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Mortgage Servicing and Loan Modifications: 6.4.9 Saving Up a Lump Sum

Borrowers should be encouraged to save anything possible toward the mortgage while a workout is being discussed. (If possible, those funds should be placed in escrow.) Even if the mortgage holder has refused partial payments, after several months the accumulated lump sum may be useful in workout discussions. In some instances, a growing arrearage balance may at some point make a loan modification unfeasible.

Mortgage Servicing and Loan Modifications: 6.5.1 Knowing What Terms to Request

Advocates for borrowers with Fannie Mae, Freddie Mac, FHA, VA, RHS, and USDA loans should understand the rules that apply for those loans in helping borrowers assess potential workout options. For loans held in portfolio or in a private-label securitization, the situation is more challenging because there are not fixed modification programs with transparent terms. Many servicers have adopted an internal modification protocol post-HAMP, but it is difficult to know when these protocols apply.

Mortgage Servicing and Loan Modifications: 6.5.2.1 Generally

As discussed above, when evaluating a loan modification or other workout proposal, first determine who holds, guarantees, or insures the mortgage. The servicer should tell you who owns or insures the mortgage. For instructions on obtaining this information from recalcitrant servicers, see § 4.7.2, supra.

Mortgage Servicing and Loan Modifications: 6.5.2.2 Workout Limits Based Upon a Loan’s Securitization

Servicers often claim that when a mortgage has been securitized, the servicer’s actions are limited by a pooling and servicing agreement (PSA), and spelled out in servicing contracts or guidebooks which are incorporated by reference in the servicing contract.81 Some pooling and servicing agreements give servicers the ability to modify any loans, while others cap loan modifications to a fixed number or percentage of the outstanding balance in the loan pool.82 Still other PSAs limit certain modificati

Mortgage Servicing and Loan Modifications: 6.5.3 Requesting Delay of Foreclosure Sales

At the outset, the most important request may be for a delay of the foreclosure sale process long enough to make a workout application. Depending on when the application package is submitted, and whether it is complete, such a delay may be required.85 A completed foreclosure sale will generally cut off all workout possibilities.86 In addition, as the foreclosure process moves forward, the mortgage holder continues to incur costs that will eventually have to be reimbursed by the borrower.

Mortgage Servicing and Loan Modifications: 6.5.4 When the Servicer Initiates a Modification

Sometimes the servicer may initiate contact with borrowers to offer a modification or other workout agreement. If the homeowner receives a pre-approved modification offer, it should be reviewed carefully. The offers are based on the information that the servicer has on file regarding the homeowner’s income, principal balance, and property value, among other factors. These modifications do not take into account a borrower’s actual income, and thus may not provide the best possible option.95

Mortgage Servicing and Loan Modifications: 6.5.5 The Homeowner’s Application for a Workout

Different mortgage holders and their servicers have different workout application processes and forms. They generally obtain financial information about the borrower’s debts, assets, income, expenses and reasons for default, with appropriate verification although there has been a recent trend to streamline and minimize the information collected. Additionally, mortgage servicers may obtain a property appraisal and/or a credit report.

Mortgage Servicing and Loan Modifications: 6.5.6 Workout and Foreclosure Fees

Some servicers or investors purport to charge a workout or modification fee for handling workout applications. Some want this up front regardless of the application’s outcome. When possible, however, modification fees should be avoided or minimized. This can involve requesting a waiver or asking for a fee reduction to make the modification affordable.

Collection Actions: 2.1.6 Reason #6: Protection of the Consumer’s Assets and Income

A judgment for a collector can have serious consequences for the consumer’s assets and income.21 Assets in bank accounts are likely to be seized. Wages can be garnished. Cars and other property can be seized. Defeating a collection action can eliminate these threats. Even if a default judgment has already been entered, an attorney can assist the consumer either in setting aside the default judgment or in minimizing the impact of these creditor remedies by making sure that state exemption rules are enforced.

Collection Actions: 2.3.4.2 Nine Ways to Stop Debt Collection Harassment

There are nine steps a client can take to prevent debt collection harassment and respond to contacts from debt collectors:

1. Investigate the collector. The client may receive calls, emails, or other electronic messages from scammers pretending to be debt collectors. The client should not make any payments unless they are sure that the collector is legitimate.

Collection Actions: 2.3.9.1 Procedural Status of the Case

The first criterion in deciding whether to take a case is the procedural status of the litigation. Sometimes the consumer comes to the attorney years after a default or stipulated judgment was entered, when the collector is just getting around to garnishing wages or bank accounts.

Collection Actions: 14.1 Overview

State and federal exemption laws provide fundamental protections for low-income debtors and their families. Every state has a general exemption law that protects a variety of income and property from judgment creditors.1 In addition, many federal and state statutes that deal with a particular type of income or asset, such as Social Security benefits or state employees’ pensions, include their own exemption provisions. Special exemption rules are also sometimes found in statutes dealing with certain types of debt, such as tax debts.

Consumer Bankruptcy Law and Practice: 3.2.1.5 Credit Counseling Briefing Requirement

The 2005 amendments to the Code added a new eligibility requirement for all individual debtors, with very limited exceptions. Section 109(h) provides that a debtor shall not be eligible for relief if the debtor has not received, within 180 days before the petition, a briefing from an approved nonprofit budget and credit counseling agency.46 In addition, section 521(b) requires an individual debtor to file a certificate from the approved counseling agency stating that the debtor has received the briefing.

Fair Debt Collection: 5.7.2 Contacting Third Parties Generally Prohibited

FDCPA § 1692c(b)’s strict limitations on third-party contacts make it one of the FDCPA’s most important protections. Section 1692c(b) protects the consumer’s privacy, and also protects the consumer’s relationship with friends, neighbors, coworkers, and others. It protects both the consumer253 and the third party from the embarrassment and strain on their relationship of how to deal with the collector’s revelation to the third party of the consumer’s private financial affairs.

Fair Debt Collection: 5.7.3 Is a Third-Party Contact a Communication for Purposes of FDCPA § 1692c(b)?

As with FDCPA §§ 1692b and 1692c(a), discussed above, an analysis of whether a debt collector violated section 1692c(b) begins with whether the debt collector’s contact with the third party constitutes a “communication as defined by the FDCPA.285 FDCPA § 1692a(2) defines a communication for purposes of the Act as the conveying of information directly or indirectly regarding a debt.286 If the third-party contact is not a “communication,” then FDCPA § 1692c(b) does not apply to

Student Loan Law: 9.4.3.1 Generally

Non-judicial wage garnishment is available to guaranty agencies under the Higher Education Act (HEA).237 The differences between the HEA statute and regulations and those under the Debt Collection Improvement Act (DCIA) of 1996 have diminished over time due to amendments.

Fair Debt Collection: 5.7.6 Other Allowed Third-Party Contacts

The Higher Education Act (HEA) allows for administrative wage garnishment without a court judgment to collect on defaulted federal student loans, so that this garnishment does not fall within FDCPA § 1692c(b)’s exception to effectuate a postjudgment remedy. Nevertheless, courts have held that the more specific HEA trumps section 1692c(b).333 Thus a debt collector can contact the student loan borrower’s employer to garnish the wages.

Fair Debt Collection: 5.7.7 Leaving Messages with Third Parties for the Consumer

Whether FDCPA § 1692c(b) is violated when a debt collector leaves a message for the consumer with a third party will depend on whether the message is treated as a communication under section 1692c(b).339 Courts have found that messages left with third parties for consumers are communications leading to a FDCPA § 1692c(b) violation if the message asks the consumer to return a call to discuss a debt340 or refers to a defaulted account.341 The FTC sta

Fair Debt Collection: 5.7.8 Voicemails for Consumers Overheard by Third Parties

Under Regulation F (effective November 30, 2021), voicemails that qualify as limited-content messages351 will be considered attempted communications352 and not communications.353 As a result, contacts that qualify as limited-content messages will not be third-party disclosures although voicemail messages that do not comply with that definition can still lead to third-party disclosures.

Fair Debt Collection: 5.7.9.1 Generally

Regulation F (effective November 30, 2021) addresses whether a collector can raise the bona fide error defense where a text or email communication mistakenly sent to or read by a third party violates FDCPA § 1692c(b)’s prohibition of third-party contacts. Third-party communication via emails or texts is prohibited, but Regulation F defines standards as to whether the collector has maintained procedures reasonably adapted to avoid a third-party communication.