court can award an injured debtor “appropriate relief”. That certainly includes attorneys fees and costs. It can include an order determining that the loan balance is what the lender first said, or the court later determined. It’s unclear whether the debtor can recover damages for emotional distress or other kinds of economic injury.

If the court finds that the servicer violated the discharge injunction, a wider array of sanctions are available.

But to get relief, you have to get to court. And you have to get there with evidence.

So, save each written communication you get from the servicer after your bankruptcy case closes.

Keep a log of any phone contact with the servicer. Who called you? What did they say? Were they trying to get you to pay?

The more detail you capture, the more compelling your story is in court.

If this happens to you, contact your bankruptcy attorney. If the attorney who handled your case doesn’t feel confident with these kinds of cases, ask for a referral to a lawyer who does.

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area