Other Options

Alternative Services

Loan Modification- A loan “workout” or “modification” generally takes place where both parties to a problem loan agree to resolve the issue by creating new and better loan terms to enable the borrower to meet his/her financial obligation.  The key to getting a loan modification through the “red tape” bureaucracy of most banks is to prepare and carry out a workable plan on how exactly to approach them.

The first thing a borrower should do is to determine whether the mortgage on their current property has complied with all of the applicable legal requirements.  This means checking to see if the lender has committed any Truth in Lending Act (TILA) or Real Estate Settlement and Procedure Act (RESPA) violations.  It also involves an analysis of other factors to ensure that you received a loan that was not a result of fraud on behalf of the lender or broker.

Second, the borrower should request a complete “life of the loan” history with all applicable codes to check for any unauthorized fees or charges included in the mortgage balance.  Borrowers should compare the actual terms of the mortgage to what they were promised by the lender, including APR, monthly payment and any prepayment penalty.  If the loan is a result of a refinance on your primary residence, borrowers should ensure they have received in writing, a “Notice of Right to Cancel” also called a “Three Day Right of Rescission.”  A creditor who fails to provide this notice in writing results in an extension of the rescission period for up to three years.

If it is determined that your mortgage lender has followed all of the applicable rules and regulations with respect to the origination of the loan, the next step is to contact your lenders Loss Mitigation Department.  This department will request detailed financial information from you including the nature of your hardship, the amount owed on the loan, your current ability to pay, any equity in the property, and what is overall in the banks best interest.  It is extremely important that during the negotiation of any loan modification that borrowers keep their mortgage payments readily accessible or have other cash accessible because the lender will most likely require a “good faith” payment to effectuate the new agreement.

Loan Modifications are time consuming and extremely document intensive.  The above information is certainly not exhaustive of all issues that could arise during the process.  If this is the option you choose, you should also make the wise decision to hire a competent attorney to help guide you through the process.

Deed in Lieu of Foreclosure- A deed in lieu of foreclosure is the process of reconveying title of property back to the lender so the lender does not have to initiate the expensive and time consuming foreclosure process.  In exchange for conveyance, the lender usually cancels all personal indebtedness associated with the defaulted loan, which is a deed in lieu’s greatest benefit.  A deed in lieu also hurts a borrowers credit score less than an actual foreclosure does.

In order to be considered a candidate for a deed in lieu, the indebtedness owed by the borrower must be secured by the real property being transferred.  It is not possible to transfer other real property that is not collateral secured by the loan.  The deed in lieu agreement must be voluntary on both sides and presented in good faith.  In theory, the current loan balance should be equal to the fair market value of the property being conveyed, or the lender could refuse to accept a deed in lieu.  As a practical matter, however, lenders will analyze the economics of the situation and may accept a deed in lieu if the alternative is a costly foreclosure.  There are many intricate details involved with a deed in lieu of foreclosure and consumers contemplating this option should hire counsel familiar with the process in order to obtain the desired results.

Short Sale-  A short sale is the process of selling a piece of real property for less than what is owed on the loan(s).  Short sales require the approval of the lender who will be affected by the sale, because the funds received will be”short” of what is owed on the loan.  Depending on the borrowers current financial situation, there could be taxable consequences as a result of a short sale and forgiveness of debt.  Short sales are notoriously slow to complete and the foreclosure process is not halted during negotiations absent something in writing to that effect signed by the lender. Borrowers considering this option are encouraged to work in collaboration with a real estate agent familiar with the short sale process and a knowledgeable attorney who can properly advise and counsel you on some of the common pitfalls associated with this rapidly expanding area.

Debt Negotiation- Debt Negotiation is a process where each creditor is contacted individually in an attempt to settle the account for less that the full balance.  In order to effectively participate in debt settlement, the consumer must have access to lump sums of cash.  Whereas in debt consolidation creditors are paid with monthly payments, in debt settlement, the best settlement offers you will receive involve payment of a lump sum.  While payment plans here maybe an option, they will uniformly require a higher overall percentage of the balance.  It is also recommended that your accounts be delinquent before pursuing this option because if money is being paid to the creditor on a monthly basis, the less incentive they will have to settle.

Debt settlement may be a better option than bankruptcy in the situation where an individual would lose significant property by filing bankruptcy or if there income is such that filing bankruptcy would force them to pay a higher dividend to creditors than the debt could be settled for.  The benefit here is that you are reducing the principal balance of what you owe.  The downside is your credit will reflect the account was settled for less than the full balance, which is a derogatory mark on your credit.

Also, creditors will issue you a 1099-C at the end of the year for the forgiveness of debt if the amount forgiven is in excess of $600.00.  The debt forgiveness is treated as taxable income requiring that taxes be paid on the forgiven amount.  Depending on the amount of debt you reduce, the taxes could be significant.  It is recommended that you consult with a professional to determine whether this is a good fit for your current financial situation.

Credit Repair- We have all seen ads that promise to repair your credit and remove derogatory marks resulting from bankruptcies, judgments, liens, and collections.  Most, if not all of these promises are flat out lies.  In fact, legitimate consumer attorneys will indicate that any credit repair operation making those claims is quite likely a complete scam.  There are legitimate ways to repair and improve your credit, however, nothing is instantaneous and the process will undoubtedly involve persistence and effort on the part of the consumer.

The following are some tell tale signs to be aware of when considering credit repair:

  1. You are not advised of your rights, and of the fact that, with diligent persistence, you can engage in credit repair on your own.
  2. You are encouraged not to contact any of the three credit reporting agencies directly.
  3. You are told that they can get rid of most or all of the negative information in your credit file, even information that is accurate and current.
  4. You are advised to invent a “new” credit identity by applying for an Employee Identification Number instead of using your social security number.
  5. You are advised to dispute everything on your credit report, regardless of its accuracy.

Consumers who fall prey to this illegal advice and commit fraud as a result could find themselves in trouble with the law down the road.

The truth about credit repair is that it cannot legally remove timely, negative information from a credit report.  The law only provides a mechanism which allows you to ask for an investigation of reported debts that are disputed or inaccurate.  That being said, the process does offer advantages to consumers whose credit is being effected as a result of improper information.

The most common of these is after a debtor has received a discharge of debts through bankruptcy.  Legally speaking, all creditors included in the filing are supposed to report to the 3 consumer credit reporting agencies that the debt is discharged and that a zero balance is owed on the account.  Unfortunately, many creditors fail to do so and if left unchecked, the negative mark will remain.

If you have older debts that are still lingering on your credit report, or if your creditors are reporting something incorrectly on your credit report you should consider hiring an attorney familiar with the Fair Credit Reporting Act (FCRA) to help restore your credit to where it should be.

FDCPA Violations- The Fair Debt Collection Practices Act (FDCPA) is a federal consumer protection statute designed to eliminate the abusive collection practices by debt collectors.  It sets forth rules and regulations that debt collectors must follow when attempting to collect a debt, and prescribes statutory penalties and remedies for any violations.

The FDCPA applies only to third party debt collectors including debt buyers, and not internal collectors for the original creditor.  However, states such as California have enacted their own law which cover both original creditors and third party debt collectors.  The coverage of the act is limited to debt incurred as a result of a personal, family or household transaction and excludes business related debts.

The FDCPA prohibits specific conduct that is considered “abusive and deceptive” in the collection of a debt including the following:

  1. Contacting consumers by phone before 8:00am or after 9:00pm local time.
  2. Causing a telephone to ring or engaging any person in conversation with the intent to annoy, abuse or harass the person called.
  3. Failure to cease communication after written notice from the consumer to stop communication and written notice the debt is disputed and that the consumer refuses to pay.
  4. Contacting consumers at their place of employment after being notified that it is prohibited by the employer.
  5. Contacting a consumer knowing that he is represented by an attorney.
  6. Contacting a consumer after a request for verification of a debt and prior to verification of the same by the collector.
  7. Threatening a consumer with jail for not paying a debt or with legal action not permitted by law or contemplated at the time of the threat.
  8. Profane or abusive language in the collection of a debt.
  9. Communications with third parties or the threat thereof.
  10. Reporting false information to a consumers credit report or threatening to do so.

Additionally, the FDCPA mandates or requires debt collectors to do the following when collecting a debt:

  1. Identify themselves and make known to the consumer that the communication is from a debt collector and any information obtained will be used for that purpose.
  2. Identify the name ad address of the original creditor within 30 days of a written request by the consumer.
  3. Advise consumers of their right to dispute the debt.
  4. Provide written verification of the debt upon a request from the consumer, and cease communication until that has been done.
  5. File a lawsuit in the venue where the consumer lives or where the contract was signed.

Consumers who find themselves victims of abuse collection practices have the option of filing a lawsuit to collect damages from third party debt collectors.  The FDCPA is what is known as a strict liability law, meaning a consumer need not prove actual damages in order to collect the statutory damages outlined in the Act.  The FDCPA is a complex body of laws and consumers who have been abused by harassing debt collectors should hire competent representation to obtain the results they deserve.