Magazine article Mortgage Banking

Servicer Errors to Avoid

Magazine article Mortgage Banking

Servicer Errors to Avoid

Article excerpt

Mortgage servicers and their counsel in the various states are a team. They share the same goal of prosecuting the unavoidable foreclosure correctly, as quickly as possible and always with a view toward loss mitigation, if possible.

Particularly in tough judicial foreclosure states such as New York and New Jersey, for example, there is much room for all parties to stumble. Because servicers sometimes ask, "Where can we reduce errors?," I offer comment on the following few areas for consideration.

Default letters

This is a broad subject I have previously addressed in these pages, and so I will not revisit the entire arena. One point worthy of emphasis, though, is that if a default (breach or cure) notice is required, of course it must be sent.

Typically, this is a function not of state law, but of what the mortgage documents say. The oft-used standard Fannie Mae/Freddie Mac form in the residential case does impose the requirement to send a default notice before acceleration can be accomplished. Presumably, servicers have the proper form and will be able to prove that it was mailed. If some form of proof of mailing is not retained or cannot be demonstrated, it is very easy for a borrower to say he or she did not get the breach notice, and then the foreclosure can be lost.

Aside from being sure to send it, along with using the precise language and retaining proof of mailing, a common error is failure to send the notice to all entitled parties. That means if a husband and wife sign the note (and are thus responsible for the debt), each must get the cure letter. This also applies if the property is owned jointly by, say, two friends, three business associates, and the like. And if there is a guarantor, that person needs to be served as well--so some degree of care here is in order.

Then there is the issue of strategy in the not-uncommon situation where a borrower does challenge receipt of the breach letter. Receipt of the letter is not the key; mailing it is.

This means, as noted, that the servicer must be able to supply proof to the court of the mailing. Because the mode of transmittal required by the Fannie/Freddie uniform instrument is regular mail, certified mail will not suffice if the protesting borrower never signed a receipt. Instead, the servicer will need either an affidavit of service of that letter, or a receipt for mailing obtained at the post office or presentation of internal standard procedures that demonstrate mailing.

Not every servicer will be able to offer the requisite proof--perhaps understandable, given the volume of such letters. Sometimes, then, a servicer's motion for summary judgment to strike the borrower's answer contesting notice is denied or the borrower's motion to dismiss the complaint for want of default notice is granted. Here is where the avoidable error can arise.

The servicer knows, of course, that it did mail the letter. The borrower is being cleverly disingenuous. The natural response is to fight: re-argue the motion, appeal the decision, go to discovery as a prelude to renewing the summary judgment motion. Aside from the tenuousness of success, each procedure is potentially time-consuming and expensive--all anathema to the foreclosure process.

To employ a cliche, discretion is the better part of valor here. It is much faster to immediately discontinue the foreclosure action--it is flawed. The moment discontinuance is granted, the servicer should send the breach letter anew. But because this one is a custom effort, be sure to prepare the affidavit of service or get that post office receipt for mailing. Then there will be no issue of proof, and the defense of non-receipt will be eliminated.

This might momentarily appear counterintuitive, but it is not. It saves a remarkable amount of time and is virtually certain to be successful.

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