Posted By USFN,
Thursday, August 13, 2020
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by Jeffrey A. Bunda, Esq.
Hutchens Law Firm, LLP
USFN Member (NC, SC)
As the devastating effects of the COVID-19 lockdown continue to linger throughout the American economy, it’s reasonable to expect a surge in foreclosures not seen since the Great Recession. As of press time for this article, HUD, FHA, and GSE-backed single-family foreclosures remain on hold. Once these moratoria are lifted, however, servicers will resume foreclosure activity and will begin fielding correspondent requests for loss mitigation from homeowners reeling from the effects of 2020.
Homeowners attending foreclosure hearings are often there to implore the court to grant them more time for loss mitigation or other foreclosure prevention. During the depths of the Great Recession, rarely a court session would pass when a homeowner would not confidently report to the clerk that their loan was in the process of being modified and proudly show off a receipt on letterhead from an out-of-state company showing they’d paid this “firm” a fee up front – usually in the thousands of dollars – to “modify” their loan. Upon further inquiry from the clerk, the homeowner would reveal that they ignored their servicer’s initial loss mitigation solicitations and had not made contact upon default. Instead, they placed their hopes in the false prophets of late-night advertisers promising to stop their foreclosure.
Chagrined, the court would do its best to reassure the homeowner that he needed to make direct contact with the servicer and that up-front debt adjustment companies were “illegal” in North Carolina and, should the homeowner feel that he has been wronged, to contact the Attorney General’s office and report the offending company. Charging a fee for these services in North Carolina is a Class 2 Misdemeanor unless you are a North Carolina-licensed attorney or a licensed credit counseling agency. This threat of a slap on the wrist doesn’t carry much gravitas and, although North Carolina consumers seem to have reduced their use of these companies, court sessions still occur where homeowners report that they paid an out-of-state debt adjuster to save their home.
This summer, House Bill 1067 began percolating through the North Carolina General Assembly. This bill would strengthen a consumer’s position if aggrieved by an out-of-state debt adjustment company selling only false promises. This bill would make any contracts between consumers and debt-adjustment companies void as a matter of public policy and would make such activities an unfair and deceptive trade practice (the magic “treble” damages and attorney’s fees that gives teeth to many consumer protection statutes). This bill appeared to expressly target the “bad actors” in the industry, such as the fly-by-night companies that advertise on television alongside psychic hotlines and miracle supplements. More reputable debt-relief companies (such as companies assisting with IRS negotiations or consumer credit card debt), however, expressed concerns that the one-size-fits-all approach would deprive North Carolina consumers of these services. After initially moving forward with bipartisan support, the bill has been returned to the Judiciary Committee for further negotiations.
Where does this leave servicers? Well, if/when the bill eventually passes to serve its apparent intended purpose (e.g., to prevent these companies from hoodwinking homeowners), servicers should recognize the imposition of civil liability on these companies when receiving inquiries from them acting as authorized third parties. Even before this bill, your author defended servicers from civil lawsuits by consumer attorneys lumping the servicer in with the debt-adjuster in claims for damages of wrongful foreclosure. If servicers receive an authorization from such a non-attorney company, servicers would be well-counseled to develop procedures to make contact with the homeowner to directly appraise him of the status of loss mitigation so that the homeowner is not surprised if loss mitigation ultimately fails.
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