Question on 2nd position npn in CA -- can I contact borrower?
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
Hi All,
I just purchased a nonperforming note in 2nd position on a nice home in Los Angeles. The first is performing and listed with Chase. There is equity in the property even with both the first and my second. The borrower filed BK 7 in 2009 and all debts were discharged.
My loan servicer says that since the borrower has a discharged BK7, they are not allowed to contact the borrower per the new Dodd-Frank CFPB laws. Is this true? It seems that my only option is to have an attorney send a letter of intent to foreclose. Does anyone have any advice on other tactics to get the borrowers attention to negotiate a payoff?
Thanks
Bob
I'll update this thread as progress is made so others can get an idea of what is involved.
Bob
Honestly, I think a letter of intent and using an attorney is a waste of time. A Notice of Default is intent to foreclose and IMO foreclosing trustee services are in a better position to do it right.
Bob, I am new to notes, but have been told that you should not contact the borrower directly. I am not sure if this is a solid do not or if it is not best practice. If you are intending to foreclose then having the attorney send the letter is probably your best route. Hopefully a more seasoned notes investor will see this and post something for you.
Just my thoughts: Start legal. That should be done on every non performing note, in my opinion, if you want to force a result. Send out a few letters explaining that the company is foreclosing on the property, you understand they are not liable for the debt, but if they want to stay in the property they will need to address the 2nd mortgage; through a payment plan or payoff. Let them know your a workout Specialist for the company looking to help them. I talked to a Chapter 7 discharge borrower today, it takes a while for them to realize what's going on. Some play dumb, but most don't fully understand. Let legal bring them to you. CA takes 8 months to FC. Legal FC Cost is $3,000 - $4,000. You can in box me for a good legal contact in CA. Just my thoughts. I work a lot of distressed 2nds discharged from Chapter 7 BK. My sweet spot.
Thanks Bill, I just PM'd you with my contact info.
Bob
I just so happen to do a drive by on this thread.
The answer is NO, you can not contact your borrower. If your servicer will not do something, that is a great indication that you should not do it either.
If the loans was discharged, as you say, in BK, then the recourse collection on the borrower is what is discharged. This removes the recourse (personal liability) from the borrower but does not satisfy the loan which is collateralized by the property. Therefore, you can initiate FCL proceedings. In many cases, this can be done as an explicit reaction to the discharge, it is state dependent though.
I am not a huge fan of Mortgagee's simply creating their own letters and mail campaigns, I actually cringe when I read that stuff. You have a Mortgage Servicer for a reason, you really should be using them so you are compliant. It will not take much to fall onto the bad side of a confused borrower post BK discharge who calls their attorney back to complain and the attorney finds that you violated the discharge by ignoring it and running collections on the borrower in an inappropriate manner. Attorney then moves to have you fined or worse.
Also, @Bill McCafferty advice seems like it can be taken the wrong way. You are NOT a workout specialist you are the Mortgagee, do not lie to borrowers. Contacting a borrower as a 'workout specialist' and engaging in a conversation around the idea of relief creates a laundry list of violations. You are initiating the relief conversation and Dobb Frank has rules on how a Mortgagee must respond to a request for relief.
Simply stated, the FCL action will likely be very silent on your part. Your Mortgage Servicer knows how to navigate these waters. There is no 'workout' without a new note being issued, which could be a trap you put yourself into if you are not careful. This too would have a laundry list of issues for you, since it would be an extension of new credit.
Moral of the story, you have the the licensed, experienced team member (your Mortgage Servicer) already at your side. Listen to them, they clearly know more than you and more inclined to give you the correct advice on an asset they are servicing since it affects their license and they are familiar with the file.
Good Luck.
@Dion Depaoli understood. I use servicers for the majority of loans. The reality is I would go broke waiting on services to get me paid, from NPN. I keep it clean and professional. Yes there are rules and regulations. Thanks. I take my chances and will continue to. Your advice and input is appreciated.
Send a straight forward letter of Notice with an opening to contact you, from your attorney. Notice is still required. Contacting after five years of discharge isn't about attempting to collect personally, it's about notice giving them an opportunity to save or act under homestead exemption laws and rights or interests arising from foreclosure action. I would contact the borrower, but I suggest you not, saying it's deep waters and a long way out, so have your attorney contact them. Your servicer can contact them, they just don't want to I'd say, communication is difficult, they have disclosures, must log the account, record telephone calls, provide a follow up report and retain these records, it's a pain and probably won't yield anything for them considering the risks they take in going further. But yes, the borrower needs to be given notice. You can open the door, if they respond you can move forward but at that point it should be your servicer being involved to modify the note. If they aren't interested, get another servicer. Have your attorney guide you. :)
Thanks for your input and wisdom Dion et.al. This confirms what my servicer has told me and I will have the FC attorney issue a LOI to foreclose to get the borrower's attention and see if they will play ball.
I'll update this thread as progress is made so others can get an idea of what is involved.
Bob
If this is a CA note and it were me, I'd go right to substituting the current trustee with a foreclosing trustee service and have them go straight to a notice of default. The borrower can decide what they want to do at that point.
If the borrower's BK has been discharged, then getting an NOD from the foreclosing trustee is a legal and cost effective way to wake up your borrowers. Your foreclosing trustee service will cross all the t's and dot all the i's when it comes to the required noticing. The borrowers will most likely respond IMO. How defaulted is the note? Some borrowers will fight on the premise that the note has passed its statute of limitations for collections. Regardless, I'd call a foreclosing trustee service asap and get started.
Just my thoughts: Start legal. That should be done on every non performing note, in my opinion, if you want to force a result. Send out a few letters explaining that the company is foreclosing on the property, you understand they are not liable for the debt, but if they want to stay in the property they will need to address the 2nd mortgage; through a payment plan or payoff. Let them know your a workout Specialist for the company looking to help them. I talked to a Chapter 7 discharge borrower today, it takes a while for them to realize what's going on. Some play dumb, but most don't fully understand. Let legal bring them to you. CA takes 8 months to FC. Legal FC Cost is $3,000 - $4,000. You can in box me for a good legal contact in CA. Just my thoughts. I work a lot of distressed 2nds discharged from Chapter 7 BK. My sweet spot.
The 8 month to trustee's sale doesn't apply here, does it? The borrowers likely haven't made a payment in years. If so the new 120 day default thing wouldn't apply. The OP can go right to an NOD, correct?
I'll update this thread as progress is made so others can get an idea of what is involved.
Bob
Honestly, I think a letter of intent and using an attorney is a waste of time. A Notice of Default is intent to foreclose and IMO foreclosing trustee services are in a better position to do it right.
Sorry, I meant to say that I plan to use a foreclosing trustee service, probably Trustee Corps as they come highly recommended. Thanks for the clarification Marie.
Just so no one gets messed up, there is no statute of limitations per se on a mortgage until the contract expires. You could have a 20 year note and no activity for 9 years, the issue is not a statute of limitations terminating the obligation, the issue is a note holder abandoning the obligation from failure to actively seek payment, you can lose your rights to collect by walking away so to speak, but if collections are continued over the term the obligation remains valid. Unless terminated by court actions. :)
@Account Closed
Your course of action is inline with a more proper way to handle it. Sometimes you have to let the letters sent do the talking for you. I too would sub trustee and send letter.
I am not sure the 8 months do not apply, as the borrower still has redemption rights. The discharge is simply grounds to initiate the action not cause to by-pass the process.
Your course of action is inline with a more proper way to handle it. Sometimes you have to let the letters sent do the talking for you. I too would sub trustee and send letter.
I am not sure the 8 months do not apply, as the borrower still has redemption rights. The discharge is simply grounds to initiate the action not cause to by-pass the process.
The new federal laws require that the note has to be in default 120 days before foreclosure attempts can begin. Which redemption rights are your referring to? The NOD in California still allows the borrower to bring the loan current. If the loan is defaulted 5 years, then it's my opinion that the lender is good to go with an NOD today. Perhaps the OP can confirm this with his foreclosing trustee service.
Is anyone here clear on whether the loan in question, if originated prior to Dodd Frank, falls under all the servicing and collection requirements now in place? Not really looking for opinion on this one, but rather a link or source that is explicit on this. Thanks!
It's entirely possible the original note holder abandoned all collection attempts post BK and is past the SOL on note collection in CA. However, it is my understanding that the note is still foreclosable. I've researched this a lot as I've bought two non performing notes in CA that were way past SOL (7+ years) with absolutely no collection attempts and no BKs. I successfully foreclosed on them, but I got no push back. I know that borrowers have attempted to fight them but do not know any specific case law to support the borrowers' claims.
Sorry, I meant to say that I plan to use a foreclosing trustee service, probably Trustee Corps as they come highly recommended. Thanks for the clarification Marie.
Bob: after you talk to Trustee Corp or whoever you end up using, please do report back. Given that your borrowers have been in default a long time, I'd like to know if you will be able to go directly to sending and recording the NOD, or if Trustee Corp advises a waiting period to comply with the new laws.
The new federal laws require that the note has to be in default 120 days before foreclosure attempts can begin. Which redemption rights are your referring to? The NOD in California still allows the borrower to bring the loan current. If the loan is defaulted 5 years, then it's my opinion that the lender is good to go with an NOD today. Perhaps the OP can confirm this with his foreclosing trustee service.
Is anyone here clear on whether the loan in question, if originated prior to Dodd Frank, falls under all the servicing and collection requirements now in place? Not really looking for opinion on this one, but rather a link or source that is explicit on this. Thanks!
ALL loans have redemption either in right or in equity (pre or post action). Default definitions are not new. At 120 days a default notice can be sent with a 30 day time to cure before the next legal step can occur.
A NOD is just that, Notice of Default, until the redemption period has expired, according to the state statue, the borrower can cure the default (their right or equity to redeem).
In the case of the OP, in certain states (not sure on CA) the discharge of a mortgage debt is grounds to initiate Default Notice (NOD) and start the process. This means that regardless (if true in CA), the days past due is of no consequence, they could be current and the discharge allows for the process to initiate.
From this post there is nothing in DF that affects any of the above, all pretty standard stuff prior to DF.
The new federal laws require that the note has to be in default 120 days before foreclosure attempts can begin. Which redemption rights are your referring to? The NOD in California still allows the borrower to bring the loan current. If the loan is defaulted 5 years, then it's my opinion that the lender is good to go with an NOD today. Perhaps the OP can confirm this with his foreclosing trustee service.
Is anyone here clear on whether the loan in question, if originated prior to Dodd Frank, falls under all the servicing and collection requirements now in place? Not really looking for opinion on this one, but rather a link or source that is explicit on this. Thanks!
ALL loans have redemption either in right or in equity (pre or post action). Default definitions are not new. At 120 days a default notice can be sent with a 30 day time to cure before the next legal step can occur.
A NOD is just that, Notice of Default, until the redemption period has expired, according to the state statue, the borrower can cure the default (their right or equity to redeem).
In the case of the OP, in certain states (not sure on CA) the discharge of a mortgage debt is grounds to initiate Default Notice (NOD) and start the process. This means that regardless (if true in CA), the days past due is of no consequence, they could be current and the discharge allows for the process to initiate.
From this post there is nothing in DF that affects any of the above, all pretty standard stuff prior to DF.
My understanding is that prior to DF you could file the NOD in California upon the first default (once the borrower is past due 30 days). The NOD gives right to cure within 90 days. The NOD is considered the beginning of foreclosure, process followed by the Notice of Trustee's Sale, and the sale is held scheduled 3 weeks later.
I know of no redemption rights or right to cure a loan in CA outside of the NOD prior to DF. Now we have federal law that says the borrower must be in default 120 days before you can begin foreclosure. That's definitely new here. It takes a foreclosure from a minimum of 4-5 months to a minimum of 8.
For what's it worth, 2nds in CA are exempt from the Homeowner Bill of Rights (HIBOR). HIBOR requires pre NOD notices (contact) for 1st's only. I just went through this with a CA npn 2nd I'm currently in foreclosure on. I did it with Trustee Corps. Trustee Corps actually has a checkbox form where you as lender declare no pre NOD contact is required, that I guess saves their bacon.
This was all done pre DF.
I know you are talking DF pre NOD waiting times but I just wanted to make the point that 2nds are sometimes treated differently than 1st's.
I wouldn't attempt to navigate this area without an attorney that specializes in mortgage.
@Account Closed
It's entirely possible the original note holder abandoned all collection attempts post BK and is past the SOL on note collection in CA. However, it is my understanding that the note is still foreclosable. I've researched this a lot as I've bought two non performing notes in CA that were way past SOL (7+ years) with absolutely no collection attempts and no BKs. I successfully foreclosed on them, but I got no push back. I know that borrowers have attempted to fight them but do not know any specific case law to support the borrowers' claims.
Oh, finding cases could be rather difficult as I watched two contracts bite the dust in bankruptcy over abandonment, it certainly happens.
I do see constantly your ambitions of learning legal aspects of various issues and I'd say for someone who lacks formal training in law that you have done well with your self taught approach, especially in Cali. You always seem to stay within your state on topics. But as you mentioned one time, Cali may be only 10% of business conducted so giving out generalized information based on those limited experiences may not be so applicable to our public.
Now, I never said that an abandoned note secured could not proceed with any default provision to secure property in an attempt to cure the obligation. That would be with any note secured by any asset.
Mortgages are commonly written for terms as long as 30 years as you know. The ability to enforce these long term unilateral agreements does not end or start any period of performance required in the event of default by the borrower. The failure of a note holder to actually collect any amount is not relevant to the validity of the obligation. However, a note holder must make an ongoing effort in collections to avoid abandonment, a claim that must be made by the debtor.
From what you are (and were) saying and calling this a "statute of limitations" has to do with the period of time that has been set that determines when an obligation has been abandoned by a creditor. It is not a limitation to collecting the debt or again making an attempt to collect the debt, it is setting a time period where abandonment is deemed to have occurred. A statute of limitations terminates the ability to proceed in some manner or against someone, so it's not a limitation by statute, it's a determination when there has been the abandonment of the asset but does not bar the note holder from proceeding. That's why I made my comment above. Many states have set periods where the lack of collection efforts automatically declare the obligation as having been abandoned, some I believe as short as 2 and 3 years. This is also set by precedence in other states, when the lack of collection efforts constitutes abandoning the asset. If Cali does bar enforcement you could have a problem.
It's much the same as if you left a lawn mower at a house, after a certain period of time, you will be seen as having abandoned the mower and the homeowner lays claims or obtains rights of ownership. You could go back and ask for the mower back, the other party may give it to you but if they don't you must attempt to gain possession legally and with the homeowner claiming ownership you're out of luck. Nothing in that law prevented you from asking or even demanding the return of the mower.
So, because you made reference to a "statue of limitations" I wanted readers to understand that there was no limitation, rather a loss of the ability to collect upon the objection by the borrower. Two different matters.
Now, you may have another issue in proceeding with a non-judicial foreclosure if a note has been determined to be abandoned by a set term, lets say two years. If the past holder has given any evidence of their failure collect, which is sometimes given or obvious in note files then foreclosing off the bat may not be prudent. You could get into issues of a claim as to a wrongful foreclosure if there were an objection.
You can usually start the clock again by instituting an active collection program, requesting payments, offering a work out as this can reestablish your position as a valid creditor and setting aside any claim as to abandonment.. After considerable efforts to collect and documenting those efforts without the borrower making any claim of abandonment during that period you can be reinstated your position so to speak. (Again, had this been a limitation to collect by statute you would be forever bared by statute, unable to make the claim or attempt collection.) Then you could proceed with foreclosure after establishing collection efforts.
Now, if in Cali as you said, it is a limitation (I don't think it would be) and it limited your right to claims, where your note was invalid, then proceeding could be an issue of a wrongful foreclosure. Can you get away with that, yes, so long as you don't hear a peep out of the homeowner from any notice of foreclosure during any redemption period or as to any limitation they may have.
Real estate is rather loosey goosey in many of the terms, not all, but many, however that is not the case in finance or notes as a few words or meanings can effect the outcome and put a lot of money at risk. This is also not an area for even a genius to venture into to become self taught in notes, there is a very cavilier attitude by investors and non-finance types concerning notes, obligations, rights and claims in interests as well as procedures.
Attorneys who have not received training don't usually venture into finance law, it's not prudent at all for one without a formal legal background to address such issues, it very often is a case of not knowing what you don't know. It just isn't a DIY area. It's very easy to give the wrong implication unknowingly.
I wasn't picking here, but people could have passed up getting involved in a stale note had they thought they lost the right to proceed. My advice is see your attorney, one versed in these matters. :)
Well, I called Trustee Corps (the owner is a close friend) and confirmed the following:
For a CA consumer loan, any position, Trustor (borrower) must be 120 days delinquent before recording NOD. This is cumulative and a NPN buyer can go forward without restarting the clock.
FYI, a Notice of Default is not the same as a notice of Intent to foreclose.
I'm personally happy to report that my business loans are (currently) still exempt, despite a borrower acquiring a property as an individual subject a commercial loan secured by deed of trust.
I have no experience with an abandonment of note defense.
Notes used to be all about title and collateral. Now it's collection compliance. I think Gordon Moss, the NPN expert guy has it right about looking for notes from borrowers with "emotional equity."
For a CA consumer loan, any position, Trustor (borrower) must be 120 days delinquent before recording NOD. This is cumulative and a NPN buyer can go forward without restarting the clock.
FYI, a Notice of Default is not the same as a notice of Intent to foreclose.
I'm personally happy to report that my business loans are (currently) still exempt, despite a borrower acquiring a property as an individual subject a commercial loan secured by deed of trust.
I have no experience with an abandonment of note defense.
Notes used to be all about title and collateral. Now it's collection compliance. I think Gordon Moss, the NPN expert guy has it right about looking for notes from borrowers with "emotional equity."
Do you know where the 120 days delinquent before recording an NOD from any position comes from ... state law, federal law, the note?
If true, it brings up some interesting questions, like, does that mean a 2nd must wait 120 days after borrower becomes delinquent on the 2nd before filing an NOD, even if the 1st is already in foreclosure and the 2nd will be wiped out by the 1sts foreclosure while waiting....entirely possible, it is CA after all.
FYI, a Notice of Default is not the same as a notice of Intent to foreclose.
I'm personally happy to report that my business loans are (currently) still exempt, despite a borrower acquiring a property as an individual subject a commercial loan secured by deed of trust.
I have no experience with an abandonment of note defense.
Notes used to be all about title and collateral. Now it's collection compliance. I think Gordon Moss, the NPN expert guy has it right about looking for notes from borrowers with "emotional equity."
Do you know where the 120 days delinquent before recording an NOD from any position comes from ... state law, federal law, the note?
If true, it brings up some interesting questions, like, does that mean a 2nd must wait 120 days after borrower becomes delinquent on the 2nd before filing an NOD, even if the 1st is already in foreclosure and the 2nd will be wiped out by the 1sts foreclosure while waiting....entirely possible, it is CA after all.
David: the only reason I know about the 120 days is because it's one of the compliance requirements that isn't exempt from otherwise exempt seller finance loans (to consumers). I've seen the requirement repeatedly in charts on the CFPB site. Let me see if I can find one.
I have no idea if it applies to seconds, but maybe the charts can shed some light.
To me the 120 days waiting period is a big deal. Technically, getting a property to sale here was fast. With it now being 8 months, it's more like judicial foreclosure states. Yuck.
Here's the link to the Consumer Finance Protection Bureau's ruling on delinquency:
http://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-respa.pdf
It appears to a CFPB ruling, not something in the original DF.
http://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-respa.pdf
It appears to a CFPB ruling, not something in the original DF.
Yet another reason to stay away from consumer loans.