Legal issues with pre-foreclosure letters?

Question

Hello all-

I have couple of questions about pre-foreclosure letters to homeowners:

1) Are there any legal issues with sending letters to homeowners who are in default of their loans? Have you guys run into any legal problem from the homeowner?

2) From reading some of the posts people suggest using a PO Box number as return address, which makes sense. But what do you guys use as the telephone number to contact? Do you guys use your home or cell number? Or you guys have a separate 1-800 number that you use for the letters?

Thanks in advance for replies.

Account Closed · Answer

This sounds like a legal question and a qualified attorney should be sought. In California there are legal codes protecting a homeowner in foreclosure. This is a very delicate area of expertise. Please be careful in contacting such homeowners and the manner of which you would approach. And if you are an investor and are positioning yourself as an equity buyer, make sure you are familiar with such codes and have spoken to your Attorney prior to attempting to get in touch with the homeowner.

Advisory: Edgardo E. Cruz is not an Attorney and is not here to give any legal advise.

Bill Gulley · Answer

Hi, are you the lender or the borrower?
I'll assume you are the lender. What you read as strategies for RE investing should not be applied to a lending activity. As a lender it's important that you can be contacted and have good communication with your borrower. Using a PO Box means going to check it daily. I used my office address or home address and the same with the phone number. I had a recorder on the home phone and screened my calls.
Legal issues, time is of the essence. Send the letter of notice of demand allowing thirty days to pay. The notice of foreclosure can be sent together, but should not be effective until after the date of demand. You'll find the statutes by searching "secured creditor statutes" in most states. If you are not familiar with the process it is best to get an attorney. If you are the note holder and have a deed of trust, contact the trustee named in the deed, that's why they are listed on the deed. 
There are legal implications with service issues, to many to list. I think the biggest thing to understand for the borrower is that after notice has been given, realize that you can not encumber the property. You can't do a lease, a sale contract for less than is owing (without consent of the lender) pledge your equity, have workers do work or do anything that limits the ability of the lender to protect the collateral intersest. As the lender, you can not imead the borrower in any way to perform...do anything that prevents them from being able to pay it off. You should stay away from the property and not contact the borrower, unless necessary by law, after the notice. Let the Trustee take care of it. Bill

Bill Gulley · Answer

LOL, I'm awake now, yes I agree with Ted, Dan and Edgardo. I would avoid suggesting I wa going to assist them in any way unless I was in compliance with applicable rules. But, I got a much better response on the phone. I sent very few letters to owner facing loan problems (unless they were my loans). Learning to use a telephone call properly with confidence is the best tool you can have if you're working directly with homeonwers.  Bill

Ted Akers · Answer

Good advice here on contacting an attorney in your state, or at least an experienced investor in a local REIA.  Many states have passed legislation differentiating consultants from equity investors.  In general you want to avoid any type of guaranty such as "we CAN stop your foreclosure" or any language along the lines of "we are here to help", if your intent is actually to purchase the property..

Bill Gulley · Answer

WELL, I GUESS I DID IT AGAIN! I HAVE BEEN DRIVING ON TWO TRIPS IN TWO DAYS AND I
'M DEAD TIRED, LOL, BUT I'LL LET BTHIS GO AHEAD ANYWAY, SO YOU DON'T NEED TO TELL ME AGAIN....LOL! BILL

Hi, I know this is old but I really feel like I should correct myself here and hope the original poster see it. 
          
          There are absolutely legal considerations that must be given when sending letters of default to a borrower! 
          Then there are some good business rules. My wife use to start to send out a collection letter and I would go through the roof, this is a business and legal aspect of lending, not contacting a long lost friend! It would say something like....Dear Mary, I tried to call you again to remind you about your house payment. Bill is getting very upset about this and I hope you have mailed it out by now. I know your sister was staying with you and all the expoenses you had at the doctor and I hope you're feeling much better. I really do hate to bother you.......YIKES!
          
          REGISTERED MAIL RETURN RECEIPT REQUESTED
          
          Dear Mr and Mrs Smith,
          
          We have made several attempts to contact you concerning your past due payment required under the promsisory note made the 16th day of November, 2006, in the amount of $652.86. The outstanding amount now due is $1,962.42 which includes late fees described in your obligation.
          
          We have reviewed your loan and your payment history does not meet our expectations of timely payment under your obligation.
          
          At this time we are electing to accelerate your obligation to its maturity which will require all remaining amounts to be paid in full on or before the 28th day of June, next. The balance outstanding this date is $54,362.80. The per diem interest, interest due on a daily basis until fully paid is $ 18.28.
          
          This is a demand for the full payment of all amounts due under your obligation.
          
          In the event the total amount outstanding is not paid as demanded herein, notice is hereby given to proceed with the foreclosure action as provided under the security agreement made of even date with your promissory note. 
          
          We are not required to contact any other lien holder having an interest in the property secured under your waiver of notice of dishonor. You are advised to seek competent assistance in this serious matter immediately. This is an attempt to collect the debt hereinabove described.
          
          Please remit the amounts demanded to:
          Affiliated Capital & Servicing Corp.. 2200 E. Sunshine, Springfield, Mo. 65804 by close of business on the date above indicated. Should you need immediate assistance please call 1-800-889-9000. 
          
          Yours Truly, 
          Me!
          
          There are elements of notice that must be given properly, first send it regustered or certified mail, return receipt requested...so you can prove they got it! The amounts due, per diem interest so they know what is needed for settlement. They need to know the loan has not been paid as agreed and that the loan is being accelerated to its maturity. They need the address to send this "special" payment to and a phone number to address any immediate questions. They don't have to be advised to seek assistance, but it doesn't matter if they do, so I would always tell them to do so. If they didn't have the money to make the house payment, they usually didn't have money for an attorney. This is the collection letter of all collection letters...dah!
          
          The next letter is Notice of Foreclosure and it is generally done by the Trustee. 
          
          Nothing personal, just business!
          
          So, hope this clears up my mis-read above, lol, as I do sometimes and just didn't catch it then. Sending out a notices must comply with state statutes as well as fair credit collection practices.
          
          If you have a note that is in default and you have never done this before, I can tell you that if you screw it up, the penalty can be twoi and a half times the amount owed! Get an attorney! Good luck, Bill

Brian Haskins · Answer

No, there is no legal issues with letters. It legal to mail to people. I would just suggest you not say things like I know your in forecloseure or you might make people mad. As far as a contact number you can use anything you want. Whatever you have set up for your phone system. I have a 1800 number i use but sometimes i use a local number and forward it to the 1800 number it just depends on what works best for you.

Brian Haskins

Sharad M. · Answer

Thank you all for replying. I am an investor looking to send letters to people who are in default 90+ days. I am trying to understand if there are any legal issues with sending letters to homeowners who are in default.

It sounds like there shouldn't be any issues, but it will still be best to contact an attorney in my state to confirm that.

Have you guys run into any problems from the homeowners when you contacted them about their loan being in default?

Thanks!

Ted Akers · Answer

Hello Max,
It is advisable to check with a real estate attorney in your state.  Colorado has enacted, and I am fairly sure a handful others have followed, a Foreclosure Protection Act aimed at protecting distressed homeowners.  In general, it is obviously a marketing piece but you want to avoid any references to a guaranty and being there to "help" if what you intend is to purchase the property.  Offering "help", at least in Colorado, puts you in a "consultant" category and a whole new set of parameters.  Again, many states have enacted similiar legislation.  Ask an attorney or ask around your local REIA.

Corey Demuth · Answer

Am I reading this wrong? Why would you assume he is the lender? I'm pretty sure he's talking about being an investor, and sending letters to people who are 90+ days late and thus about to be go into foreclosure. I believe he wants to know if there are any legal issues with him sending letters to these people to try to make offers on the property.

Legal issues with pre-foreclosure letters?

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