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As I often indicate, these columns are generated by
common daily problems that develop between borrowers
and lenders, i.e. trustors and beneficiaries. A very,
very common MISCONCEPTION is that the lender has to
wait ninety days before starting a foreclosure. No
such thing could be further from the truth. That
comment from a borrower is usually combined with a
threat to the lender along the lines of “you have no
right to foreclose – if you do, I’ll sue you”.
Before you get into a fight (of any kind) be sure you’re
standing on FIRM GROUND and that your weapon is bigger
than the lender’s. The punch line of one of my
favorite jokes is “see, he’s even so stupid he
even shows up to gun fights with a knife”.
There are many, many types of loans and lenders in
California. FHA and VA have certain “guidelines”.
Most lenders have there own internal guidelines. As a
result, very few lenders will file a Notice of Default
on a payment that is less than thirty days delinquent,
depending on the type of loan and the payment history
of the borrower. Some harsh lenders will file a Notice
of Default on the 11th or 16th day of a
delinquency. Although we strongly recommend against
this “quick trigger” behavior, there is nothing
“illegal” about it other than Fannie Mae, Freddie
Mac, FHA-VA guidelines as indicated above.
The reason some people believe that a lender can’t
start a foreclosure for 90 days is that they are
confusing the Notice of Default filing with the
actual process. The foreclosure process itself
involves filing a Notice of Default, allowing three
months or more to elapse, and then filing a Notice of
Trustee Sale. Though the process is technically three
months for the Notice of Default period and at least
twenty-one days for the sale period, the total
foreclosure process takes approximately four months.
If the lender is acting improperly, by all means
consult with a REAL ESTATE attorney for further
advice: the attorney will be able to deal with the
lender. In the event the lender is on solid ground, do
not get pigheaded. The costs of the foreclosure are
paid for by the BORROWER. These costs are merely added
to the amounts due in the foreclosure. Additionally,
some income property borrowers pick fights with the
lenders and immediately find that the foreclosure
includes the appointment of a receiver to collect
rents and take over management of the property. The
court costs and attorney fees to appoint a receiver
will cost somewhere between $5,000 - $20,000, and this
again gets added to the cost of the foreclosure. In
the event that you are really having personality
conflicts with your lender, seek out a tactful third
party to deal on your behalf. |
In the best of all worlds, a lender
will not be overly harsh and the borrower will pay promptly
and will remain communicative during the life of the loan.
It’s a breakdown of the communication process that
necessitates attorneys and the huge costs that follow. This
is indeed unfortunate. If the borrower is not on firm ground
a court fight can be disastrous as the borrower ends up
paying for two attorneys, i.e. the borrower’s and the
lender’s. Remember that a lender usually has a legitimate
reason to start a foreclosure for a myriad of reasons. A
borrower may be current on payments, but behind on taxes;
current on the second trust deed, but delinquent on the
first, etc. etc.
Although this article sounds totally one-sided, i.e. “borrower
beware”, it’s also a reminder for lenders to try to
communicate and work out problems. Once in a while a lender
will instruct a trustee to file a Notice of Default for
vindictive reasons. Though I indicated above that lenders
have MOST of the weapons, I would not want to be in the
shoes of a lender who filed a Notice of Default against a
recently widowed homeowner who was sixteen days late in a
payment involving a property where the lender had “plenty
of equity”. If I wished to paint this lender in a worse
light, let me add that the widow had contacted the lender
and promised to personally deliver all delinquent amounts on
the seventeenth day. The lender obviously said, “Bah Hum
Bug”. Obviously, this is an absurd hypothesis but, in
reality, vindictive lenders shoot themselves in the foot on
a daily basis.
Some private party lenders are unsophisticated and
consider a late payment a personal insult. The story usually
goes something like, “I pay my bills on time and I have my
own monthly obligations”. Once unsophisticated lenders
understands that this is merely a business decision they can
look at it in a different light. For instance, if a monthly
payment is $1,000, and the payment comes in 21 days late,
the lender is realistically “forced” to lend the
borrower $1,000 for a three week period. If the lender would
have placed that money in a bank account at a GENEROUS 6%
interest rate, they have lost 21 days at $.16 a day, i.e.
$3.36. The borrower, on the other hand, usually has to pay a
late fee of 6%, ten days, i.e. $60. Often this will not
pacify a private lender who takes borrower lateness
personally. Borrowers don’t usually subject themselves to
late fees and pay late purposely.
Let’s keep the communication lines open. Remember, the
lender usually has a loaded gun (the foreclosure process)
and the note contains an attorney’s fee provision. Don’t
get into that fight, it probably will be too costly.
Peter Rosenthal
VIP Trust Deed Company |