Facing Foreclosure?

Your house is in foreclosure, the mortgage company is calling you every day. They make it sound like they’re going to come and put your stuff out on the street any minute. You’ve heard about, or read about, or even applied for a mortgage modification. You’ve also heard about short sales and deeds in lieu of foreclosure. And then there’s Chapter 13 bankruptcy. So which is the right option, and how do you decide?  I’ll divide this post into two parts, so it doesn’t get too heavy.

Let’s take mortgage modification first. If you have already applied for modification, and been turned down, that should be some indication that it may not be your best option. Sometimes though, circumstances have changed, and that might change the outcome. When I’m advising clients about whether to continue to hold out hope of a mortgage modification, the first thing I look at is the equity in the property. It is very rare to see a meaningful modification offered when the client has equity in the property. In other words, and it makes perfect sense, the mortgage company is only likely to offer you a modification when they stand to lose in a foreclosure. If they’re not going lose anything, the chances are they’re not going to offer you a modification. There may be exceptions; there may be mortgage bankers out there with a heart. I just wouldn’t hold my breath.

The other thing to consider is whether you qualify for help under the federal government’s HAMP modification program, or some similar government-sponsored program. For example, under Hamp, you are not eligible for modification if your existing mortgage payment is less than 31% of your gross income. The mortgage company may let you apply, and the mortgage company may have other programs that you could qualify for. But, you’re looking to be eligible for one of the biggest, and if you’ve already been turned down, you may want to focus your efforts on another solution.

Even if you clearly qualify for help under HAMP, or some other program, you can still be turned down. The paperwork can be a nightmare, and if you’re not good at paperwork, you may just want to take a pass on the whole process. You can find any number of people who can tell you about the frustrating experience of trying to produce the paperwork a mortgage lender requires, over and over again, to no avail. Everyone that I know who has been rewarded with a meaningful modification has been extremely persistent, and has stayed on top of the paperwork. If you’re going to go the modification route, expect to have to do the same.

So when should you consider a short sale? A short sale involves your lender agreeing to take less than the full balance due when you sell the property. Obviously, it is a sale, and doesn’t allow you to keep the property. Therefore, if your goal is to keep your house, there’s not really much point in discussing or attempting a short sale.  A short sale assumes that you are underwater, i.e., you owe more on the house than it’s worth. Of course, as in most parts of the country, it’s hard to get a sale of any kind. When you add the complication of a short sale to the equation, it may be even more difficult. You have to find a buyer who not only wants your particular house, but he’s willing to wait, sometimes for an extended period of time, for an answer from the lender. I have yet to see a lender who was willing to agree to a short sale before an actual offer had been received. There are other factors to consider when trying to decide whether to attempt a short sale. In addition to the ordinary inconveniences of getting your house ready to show, and keeping it in that condition, a short sale also requires a knowledgeable closing attorney, whose willing to do some extra work to get the sale closed. It probably also takes a knowledgeable and experienced real estate agent, who’s also willing to go the extra mile. The benefits to a short sale can be significant. A short sale can keep your house out of foreclosure, and if that’s the only potential black mark on your credit report, it may be worth the time and trouble. It can also, in the rights or situation, help you avoid a deficiency, that is, knowing the mortgage company after your property is sold. Frequently, the quid pro quo for a short sale is that the mortgage company takes the sale proceeds in full satisfaction of the debt.


Bankruptcy & Timing

When a clients come to you about filing Bankruptcy it should be all about timing. Sometimes, waiting to file makes good sense and will save the debtor a lot of headaches and some significant debt. Sometimes, however, the time to file is as soon as possible.

Let’s look at six reasons to file now; and six reasons to wait:

File now when:

1. Your house is appreciating and may exceed the homestead amount if you wait;

2. Your house is appreciating and you can strip a wholly-unsecured second deed of trust now, but might not be able to in a few months;

3. You are expecting a significant raise or you just got a good job;

4. You are anticipating a change in your marital status and want this done beforehand;

5. You just want to get started on being debt-free; or

6. You want to avoid litigation or collection annoyances.

File later when:

1. You just got a bonus from work and it significantly affects your income level;

2. You are anticipating some significant medical treatment and aren’t sure if your health insurance will cover all of the associated costs;

3. You need a new car and want to pay lower interest while your credit is still good;

4. You are expecting a change in your marital status and want to wait until that is resolved;

5. You gave something of value away and need to wait until it is no longer an issue in a bankruptcy case; or

6. You have income tax debt that could be discharged if you wait the requisite amount of time.

These lists are far from complete. There are many other reasons for filing now or later.

The key here is to remember that timing is everything. Consult a competent bankruptcy attorney as soon as you can to help determine the right time to file.


New Debt Collection Rules

The Consumer Financial Protection Bureau (CFPB) took the first step toward considering consumer protection rules for the debt collection market. Through its Advance Notice of Proposed Rulemaking (ANPR), the Bureau is collecting information on a wide array of issues, including the accuracy of information used by debt collectors, how to ensure consumers know their rights, and the communication tactics collectors employ to recover debts. The Bureau also announced today that it will begin adding consumer complaints about debt collections to its public Consumer Complaint Database.

“For decades, many consumers have reported various unacceptable practices in the debt collection industry. Today’s action will allow us to hear from the public as we consider what rules are needed,” said CFPB Director Richard Cordray. “We want to ensure that all players in the industry are working with correct information, that consumers are fully informed, and that consumers are treated fairly and with dignity.”

There are many businesses in the multi-billion dollar debt collection market. Banks and other original creditors may collect their own debts or hire third-party debt collectors. Original creditors and other owners of debts also may sell their debts to debt buyers, who may collect on the purchased debts or hire third-party debt collectors to recover them. It is estimated that there are more than 4,500 debt collection firms in the U.S.

The main law that governs the industry and protects consumers is the 1977 Fair Debt Collection Practices Act (FDCPA). In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act revised the FDCPA, making the Bureau the first agency with the power to issue substantive rules under the statute.

Debt Collection Consumer Protections

Debt collection has long been one of the most complained about subject areas to government regulators, including the Federal Trade Commission. In July 2013, the CFPB began accepting debt collection complaints and it has quickly become one of the highest categories of grievances. Consumers say that some collectors harass them, demand amounts they do not owe, and threaten dire circumstances if they don’t pay, such as jail. Today’s ANPR seeks a wide array of feedback on debt collection issues.

Information Accuracy

The CFPB is concerned about the transfer of information from an original creditor to third-party debt collection firms and debt buyers, and from those parties to other debt collectors and credit bureaus. The CFPB wants to know how documents and records are currently transferred and how to improve the accuracy of that information. The Bureau believes that ensuring the integrity of information within the debt collection system is critically important. Among the questions the ANPR raises is how federal rules could better ensure that debt collectors have the:

  • Correct person: The CFPB is concerned that debt collectors may try to collect money for debts from the wrong consumers. Debt collectors have been known to send a notice of debt to the wrong address and, in some cases, to incorrectly furnish information to credit bureaus on the wrong person. The ANPR asks for feedback on how debt collectors identify account holders, how they make sure they are pursuing the correct person, what means they use to verify someone’s identity, and how they respond when a consumer says they have the wrong person.
  • Correct amount: The CFPB is concerned that debt collectors may try to collect more than what the consumer owes on a debt. The CFPB has heard reports that sometimes the consumer already paid off the debt in part or in whole, but the collector’s records do not accurately reflect the consumer’s payments. The CFPB is interested in knowing more about how debt collectors ensure they are seeking to recoup accurate sums.
  • Correct documentation: The CFPB is concerned that debt collectors do not always have adequate or accurate paperwork or data to support their claims about a consumer’s indebtedness. This lack of information can make it harder for the debt collector to provide the consumer with information to identify the debt or resolve disputes. The ANPR asks for feedback on what documents get sold with a debt, what documents consumers should have access to, and what documents collectors should be required to provide to a consumer.

Informed Consumers

The CFPB wants to ensure that consumers have a clear understanding of their rights in the debt collection process. The Bureau is concerned that the disclosures and information that are currently provided to consumers may be confusing or incomplete. Among the questions the ANPR raises is whether federal rules can better ensure that consumers receive:

  • Clear information about the debts: The CFPB is concerned that debt collectors may try to collect money for debts that consumers do not recognize or understand. When a debt collector collects in a name that is unfamiliar to the consumer or for an amount that the consumer does not recognize, the consumer may not be able to respond effectively. The ANPR asks for feedback on the quality of the information consumers receive regarding the debt that is being collected and whether new rules could improve those disclosures.
  • Adequate information about legal rights: The FDCPA provides consumers with a set of rights, including the right to dispute a debt or to limit certain types of communications from collectors. The CFPB is concerned that consumers may not be receiving adequate information to make informed decisions about whether to exercise these rights. The ANPR seeks feedback on how legal rights are being disclosed to consumers and whether new rules could improve those disclosures.

Communication Tactics

The CFPB wants to make sure that consumers are treated fairly and with respect by all debt collectors, regardless of whether the collector is the creditor, a collector working on behalf of the creditor, or a debt buyer or third-party debt collector. Debt buyers and third-party debt collectors are already, generally, prohibited from engaging in acts that annoy, abuse, or harass consumers under the FDCPA. In today’s ANPR, the CFPB is asking for feedback on whether harmful communication tactics are happening that are not specifically addressed in the FDCPA. Among the issues the ANPR raises is how federal rules can better regulate:

  • Contact frequency: The CFPB is concerned about some debt collectors continuously calling consumers. Consumers have also complained about calling hours and collectors reaching them at their workplace. The ANPR asks for feedback on whether new federal rules should limit debt collector contact, and, if so, how to do so appropriately.
  • Contact methods: When Congress passed the FDCPA in 1977, the means of reaching a consumer were limited. Today, debt collectors can communicate with consumers by using email, smartphones, fax machines, and social media. The ANPR seeks feedback on the potential harms or benefits from a debt collector using these modern technologies.
  • Contact claims: The CFPB is concerned about some debt collectors falsely threatening to initiate a lawsuit or criminal prosecution, garnish wages, damage or ruin a consumer’s credit rating, seize property, get the consumer fired from their job, or have a consumer jailed. The ANPR seeks feedback on the prevalence of such false threats and their impact on consumers.

Consumer-Friendly Comment Process

The CFPB is working with the Cornell University e-Rulemaking Initiative to make it easier for the public to comment through a project called Regulation Room. Regulation Room provides an online environment for people and groups to easily learn about, discuss, and react to proposed rules or ANPRs by federal agencies. Individual contributions about the CFPB’s ANPR will be incorporated into a report prepared by Cornell researchers and submitted to the Bureau.

Public Debt Collection Complaints

The CFPB is also adding approximately 5,000 consumer debt collection complaints to its Consumer Complaint Database. These are complaints that the CFPB has received and that companies have responded to since the CFPB began accepting debt collection complaints on July 10, 2013. Currently, debt collection is on par with mortgages in terms of daily complaint volume, with both accounting for approximately 30 percent of consumer grievances. Among the topics consumers are contacting the CPFB about:

  • Collection activities: Consumers are complaining about harassing or unwanted phone calls; the frequency of collection activities, including the number of phone calls and other contacts; not receiving a notice of the debt; and where the notice of the debt was sent.
  • The underlying debt: Consumers are complaining about collectors not providing verification of the debt, and being contacted about debt that has already been paid off or debt that doesn’t belong to them.
  • Credit reporting: Consumers are complaining about only becoming aware of a collection account when they find it on their credit report, and being unable to remove a collection item from their credit report.

The Consumer Complaint Database allows the public to see: what consumers complained about; why, how, and when the company in question responded; and whether the response was timely. A consumer’s identity and other personal information are not included. The database currently contains more than 155,000 complaints on a wide variety of financial consumer issues, including mortgages, student loans, and credit cards.


How Delinquencies Affect Credit Scores?

How many points delinquencies are worth on your credit score?

 Zero, That’s right, delinquencies are worth zero points in your credit score. Delinquencies, like inquiries, do not have independent value. So, 30 day lates are not worth 10 points, 60 day lates are not worth 15 points and 90 day lates are not worth 20 points.  Actually, it might be better to say that delinquencies are not worth negative points because the assumption is probably that they LOWER your score.

It is entirely inappropriate and incorrect to say that “X” lowered my score by “Y” points. That’s not what happened.

The late payment don’t lower your score but because adding a late payment to a credit report moves other things around it caused your score to be different than it was before the late payment was added.  If your score is 50 points lower it’s not as if the new late payment lowered your score 50 points…but because the addition of that item caused a different evaluation of EVERYTHING on your credit reports (scorecard hop) the new reality for you is 50 points lower.

if you keep adding derogatory items to a credit report it becomes so polluted that your score just collapses.  It wasn’t one late payment…it was the aggregate. .

Adding one or two items (or removing one or two items) can cause a re-evaluation of all of the other items and can create a different score outcome.


FICO to Offer Barclaycard Holders Credit Scores for Free

FICO, owner of the credit-scoring formula most widely used by U.S. lenders, is giving some consumers access to their credit scores for free, even before they apply for a loan.

The offering starts today for credit-card holders of two companies: Barclaycard US, a unit of London-based Barclays Plc (BARC), and First Bankcard of Omaha, Nebraska-based First National Bank of Omaha, FICO said in a statement. San Jose, California-based FICO, formerly known as Fair Isaac Corp. (FICO), is talking to other banks about giving the scores for free, said Anthony Sprauve, the firm’s senior consumer credit specialist..

“This is just the beginning,” Sprauve said in an interview. “In 2012 we sold 10 billion FICO scores to lenders and we’re prepared to make all of those scores available to consumers.”

FICO scores, which are used in lending decisions such as applications for credit cards and interest rates on home loans, range from 300 to 850. Consumer advocacy groups and lawmakers including U.S. Senator Bernie Sanders, a Vermont independent, have pushed for more access to credit information, Chi Chi Wu, a staff attorney at the National Consumer Law Center in Boston, said an interview before today’s announcement.

“Consumers should have the right to get their credit score for free before they apply for credit,” Wu said.

Many Americans “may not be fully aware of the significance of their credit score or know what they can do to correct serious errors,” Sanders said in a statement in March as he introduced legislation on the topic.

Credit Reports

Previously, consumers who wanted to see their scores typically had to buy them through FICO’s website for $19.95 or sign up for a free trial subscription to its monthly score-monitoring service, unless they were denied credit or received less money than they sought in a loan application.

Credit scores differ from credit reports, which are provided by Equifax Inc. (EFX), Experian Plc (EXPN) and TransUnion Corp. The three agencies are required to give consumers a free copy of their credit report upon request once every 12 months. They also can sell people a credit score, which may be an “educational score” that differs from the one used by lenders, Wu said.

FICO isn’t paying the banks or receiving compensation from them for the free-score offering, Sprauve said. Banks purchase FICO’s algorithm and data from the three credit-reporting agencies used to generate credit scores, he said.

‘Financial Health’

“Having people aware of their current credit score is important to financial health,” Paul Wilmore, managing director of consumer markets at Barclaycard US, said in an interview. Its customers will be able to go online to see their FICO scores and sign up for free alerts whenever they change.

The majority of Barclaycards don’t have an annual fee, Wilmore said. The company is giving free FICO scores to customers of its Barclaycard-branded cards and those with Frontier Airlines and Carnival Cruise Lines. It will add other partner programs in 2014.

First Bankcard, a provider of co-branded credit cards, serves more than 400 financial firms and partners.


Senate Bill Would Add Utility Payments To Credit Reports

WASHINGTON, D.C. – U.S. Senators Mark Kirk (R-Ill.) and Joe Manchin (D-W.Va.) announced today the introduction of legislation that would allow for a more thorough and fair evaluation of an individual’s credit worthiness. The Credit Access and Inclusion Act would improve individuals’ access to credit by allowing utility companies to report a person’s on-time payments to credit reporting agencies.

“This bill will bring ‘credit invisible’ people – estimated to be as high as 59 million Americans – out of the financial shadows,” Senator Kirk said. “There is no reason why credit reporting agencies should not be able to use complete data from utility companies to better assess a person’s payment history. Senator Manchin and I will continue to work together to expand fair access to credit for hardworking, responsible Americans.”

“All Americans deserve a chance to gain access to credit if they pay their bills on time every month,” Senator Manchin said. “It’s just common sense to give everyone a fair shot and earn access to credit if they have proven their ability to be responsible. It’s a real shame that the current system keeps some of the most vulnerable citizens in the shadows, and I am proud to work with my dear friend, Senator Mark Kirk, to fix this issue to help all Americans.”


An estimated 59 million adults are financially excluded from mainstream credit access in the U.S., largely due to lack of credit history, not bad credit history. Credit history is developed through access to credit lines, and also determines an individual’s credit score. The credit invisible – younger people, the elderly, widowed or divorced women, immigrants and low income – still have established payment histories through telephone and utility payments, yet this information is not generally reported. These individuals are left to obtain credit from higher-cost services, which can often result in a bad credit history being established.

Currently, there is ambiguity for telephone and utility companies about reporting a “full-file” consumer data—that is, reporting positive payment history information in addition to negative. A recent study by the Policy Economic Research Council found that 49 million financially invisible people would benefit from a more complete reporting of payment data from utility and phone companies. The Kirk-Manchin Credit Access and Inclusion Act would allow full-file payment history to be reported to credit bureaus to establish a more complete and accurate file of credit information.

Representative Mike Fitzpatrick (R-Penn.) introduced a house companion bill, H.R. 2358, which has gained 8 cosponsors.


Bill Introduced To Force Credit Bureaus To Share Consumer Provided Documentation In Dispute Process

A variety of U.S. Senators have introduced legislation that would force the credit bureaus to pass along to creditors documents provided to them by consumers when they’ve filed disputes. e-OSCAR system is currently working on allowing the pass through of such documents.

Credit reporting agencies have been criticized for performing lackluster investigations and providing little additional documentation to third party data furnishers.  This legislation ensures that the requirements of the FCRA are being met by requiring that credit agencies forward actual copies of documents submitted by consumers to data furnishers.

Klobuchar has been fighting to ensure that consumers’ credit reports are up to date and accurate. At Senate Commerce Committee hearing earlier this year, Klobuchar highlighted the serious damage credit report errors can have on financial well-being and called on the Administration and the major credit rating agencies to take action to ensure credit reports are accurate. She also held a roundtable discussion with Minnesotans who have been negatively impacted by errors on their credit reports as well as experts on the issue.

You can read this press release in full clicking below.


C.L.U.E. Report

When calling up an insurance company for coverage of auto and home, they usually will ask questions and pull up your C.L.U.E. report. You can order your free C.L.U.E. report once a year just like you can with your credit report, and if something turns up false you can challenge it. The website to go to in order to order your C.L.U.E. report is


How does a Short Sale Affects Credit Scores?

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Fair Issac says the average points lost on a FICO score are as follows:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240

Foreclosure or Deed-in-Lieu of Foreclosure

Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.

Short Sale

The effect of a short sale (providing the sellers are more than 59 days late) on a seller’s credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, which will result in a loss of 200 to 300 points. This means a short sale seller with a previous FICO of 720 could see it fall from 520 to 420.


How To Remove A Bad Authorized User Accounts

If you have an authorized user account that the primary cardholder is mismanaging; here is how you can remove it. for your client.

First you must have the primary cardholder contact the credit card issuer and remove the authorized user from the account. Once this is done the process of removing the card from their credit reports has begun. The next step is to have the authorized user contact the credit reporting agencies and let them know that they have been removed this person from the card and to please have the account removed from the credit report.

Give them 30 days to complete their work and they’ll send you a letter summarizing their actions.

Important: Once the account is removed you will lose ALL benefits from that authorized user account. Credit scores are calculated on the fly and will not remember that account. If that account was delinquent or heavily leveraged then it was probably hurting your credit scores. Therefore having it removed could result in an increase credit score(s) but that’s not a guarantee. The payment history of an account is extremely important in both your FICO and VantageScore credit scores, as is the debt-to-limit ratio measurements. However there could have been other factors that leaving that account on there could have helped your score e.g length of time or history.

If you’re removing one bad account and there are still negative items left behind just don’t bank on a better credit score. Negative information is not always valued as some believe therefore, you won’t increase your score by a certain number of points just because something bad was removed from your credit reports.