Can you email a nonperforming (NPN) borrower?

8 Replies

Wanted to know if it is legal to email a borrower. I have the work / personal email (borrower is an unaffiliated realtor) and have not been able to get a hold of the borrower. 

Wanted to try email, just to get the dialogue going. Has anyone done this before with success?

Well I do know that my servicer does use email to contact our borrowers. If you are the lender then you could use email but would want to have all of the lender disclaimers cited in the footer of the message. If you are not the lender, then you may be violating some regulations. 

Bob

As Bob said, make sure you have all the disclaimers. The biggest issue with emails and letters is that you are leaving a paper trail, so (some) more sophisticated borrowers will send all of them to their attorney. I have been threatened with a FDCA report before for missing something benign in a letter.

Make sure you triple check everything you write and use vague language that doesn't commit you to anything.

@Daniel E.
Have your servicer send what you want to send.
That is what I do. The other option is I have my attorney send it

Also what is the purpose of the email ?

Any correspondence between you and the borrower opens you up to liability. Unless you're well-versed in the law governing correspondence between debtor and creditor, I strongly advise against initiating communication yourself.

As an example, if you send an email that lacks a disclaimer or in any manner violates, or might violate the law, you will be liable for that correspondence. Conversely, if your servicer sends the "illegal" email (promising your servicer is liable for their own errors), then your servicer is liable for anything that comes of it. Overall, you're opening yourself up to a lot of liability for little return (return = savings from doing it yourself). 

@Daniel E. First off, I am not an attorney and I don't play one on TV or the internet. This is not legal advice and is only my opinion based on my experience.

I would send that e-mail if I were you. In my experience, servicers aren't that good at loss mitigation efforts. In fact, they can be downright terrible and unhelpful. No one is going to care about your asset as much as you, the owner, will. We use servicers mostly for the compliance piece but started to do more loss mit on our own.

We started calling some of our borrowers directly because we were frustrated when reading the constant, miscommunication in the servicing comments on some of our loans. The instance that "broke the camel's back" was reading the comments in which a borrower was trying to contact the asset manager to figure out some sort of solution to her delinquency. The calls and e-mails went on for months with no idea what the borrower was trying to do and a loan specialist who couldn't think outside the box. We finally had it, called her directly, and agreed on a Deed in Lieu/Cash for Keys arrangement in less than a week. She ended up thanking us profusely and was glad that she could get some closure and move on with her life. If we left it to the servicer, it would have gone to foreclosure and the borrower would have been in a worse off position. All because of the inability to communicate.

I talked to several investors, attorneys and one of our servicers (who talked to their attorneys) and I got different answers. The best answer we received and the one I liked the best said that Note Owners are not subject to FDCPA rules when collecting on their own loans. They made no mention of legal disclaimers or mini-Miranda warnings or any of that stuff. I'll put an excerpt from the definitions section of the loan at the end of my post that says what a debt collector is. I have no firm information that applies to what a lender must do. If anyone does, I'd appreciate solid info with references that I can incorporate into my business.

I disagree on the risk/reward calculation and additional liability of contacting borrowers directly. Maybe there is more risk out there than I realize but I haven't seen it so far. There is tremendous upside in being able to reach win-win solutions with the few borrowers that want to cooperate. If you treat the borrower right, are respectful, are honest, and genuinely try to reach some sort of agreement, I think that your chances are low of being sued or complained against. 

We've been sued twice in the last year by borrowers doing whatever they could to stop the foreclosure. In one, we prevailed and foreclosed. In the other, the borrower dismissed her suit the moment her BK payment plan was confirmed. Did the suits cost us money? Yes. Cost of doing business. We did everything right and by the book and still got sued. Am I afraid of a lawsuit in case I forgot some small technicality? No, I'm more afraid of my loans going south because a servicer is doing a mediocre job.

Here's the excerpt:

§ 803. Definitions

As used in this subchapter --

(1) The term "Bureau" means the Bureau of Consumer Financial Protection.

(2) The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.

(3) The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include --

(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and

(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

(7) The term "location information" means a consumer's place of abode and his telephone number at such place, or his place of employment.

(8) The term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing.

15 USC 1692b

Originally posted by @Andreas Mirza:

@Daniel E. First off, I am not an attorney and I don't play one on TV or the internet. This is not legal advice and is only my opinion based on my experience.

I would send that e-mail if I were you. In my experience, servicers aren't that good at loss mitigation efforts. In fact, they can be downright terrible and unhelpful. No one is going to care about your asset as much as you, the owner, will. We use servicers mostly for the compliance piece but started to do more loss mit on our own.

We started calling some of our borrowers directly because we were frustrated when reading the constant, miscommunication in the servicing comments on some of our loans. The instance that "broke the camel's back" was reading the comments in which a borrower was trying to contact the asset manager to figure out some sort of solution to her delinquency. The calls and e-mails went on for months with no idea what the borrower was trying to do and a loan specialist who couldn't think outside the box. We finally had it, called her directly, and agreed on a Deed in Lieu/Cash for Keys arrangement in less than a week. She ended up thanking us profusely and was glad that she could get some closure and move on with her life. If we left it to the servicer, it would have gone to foreclosure and the borrower would have been in a worse off position. All because of the inability to communicate.

I talked to several investors, attorneys and one of our servicers (who talked to their attorneys) and I got different answers. The best answer we received and the one I liked the best said that Note Owners are not subject to FDCPA rules when collecting on their own loans. They made no mention of legal disclaimers or mini-Miranda warnings or any of that stuff. I'll put an excerpt from the definitions section of the loan at the end of my post that says what a debt collector is. I have no firm information that applies to what a lender must do. If anyone does, I'd appreciate solid info with references that I can incorporate into my business.

I disagree on the risk/reward calculation and additional liability of contacting borrowers directly. Maybe there is more risk out there than I realize but I haven't seen it so far. There is tremendous upside in being able to reach win-win solutions with the few borrowers that want to cooperate. If you treat the borrower right, are respectful, are honest, and genuinely try to reach some sort of agreement, I think that your chances are low of being sued or complained against. 

We've been sued twice in the last year by borrowers doing whatever they could to stop the foreclosure. In one, we prevailed and foreclosed. In the other, the borrower dismissed her suit the moment her BK payment plan was confirmed. Did the suits cost us money? Yes. Cost of doing business. We did everything right and by the book and still got sued. Am I afraid of a lawsuit in case I forgot some small technicality? No, I'm more afraid of my loans going south because a servicer is doing a mediocre job.

Here's the excerpt:

§ 803. Definitions

As used in this subchapter --

(1) The term "Bureau" means the Bureau of Consumer Financial Protection.

(2) The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.

(3) The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include --

(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and

(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

(7) The term "location information" means a consumer's place of abode and his telephone number at such place, or his place of employment.

(8) The term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing.

15 USC 1692b

 I'd vote 10x for this post if I could!  

Thank you all for your responses - very much appreciated.

The purpose of the email is largely to encourage the borrower to contact us to work out a cash for keys / DIL. I do not intend on offering anything in the email, just to potentially open a communication line that the borrower is more comfortable with. Something along the lines of "we understand the importance of knowing who you are working with and wanted to personally introduce ourselves and see if we can schedule (the key being schedule) a time to talk.

I have found that people are so used to email/text, that not only do they not want to call because you are the lender, they actually do not know how to really use a phone.

@andreas mirza 

Really took your post seriously. I have been on the fence about reaching out. However, after several unsuccessful calls from the servicer (including them erroneously marking the number as disconnected), I reached out directly and the borrower has responded. Playing phone tag now (unfortunately) but certainly moving in the right direction. I understand the risks, but also believe that borrower risk is part of this business. Thank you for your contribution.

@Daniel E. At the end of the day, it's our job, as investors and owners of the assets, to make decisions on risk/benefits of any actions. Some people are so afraid of the idea of being out of compliance or sued that they blow the real risks and consequences out of proportion and end up hamstringing themselves when it's not necessary. I believe that the main reasons are ignorance and lack of experience.

If we get a borrower that truly is interested in making the effort to communicate, we will respond in kind. Otherwise, we'll try a few times and then stop. If the borrower isn't motivated, I'm not going to spend an excessive time to get a hold of them. That's just our business model and I think there are others out there that are a lot more successful at borrower outreach and getting notes to re-perform.