Mortgage Company Madness!

Part of my practice is litigating foreclosure cases. Granted, I would not call it a focus of my practice, but I would say that I have a fair amount of involvement with such cases at any given time. Sometimes people retain my office for their foreclosure from the start, while others come to my office for their divorce matter or their estate matter or something similar and through that work we discover a looming foreclosure issue which needs to be addressed.

I am not going to write about the various arguments, tactics, and issues which one may encounter during a foreclosure matter. Instead, I would like to focus on one particular aspect: the seemingly duplicitous approach taken by mortgage companies with their borrowers. Sound scandalous? Well, to me it is.

Here is what happens: something significant happens in a mortgage borrowers’ life which causes him to be unable to pay the mortgage payments for whatever reason. The mortgage company, naturally, approaches this borrower and informs him of his payment delinquency. At some point, if no remedy is reached, the mortgage company will file suit against the borrower in court for foreclosure, and it is here where the duplicity rears its head.

I am basing my thoughts here on literally dozens of foreclosure cases which have crossed my desk over my ten plus years of practicing law. I have seen this scenario play out time and time again with many unsuspecting clients who are acting in good faith.

Here is what happens: the borrower is sued in foreclosure. If the borrower was not vigilant before in trying remedy the problem, having the local sheriff knock on his door and hand him papers saying that he is being sued to take his house away will almost always make him take notice and seek a remedy. The borrower then contacts the mortgage company and engages some sort of “loss mitigation” office. Once that contact is made, the borrower and mortgage company discuss various possible options to resolve the foreclosure case, whether that be restructuring the loan, or looking into a deed in lieu of foreclosure, or looking into a short sale, or looking into a pay off, or looking into putting the house up for sale, or any number of other options. During this time, the mortgage company representative with which the borrower interacts gives assurances that they will do their best to work this matter out and explore all of the viable options and so on, and that they will need a little time to review the documents exchanged in pursuit of these options.

Here is where the duplicity lies: while all of the above is happening between borrower and mortgage company, the mortgage company (virtually?) never informs the borrower that despite all of the options explored and no matter how productive their discussions and pursuit of a remedy are and regardless of how positive their conversations seem to be, the foreclosure litigation happening in Court never stops proceeding. Practically every client I have had over the years regarding an issue like this says the same thing: “since I was making such progress resolving the matter with the mortgage company, I thought the Court case would not go forward anymore.”

In my first few years of practice, I sort of chalked this up to clients who were either naive, negligent, not-too-bright, or just plain lazy; however, as my years of practice increased, and the number of foreclosure cases I handled increased, the story I heard from all of my clients in this sort of situation continued to be practically all the same (as described above), including clients who are objectively conscientious and smart. Given this, I came to realize that perhaps the issue is not with the clients but with the mixed message sent to them by the mortgage companies.

So, what happens? While the borrower thinks he is nearing a resolution to either save his house or get him out of the foreclosure mess with a reasonable remedy through dealing with the mortgage company, the mortgage company’s attorney litigating the foreclosure case, at the same time and unbeknownst to the borrower, secures a judgment in default against the borrower and then seeks to put the real estate at issue up for Sheriff’s Sale pursuant to the judgment! The borrower, who thinks he is negotiating in good faith with the mortgage company in good faith and nearing resolution, is then suddenly blind sided when the mortgage company refuses further discussion and he is suddenly informed that his house will be sold at auction in a few weeks regardless of his efforts to negotiate with the mortgage company.

Now, of course, the borrower is much further behind the eight-ball than ever as he now has to attempt to open the default judgment (which is not always permitted), attempt to stay the Sheriff’s Sale, and then litigate the foreclosure despite all of the progress and assurances made to him personally by the mortgage company.

So, if you are a party to a mortgage and get into some trouble paying on it, please allow the above to be a cautionary tale: just because the representative from the mortgage company is “nice” or assured you that they will seek a resolution with you, and regardless of how much progress you have made in seeking that resolution, always remember that the foreclosure case will NOT stop and you will have to defend against that in Court WHILE you negotiate with the company for a resolution at the same time.