Why Don't Lenders Foreclose In a Timely Manner?

One of the great mysteries of the mortgage industry is why lenders take so long to foreclose when a debt is discharged in bankruptcy. You would think the moment the automatic stay was lifted the lender would want to dispose of its collateral as quickly as possible and move on, but the reality is that lenders often take months if not years to follow through with a foreclosure.

Bankruptcy attorneys speculate a lot about the cause of such delays and some of the most popular theories are (1) inability to deliver good title due to title problems caused by the frequent buying and selling mortgage loans, (2) investors not wanting to take a loss when the market value of the collateral is less than the balance on the loan, (3) there are more delinquent loans than the lenders and servers can effectively handle, (4) they hope that the mortgagor can be induced to cure the default and reaffirm the obligation, and/or (5) they are somehow profiting by not foreclosing.

I have ran into several situations where the lender could not prove they owned a loan. In fact our firm is involved in a case like that right now, but even after a two year battle in district court to validate the lender’s title to the loan, a year has gone by and still no foreclosure. The idea that a bad real estate market made lenders reluctant to foreclose seems logical on its face, but now that the real estate market has turned around in Texas I still don’t see lenders speeding up their foreclosures. It is true that the number of delinquent home loans are at record levels and that the lenders and servicers are just overwhelmed. This seems like a reasonable explanation except that in the three years since the real estate market cratered, you would think the major lenders and servicers would have got their act together and start moving their foreclosures along faster, but I haven’t seen that happening. That leaves us with the final two possibilities which I believe explain what is happening.

First, lenders and servicers are delaying foreclosure to give them more time to lure or trick their customers in bankruptcy into paying the discharged debt. And, secondly, the servicers are delaying because they are somehow making money by holding onto the property. But, whatever the reason, these delays in foreclosing are causing grievous injury to debtors whose debts have been discharged and sorely want to get the fresh start they were promised, but can’t do it with the liability exposure of a vacant house still in their name hanging over their heads.  

Visit our website. Manchee & Manchee, PC
 

The Mod

The Mortgage Lender’s Scam

When I was young I often dreamt

Of owning a home one day
A great investment it would be

No money down, thirty years to pay

So my wife and I bought a house

And together we made it a home

A wonderful place to raise our kids

With lots of land for them to roam.

For years we lived there happily

In love, watching our children grow

Then one day my health went south

Couldn’t work, had to take life slow

My wife was forced to get a job

She worked hard but the pay was low

Unemployment? It wasn’t enough

To make ends meet, our debts did grow

Missed some payments, what will our lender do?

No worry, we understand, we can bend,

They say, we really want to help you

If you modify we’ll tack it to the end

Okay, sounds good, what do we do now?

Fill out this form, Send us this and that

No payments due until you’re approved

We’ll get this mod done in nothing flat

We do all they ask, they say, just relax,

Then a letter comes—your payment’s late!

We wilt in disbelief. You said don’t pay

But now it’s ‘pay up’ or we’ll accelerate?

We call them, distraught, confused, upset

We don’t understand this chilling event?

After passing us around, a supervisor says

Ignore the letter, it shouldn’t have been sent.

But weeks go by, yet not approved,

More letters come that make us squirm,

We call, complain, get passed around.

Don’t worry. All is well, they confirm

Weeks stretch to months, still no word

Then a letter arrives by certified mail

I call, upset. Oh, don’t be concerned

But, what in the hell is a trustee’s sale?

They say it’s all a computer glitch

Just hang in there, your mod’s a go

But from a law firm? I’m not convinced

They say, they know, just breath slow

I call again to check what’s going on

Can’t find my application anywhere?

I sigh in disbelief, such incompetence,

Beyond belief, I’ll kill them all, I swear.

Now the constable’s knocking at my door.

You said you ‘d wait, you wouldn’t dare,

Sell my house at a foreclosure sale? I call,

Mad as hell, but noone there seems to care

It’s too late now. Tried to help you out,

We did our best. Sorry, what can we say?

But don’t despair,'Cash for Keys' is still a go

Move out now, no fuss, and have a nice day!

Delay in Foreclosing Causing Much Grief and Financial Loss to Consumers

One of the most perplexing problems for consumers who have surrendered their home in bankruptcy, is that it often take months or even years for the lenders to get around to foreclosing. On the surface this might not seem like a big deal since the property becomes the mortgage servicer's problem once it is surrendered, but that's not the case at all.

Once a discharge has been granted the consumer no longer is liable for any deficiency the lender may suffer, but he still remains liable for taxes and homeowner's dues. We frequently find ourselves having to respond to lawsuits from homeowner associations for unpaid dues or threats from municipal authorities theatening to impose fines for properties that are falling apart or becoming overgrown with vegetation. Clients are frustrated by this and cannot understand why this property that has long since been surrendered in bankruptcy is still a problem for them.

What is even worse for the consumer, however, is the propensity for servicers to continue to send monthly statements, insurance notices, escrow statements, default notices and a myriad of other paperwork to the consumer who no longer has the account with the lender or servicer since the debt has been discharged. This continued communication with the debtor is in clear violation of the discharge injunction yet it seems to be unstoppable. 

We have filed suit on numerous occasions against mortgage services for these types of violations, settled the cases, only to have the notices continue again before the ink is even dry on the settlement. Sometimes it's immediate but often it is a year or two later when the notices start coming again. A lot of times this happens because a new servicer is assigned to the account and, for some unknown reason, the account pops up again as an active account. It gets even worse if the new servicer starts reporting the debt on the consumer's credit reports which is a common occurance.

I guess the ultimate question is why does it take mortgage lenders so long to foreclose? I know of people who have lived rent free in their homes for three or four years after they stopped making payments. What's up with that? I know sometimes there are chain of title issues due to the mortgages being transferred so often between securitized trusts and the government has put a lot of heat on them to try to do modifications. But from what I have seen of the modification process, the mortgage servicers aren't really serious about modifying loans and are only going through the motions--stringing customers along with the false hope that they will get a second chance with their mortgage when they have no intention of giving it to them.

The bottom line is consumers who have surrendered their homes in bankruptcy often suffer extreme mental anguish and financial loss due to the mortage servicer's delay in foreclosing on property that has been surrendered to them. Fortunately, there are remedies under both state and federal laws.  For more information about remedies available visit our website at http://mancheelawfirm.com/.

In my spare time I write novels and the next one coming out this fall is about a family that is victimized by a predatory mortgage lender. So if you'd like to see a practical example of what is happening in the marketplace today visit my website at http://williammanchee.com/ and check out Unconscionable, a Rich Coleman Novel Vol. 3. While you are waiting for Unconscionable to come out read Plastic Gods, A Rich Coleman Novel Vol 2. It's a timely financial thriller about a predatory bank and how one attorney lost everything when he became a threat to its lucrative business.