Protection From Predatory Loan Servicing For The Debtor

29 Aug Protection From Predatory Loan Servicing For The Debtor

A debtor in bankruptcy should follow some simple rules to protect against predatory home loan servicing. As I discussed in an earlier article, the bankrupt borrower provides an opportunity for a servicer to harvest a bumper crop of fees and charges. The debtor must be careful to keep watch on their home loan throughout the bankruptcy process and after discharge as well.

The home loan servicer proof of claim, if one is filed, should be examined closely for unreasonable fees and costs as well as the amount of debt claimed as of the date of filing. The Real Estate Settlement Procedures Act, 12 USC 2605(e) also know as RESPA, allows the borrower to demand an explanation of charges and other disputed items.However, when a RESPA dispute letter requesting information is sent by an attorney, in a bankruptcy proceeding, the response may be carefully crafted by the servicer’s lawyer.

Tracking of monthly payments can be particularly important. Electronic payments or checks sent by certified mail can be invaluable in proving that post-petition payments were timely tendered. Despite grace periods before which a late payment fee can be charged, most home loan payments are due on the first day of each month and should be sent in time to be received when they are due. Be sure to make payments by the due date and do not rely on built in grace periods. Keep a record of all payments with the tracking information in a readily accessible location.

Since loan servicers are notorious for “tracking” all possible charges and claiming they will be waived if the bankruptcy is successfully completed and discharge is entered, get a loan payoff statement from the lender well before the case is completed to allow time for a dispute if unwarranted charges are suspected. Remember, the servicer is allowed nearly three months (60 business days) to respond to a RESPA request. If an adversary proceeding is necessary to determine the amount rightfully due, additional time will be required to prepare and file the complaint.

New section 524(i) seems to provide a post-discharge remedy for mistreated borrowers. However, it is not always obvious that additional charges are lurking in the background, to be discovered by the lender when a payoff statement is sent just a few days before closing on a new loan or sale. For additional protection, some courts allow the filing of a motion to declare an outstanding home loan current as of the discharge. Keeping a careful eye on home loans can prevent an unexpected surprise.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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