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Home Foreclosures: 6.3.3.2 Foreclosure Prevention Claims and Defenses Based on Lender’s Failure to Comply with VA Servicing Guidelines

Failure to comply with VA servicing guidelines has been raised as a defense in foreclosure proceedings or asserted in affirmative actions to stop foreclosure in non-judicial foreclosure states.343 If at all possible, claims or defenses should be linked to a regulation or statute, although many courts have also found the VA Servicer Handbook and Circulars to be binding. These claims and defenses are available in addition to all other claims available under state and federal law, including claims under RESPA Regulation X.

Home Foreclosures: 6.3.4.1 Introduction

Veterans who are denied a request for relief under some of the options the VA offers as an alternative to foreclosure may appeal those decisions to the Board of Veterans’ Appeals. The Board of Veterans’ Appeals (BVA) is an administrative body within the Department of Veterans Affairs.

Home Foreclosures: 6.3.4.2 Postforeclosure Waiver of Indebtedness

A veteran will be liable to the VA through either indemnification or subrogation for any claim paid by the VA to a lender due to default and foreclosure on the veteran’s guaranteed mortgage.376 The obligation remains even if the veteran transfers the property encumbered by the VA-guaranteed mortgage, and allows the new owner to assume payment of the mortgage.377 The veteran may apply for a waiver of this indebtedness.378 The Court of Appeals for Ve

Home Foreclosures: 6.4.2.1 Acceleration and Foreclosure of Section 502 Direct Loans

A Section 502 mortgage can be accelerated when there has been a default under the terms of the mortgage, most often from failure to make payments due under the mortgage. The account must be delinquent in an amount equal to three scheduled payments or an amount equal to two scheduled payments that have been delinquent for at least three consecutive months.390

Home Foreclosures: 8.7.7 The Bankruptcy Automatic Stay as an Alternative

If an eviction or foreclosure case or some other type of collection action is pending against the homeowner, the consumer should consider bankruptcy court as a forum. In most cases, as soon as a bankruptcy case is filed, all such actions are automatically stayed without the need to consider the impediments to relief discussed above.

Home Foreclosures: 8.8.3.5.1 Individual arbitration

Where an enforceable arbitration agreement forecloses class arbitration, class action litigation in court, and individual court litigation, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. Even if an arbitration agreement is not enforceable, it can take years to resolve this issue before even reaching the merits.

Home Foreclosures: 8.8.3.5.2 Class-Wide Arbitration

Where an arbitration clause prohibits class-wide arbitration, an arbitrator is unlikely to allow such relief, and a court would almost certainly overturn a class-wide arbitration award. Most, but not all arbitration clauses prohibit class-wide relief—some are silent on the issue.

Home Foreclosures: 8.10.7 Make Sure the Agreement Is Enforceable

Everything agreed upon must be reduced to writing. Nothing should be left to chance or a promise. Most servicers and lending institutions are big, complex organizations, and any individual representative, lawyer, CEO, frontline worker, or general counsel has only a limited ability to control the other pieces of the organization.

Home Foreclosures: 8.10.9 Other Considerations

Change the account number: Most servicers use automated recordkeeping systems. Unless a thorough purge of the existing computer records is done, it is likely that, at some point, when the servicer generates a payment statement or history, some of the forgiven fees in the loan modification may get picked up and swept into the client’s current information. Changing the loan’s account number helps give the loan a fresh start, without the history of the fees, charges, and principal that have been forgiven in the loan modification.

Fair Credit Reporting: 4.3.1 Overview

Inaccuracies in consumer reports stem from essentially two sources.234 First, the data provided to the CRA by the furnisher or other information provider may itself be inaccurate or incomplete.

Fair Credit Reporting: 4.3.2.1 Furnisher Provision of Inaccurate Data

Usually, information from furnishers about a consumer’s account status is computerized, and the furnisher’s computer files are periodically dumped into the nationwide CRAs’ computers. Any error in the furnisher’s computer file automatically appears in the consumer’s credit report. Although the nationwide CRAs screen data from furnishers using processes that can catch certain inconsistencies, they are dependent upon the underlying validity of the supplied data.

Fair Credit Reporting: 4.3.2.2 Some Creditors Do Not Furnish Data to Consumer Reporting Agencies

A consumer’s report might be incomplete because it does not contain positive accounts that would otherwise render a more favorable and complete picture of a consumer’s credit history. The nationwide CRAs normally get most of their information from their subscribers, and do not receive information from entities who do not subscribe to their services. A consumer’s credit report from a given CRA, therefore, will likely contain only information on the accounts of creditors who subscribe to that CRA (plus public record information).

Fair Credit Reporting: 4.3.2.3 Furnishers That Withhold Data

A different problem of incompleteness occurs when lenders intentionally withhold positive payment histories or reporting data from the CRAs for accounts they otherwise report. Mortgage lenders and credit card issuers sometimes do so for strategic reasons.

Fair Credit Reporting: 4.3.2.4.1 Introduction

One of the most serious consumer reporting problems is the failure of the reporting system to provide consumers a “fresh start” after a bankruptcy discharge. Creditors frequently fail to report an updated status for discharged accounts or continue to report their pre-discharge status and balance. CRAs did not update accounts and judgments they otherwise knew had been discharged.263

Fair Credit Reporting: 4.3.2.4.2 Harm caused by improper reporting of discharged debt

This failure to update debts discharged in bankruptcy could have a significant effect on consumers. The effect of a bankruptcy on a consumer’s credit score is of course initially devastating. However, it is a static event and, all other things equal, a consumer’s credit score will continue to improve each day that passes post-discharge. Failure to properly report the discharge of debts hampers that improvement. Another consequence of the failure to report that a debt has been discharged, as noted by one bankruptcy court, is that:

Consumer Bankruptcy Law and Practice: 11.6.1 Modification of Secured Creditors’ Rights in Claims Not Secured Only by Real Estate That Is the Debtor’s Principal Residence

11.6.1.1 Generally

Perhaps the greatest powers to affect the rights of secured creditors are found in the provisions of chapter 13. Bankruptcy Code section 1322 provides that the debtor’s plan may modify the rights of holders of most secured claims, other than some claims secured only by a security interest in real property that is the debtor’s principal residence. In addition, section 1322(b)(3) and (b)(5) provide that as to any claim, including a claim secured only by the debtor’s principal residence, the plan may provide for the curing of a default over a reasonable period of time.

Fair Credit Reporting: 4.3.2.4.5 Debts subject to chapter 13

The treatment of accounts subject to a chapter 13 bankruptcy is more complicated. In a chapter 13 bankruptcy, the debtor proposes a plan, which the bankruptcy court confirms. In some cases, at the end of the plan, a debt is discharged. In other cases, a debt is not discharged, but instead the amount and terms are modified and the consumer pays the debt according to the modified terms.286

Fair Credit Reporting: 4.3.2.4.6 Reporting discharged debt subsequently sold to debt buyers

The problem of discharged debts not being properly reported is further complicated by the fact that these debts are sometimes sold by creditors to debt buyers.308 Some creditors refuse to update a sold account to properly reflect that the debt was discharged and is no longer owing, even after the consumer disputes the status of the account.309 These creditors take the position that they have no duty to update the account,310 despite the FCRA’s impo

Fair Credit Reporting: 4.4.6.10.5 Reaffirmation and postpetition payments

Problems sometimes occur when a consumer has formally reaffirmed a debt in the bankruptcy.1052 A furnisher is required to note this reaffirmation1053 using the Metro 2 “Consumer Information Indicator” field.1054 This step is often ignored.1055 Inaccurate and incomplete reporting occurs when the CRA itself fails to obtain and integrate the reaffirmation records from the bankruptcy court file.

Fair Credit Reporting: 4.3.2.4.7 Inaccurate or incomplete coding by furnisher of bankruptcy related status

Furnisher reporting of an account that has been included in bankruptcy is governed by the coding standards within the Metro 2 reporting format.314 A bankruptcy related event is reported as a consumer-specific status rather than a general account status. This is accomplished by use of the Metro 2 field “Consumer Information Indicator,”315 referred to as the “CII.” The furnisher is instructed to report a CII for each consumer obligated on a credit account.