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1.4.3 First Steps

When borrowers seek assistance with mortgage related problems it is important to perform an initial review of the case to determine any immediate needs before moving onto a more thorough analysis. Borrowers present cases in many different stages: some seek legal guidance prior to default, and others may not seek assistance until after a foreclosure sale has been completed. Some borrowers have detailed records, including loan documents, evidence of payments, and notes of telephone conversations with the servicer. Others may have little information regarding the loan transaction and foreclosure beyond a jumble of bills, collection notices, and unopened mail. Some homeowners have little or no understanding of the terms of their mortgage loan. Others may be confused by the loan modification or foreclosure process. In addition, to the questions regarding loss mitigation options and mortgage servicing claims below, advocates should first consider the issues discussed below.82

Determine whether a foreclosure or other process is pending that could result in the loss of the client’s home, and if so, determine the type of foreclosure or process. Mortgages or deeds of trust typically are foreclosed either by judicial or nonjudicial process.83 Judicial foreclosure requires a court action prior to foreclosure in which the borrower can raise defenses to foreclosure. In states permitting nonjudicial foreclosure by “power of sale,” there is little to no court supervision of the foreclosure process. In order to raise defenses to a nonjudicial foreclosure, the borrower must file an action for injunctive relief.

For manufactured homes, state law determines whether the home must be foreclosed upon as real property or repossessed as personal property.84 Another type of foreclosure (or forfeiture) may occur pursuant to a real estate installment sales contract.85 Several states regulate land installment sales contracts by statute, detailing procedures for termination, forfeiture, or foreclosure. However, in most states, regulation of installment land sales contracts is left to the common law. The procedure for foreclosing a condominium or homeowner association lien is determined by state statute.86 Lastly, foreclosures can take place pursuant to tax liens.87 Tax lien foreclosures generally differ from other types of foreclosure, and the sale process varies by locality.

Determine any time constraints. For example, in judicial foreclosures important deadlines may include: the due date for filing an answer in response to the complaint for foreclosure, the date set for redemption, the foreclosure sale date, and the confirmation sale date.

Nonjudicial foreclosures tend to proceed much more quickly, but there are nevertheless statutory steps a lender must take in order to foreclose. Important events to watch for include: notice of default and/or notice of acceleration, notice of sale, and the auction date. Advocates should be aware of important dates established by state law and local practice when the borrower faces repossession of a manufactured home, a tax sale, or forfeiture on a land sale contract.

It is also important to be aware of deadlines related to loss mitigation opportunities. For example, in most cases, prohibitions on dual tracking—reviewing loss mitigation applications and pursuing foreclosure simultaneously—are tied to when the servicer receives the application for assistance relative to a scheduled foreclosure sale.88 These deadlines may be created by federal or state law, as well as by the servicing guidelines set by an investor, insurer, or guarantor. Important deadlines may be linked to the date of default.

Understand the homeowner’s objectives. Advocates should provide help consistent with the homeowner’s objectives and needs. For example, a homeowner who wants help proving that she has made a particular payment that the servicer claims not to have received needs different legal assistance, and may have different claims, than a borrower with a predatory loan. Borrowers may want to remain in their homes indefinitely, may want to stay for a certain number of years (e.g., until children graduate from high school), or may be willing to give up their homes. Each of these client objectives may suggest a different legal strategy. In addition, if the homeowner’s objective is clearly unobtainable, an advocate should be prepared to discuss alternative housing and other resources that might be available.

Homeowners in default on their mortgage loans are often behind on other bills, and may be receiving many calls and letters from debt collectors. These aggressive debt collection tactics may distract homeowners and prevent them from focusing on resolving the pending foreclosure. In these cases, advocates may need to help the client deal with these other debts as well.

Gather and review loan documents. Any mortgage servicing related case generally begins with reviewing the relevant loan documents.89 These documents tell the story about the particular financial transaction and the players involved. Rarely will homeowners’ stories come alive without their own testimony, but sometimes the stories found in the paperwork are more complete than those related by the homeowners. Furthermore, what appears in a paper story is usually irrefutable, and cases can be won on the paperwork alone.

While every effort should be made to obtain all the documents that the borrower signed at closing, the two most important are the note and the mortgage or deed of trust. Other origination documents such as the loan estimate and closing disclosure, the notice of right to cancel (if applicable), and the loan application should be gathered when possible. Note that for loan applications submitted before October 3, 2015, look for the HUD-1 settlement statement and TILA disclosure instead of the TILA/RESPA Integrated Disclosures.

A payment history, preferably one for the life of the loan, should be obtained from the servicer to verify that payments have been applied correctly, that escrow accounts have been handled appropriately, and that improper fees have not been charged to the borrower’s account. Any written communication with the servicer related to loan modification or other loss mitigation alternatives should be collected. With these documents in hand a preliminary assessment of the borrower’s claims is possible. Chapter 11, infra, provides a detailed discussion of how to obtain documents and tips on handling documents once you receive them.

Identify critical parties. Every mortgage transaction brings together a variety of actors. Some are directly involved with the homeowner while others operate behind the scenes. Some appear on the stage at the beginning of the process. Others enter the scene when the homeowner makes payments or defaults.90 However, for purposes of first steps, it is important to identify the loan originator, the current loan holder and the current servicer. The originator is the financial institution that originally provided the loan to the borrower and is typically listed as the payee on the note. The current loan holder is the party that has the present right to receive payments on the note and initiate a foreclosure. The servicer is the intermediary between the current holder and the borrower. The holder typically delegates significant authority to the servicer to resolve delinquent loans and prosecute foreclosures.

Finally, the advocate should learn the identity of any government insurer or guarantor for the loan. This may be one of the three federal insurers, FHA, the VA, or RHS. It could also be one of the government sponsored enterprises (GSEs), Fannie Mae or Freddie Mac. These entities publish detailed guidelines describing loss mitigation options available for homeowners facing foreclosure. Servicers of these loans must follow designated procedures in reviewing homeowners for eligibility for these options. Similarly, the identity of past servicers can be important. From early 2009 through 2016, the overwhelming majority of mortgage servicers were required to review borrowers facing foreclosure for modifications under the Home Affordable Modification (HAMP) program. The evaluation of defenses to foreclosure may include assessing whether the borrower was evaluated appropriately for HAMP options in the past.