Op-Ed: On Foreclosure, Loan Modifications and Credit Repair

PSA – Thirteen Cardinal Rules on Home Foreclosure/Loan Modifications and Credit Card Repair/Settlement or Consolidated debt.

Since my last article generously published by CrownHeights.info, I have met with dozens of local families and have worked with many to modify their loans and fix their credit.

Every case is unique and different and there is no one set of rules or advice that can be given.

With more than 200 local families currently several months behind in their mortgage payments, spiraling credit card debt, and tuition bills that need to be addressed at the beginning of the year, not to mention, the upcoming month of Tishrei, I felt the need to share just a few thoughts to help all those families that are either too embarrassed to ask for help, or who think they can do it themselves.

There is no specific order to these rules, each is important in its own right.

Rule # 1. There is nothing another person or company can do for you, myself included, that you yourself can not take care of. But you must know what you are doing, as almost every conversation is recorded, and any document you submit, will be used by the bank or collection agency against you to collect that debt.

Rule # 2. Requesting the mortgage company or bank to furnish you with a full set of the original documentation is a legal way to forestall the foreclosure and if you are capable enough to go through the documents and find RESPA violations, you still need to know what to say and the proper legal methods for doing this if you hope to get the bank’s attention and for them to modify the loan. The banks are aware of these tactics and now ask for specific reasons and evidence you are looking for, plus they are now charging up to $20 per document, hoping you will not respond, and as such, they will be off the hook.

Rule # 3. Merely requesting a loan modification is not enough. You have to substantiate a true financial hardship. At the same time, the chances of getting the bank to listen while you are paying on time and in full every month, even if you are borrowing money to make these payments, is almost nill. The same holds true for credit card companies. Why should they entertain a discount when you are paying on time? At the same time, if you have the money, but simply decide to stop paying in the hope you will negotiate a settlement, you must be forewarned that not every case succeeds, your FICO credit rating will tank bottom, and you may lose your house. When your score goes lower, your interest rates usually go higher and other credit card companies start decreasing your available credit. Most important, that you understand that these bills rarely ever go away, and the companies will keep on coming after you, and eventually will obtain judgments against you, even to the point of wage garnishing etc.

Rule # 4. Simply ignoring the mortgage companies, banks and collection agencies is not wise. Eventually it will go to court and will be proven that you ignored opportunities to settle and work things out. This will encourage the judges to enter collections and/or foreclosures against you.

Rule # 5. Differentiate between secured debt and unsecured debt. Your mortgage is secured debt. If you don’t pay, you can lose your house. Credit card companies and other collections are unsecured. If you can afford to pay both, by all means do so. If you can’t pay both, but you can pay one, pay your mortgage first. No bank will entertain a loan modification when they look at your credit report and see you are current on all your cards but months behind with them. To them, that is a sign you have a money and are choosing to ignore them, and the consequences will be severe.

Rule # 6. While many collections have a statute of limitations, simply ignoring them for six years don’t make them go away by themselves. Even though the bank legally can not come after you once the time has expired, that does not mean they will stop, especially if it is a large bill. You will need expert legal or credit advice to deal with this.

Rule # 7. Every time you talk with a collection agency, or especially if you send them written correspondence, you are theoretically renewing the date of last activity on your account. So if you had a credit card debt that was five years old and about to expire, and you then decided to call the bank to see what offer they would make to settle the debt, you just renewed the date of last activity and now that debt is worth much more to the bank as they can resell it as a current debt, versus an expiring debt. It is therefore recommended that you choose another person or credit repair agency to handle this for you.

Rule # 8. Spouses can prove their love to each other in better ways than co-signing on all credit cards and even the home mortgage. By keeping separate accounts, you protect yourself that in the event one spouse’s credit tanks bottom, at least you have the other to count on. By co-signing everything, the second one spouse goes down, the other comes along and then neither can refinance or obtain new credit, so vital in today’s economy.

Rule # 9. When you fall behind in mortgage payments, your bank will send you a letter advising you of many non profit agencies that offer assistance to homeowners facing foreclosure. I have not checked each one out, and obviously, the general rule, that you get what you pay for, generally applies, yet, there are a few, which seem to have very high ratings and claim to be rather effective. As such, it is not absolutely necessary to hire a lawyer to do the work for you.

Rule # 10. Entering into debt payment plans is never a good idea. Let’s say for example that you owe $10,000 on one credit card and you now entered into an agreement with the bank you will pay .40 cents on the dollar and send in ten payments of $400 for a total of $4,000. Many times, by the 9th or 10th payment, the bank claims it came one day late, and as such you forfeited your agreement, so everything you paid until now is null and void and they will come back for the $10,000 plus accrued interest since then.

Rule # 11. Nor is consolidating debt a good idea, as most companies take the first three, four or six months payments as their fee, and do not even communicate with the banks during this time. Only once their fee has been taken, do they contact the banks, by which time, your credit (FICO score) has tanked bottom and most of your account will have been closed and may even be in collection.

Rule # 12. In order to qualify for a loan modification you have to prove financial hardship, but at the same time, you need to prove you can afford the modified loan you are requesting of the bank. If your living expenses exceed your income, why should the bank agree to modify your loan, when you won’t be able to pay the lower amount regardless of their efforts. As a general rule, your mortgage payment should not exceed 31% (The Feds want to change that to 38%) of your income.

Rule # 13. Please keep a log and written record of everything you say over the phone, or submit in writing. Also please bear in mind that many federal agencies now share information between themselves so whatever you submit for one must be consistent with all the others.

In closing, I wish to state that while many people still pretend to enjoy the good times, many of your neighbors are aggressively looking and finding solutions to make ends meet, such as applying for Medicaid, Food Stamps, School Vouchers and many other legitimate entitlements until they can turn the tide and sustain their families like before. Many others are aggressively looking and finding new jobs and/or opportunities. While it may not be pleasant, it certainly beats asking the schools to reduce your tuition or asking local charities and neighbors for financial support.

May we all be inscribed for a Kesiva VaChasima Tova and may Hashem fulfill all our needs, with the ultimate Bracha of the revelation of Moshiach NOW!