Monday, December 21, 2009
The Bank Said My Foreclosure Sale Will Be Next Week! Help!
We often receive frantic calls from homeowners because they’ve called the bank after having been served with a foreclosure lawsuit, only to hear from the bank’s representative that “Your foreclosure sale is December 22, 2009.” “How can that be?” the borrower thinks, “The lawsuit was first filed on November 12, and I’ve received nothing by mail from my lender.” In this blog, we will explain why this happens and what borrowers can do about it.
When the bank refers a case to its attorney, they require that attorney to stay within certain timelines. The speed and efficiency within which the plaintiff foreclosure firm can complete the foreclosure action, or the average time within which they can complete all cases referred to them, determines how many cases will get referred to that firm above their competitor plaintiff firms.
Although all lenders have their own internal timelines, one example is:
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Pursuant to this timeline, the lenders expect that the foreclosure will be complete between 140 and 150 days. Further, the lender automatically creates this timeline upon referral of the case to its counsel so that they can track and monitor their attorneys’ speed and efficiency. Accordingly, the lender knows that if the file is referred on January 1, 2010, then the foreclosure sale should be on May 5, and all occupants evicted by May 21.
The problem is that each individual foreclosure action will vary in length based upon a number of factors: the judges’ or courts’ calendars (given the volume of foreclosures today, some judges have a wait time of between 3 and 4 months to get time on their hearing calendar); the number of defendants and their ease in being found (the more defendants or defendants who live out of the county where the case is pending may increase the time needed for service of process); foreclosure sale dates granted by the judge of 60 days or longer; and attorneys who file motions to challenge the lender’s foreclosure action on any number of legal grounds. When the actual timeline varies from the lender’s anticipated timeline, conversations like the one described above occur between lender and borrower because the lender’s computer system shows the anticipated timeline rather than the actual timeline.
What can borrowers do about this? First, do not panic. Second, consult with an attorney who is familiar with the foreclosure timeline and the lenders’ practices to come up with a plan to either save your home, or get rid of the house with minimal liability owed to the lender. Finally, inquire with an attorney as to whether this practice by the lender is a violation of the Fair Debt Collection Practices Act (FDCPA) or Florida’s Consumer Collection Practices Act (FCCPA). Pursuant to those two laws, it is improper for the lender to misrepresent any facts about your debt in furtherance of the collection of a debt. Clearly, telling a borrower that their foreclosure sale is set for a date certain that is physically impossible given the Florida Rules of Civil Procedure would violate both the FDCPA and FCCPA. However, as these types of cases are very fact specific, you should consult with an attorney before coming to any conclusion that the lender’s actions violate either of those two laws.
If you know someone who is facing foreclosure, and they contact the lender for information and the lender gives them a “foreclosure sale” date that seems unreasonable, it likely is based on an anticipated rather than actual timeline. That homeowner should follow up with the Clerk of Court, or a Florida licensed attorney before jumping to the often inaccurate conclusion that the sheriff is going to take their house away sooner than Florida Law allows.
Tuesday, December 8, 2009
Obama Guidelines Aim to Ease Short Sales
In an effort to assist financially troubled borrowers attempting to sell their home, the Obama administration has laid out guidelines designed to encourage the use of short sales allowing the borrower to sell their home for less than what is owed on the loan. In effect this program also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure."
The program’s official name is the Home Affordable Foreclosure Alternatives Program (HAFA), and its part of the existing Home Affordable Modification Program (HAMP). HAFA will apply to loans not owned or guaranteed by Fannie Mae or Freddie Mac, which cover over half of all U.S. mortgages; however, Fannie and Freddie will issue their own versions of HAFA in coming weeks.
This is the latest addition to the Obama administration's $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans. The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.
Under this plan, if a home is sold for less than the amount of the mortgage the borrower will receive $1,500 and the Mortgage-servicing companies will receive $1,000 upon completion of the short sale. The program is open to borrowers who may be eligible for the government’s loan-modification program but don’t end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction.
Also under these new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments.
Of Critical importance, borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the HAFA guidelines.
While the goal of the HAFA is to simplify the process in the hopes of increasing the number of short sales and “deeds in lieu of foreclosure” the rules can be a bit complex, and it comes with 43 pages of guidelines and forms. To review these guidelines and forms please click here.
This program will not take effect until April 5, 2010 but servicers may implement it before then if they meet certain requirements.
Wednesday, December 2, 2009
How Do Common Credit Issues Affect FICO Scores?
A common question we are asked during our client consultations is “How will a bankruptcy, foreclosure, and/or short sale affect my credit score?” One common answer is “We have no idea, but there is no way to protect your liability without some negative impact on your credit, which can recover over time.”
Probably a bad answer, but now we have a new answer.
On Thursday, November 26, 2009, FICO (Fair Isaac Corporation) revealed its “damage points” information. Previously, the company revealed only broad categories of factors influencing a consumer’s credit score, rather than the specific number of points at stake for credit mistakes.
FICO is the company that pioneered consumer credit scoring, and is most familiar to all consumers. FICO assigns a three-digit number from 300 to 850, depending upon how well consumers handle credit. Other companies offer consumer credit scoring systems, but FICO’s version is the most well-known and most widely used by lenders in determining whether a consumer can borrow, how much, and at what interest rate.
As the table at left demonstrates, those consumers with excellent credit (780 and above) may suffer a bigger point drop than those with an average credit score (680 points). For example, someone with excellent credit who has a 30-day late payment will suffer a FICO score drop of between 90 to 110 points, whereas someone with average credit will suffer a smaller FICO score drop of between 60 and 80 points.
Unfortunately, given the high rate of foreclosures, record-filings in bankruptcy, short sales, unemployment, and all of the other economic woes outside the control of many consumers, it is difficult to avoid these drops in credit. However, given the information provided last week by FICO, when faced with two difficult decisions it is now easier for consumers to take the least-worst decision, if FICO score is more important to the consumer than liability to any particular creditor.
- Shawn M. Yesner, Esq.