Dealing With Delay

It is always advisable to consider the internal processes and institutional challenges an opposing party is facing in a foreclosure action. If you are sensitive to the obstacles faced by the lender, its loan servicer and its litigation counsel, it will be easier to advise a debtor as to what can reasonably be expected from proposed strategies. Always bear in mind that there are different departments within an institution from which the client may be receiving confusing or even conflicting information about their loan.

A common complaint from clients is that their bank appears to be sitting on a loan modification application for months after having received all requested documents, only to turn around and request updated documents all over again. Clients must understand that each lender has an unprecedented volume of applications and that, when it finally comes time for a particular application to be reviewed, it must contain current information. Clients are also surprised to receive different responses from customer service than from the loss mitigation department or the legal department. Once a typical client understands the entire process, as well as the separate functions of each of these departments, it goes a long way to diffusing any frustration or anxiety about the status of an application.

Of course, taking a combative stance with the lender in response to client frustrations is not helpful. In fact, it can push a client's application to the bottom of the pile and result in greater delay. Just remember: Lenders have an interest in keeping homeowners in their houses and would prefer to reach an accommodation that allows cash flow to resume. After all, the lender does not want to be in the business of owning real estate. So the alternatives are pretty clear: Either get the cash flow back on track with minimal disruption and cost, or liquidate the asset and move on to more productive activities.

The challenge for all parties — debtors and lenders alike — is to come up with an agreement that makes financial sense. If the mortgagee and homeowner can fashion a solution that makes modification more attractive than the expensive process of foreclosure, that's a deal worth doing. However, if the financial upside for the lender is limited due to poor payment history and weak income prospects, it will probably decide to move that loan off its books through foreclosure. In many recent cases, the debtor's situation has changed so markedly that there is little chance the parties will be able to find common ground. Under these circumstances, it is important for debtor's counsel to explain the lender's perspective to his or her client, and why it is impossible in the debtor's case to create a viable solution.

This area of practice is interesting right now because the situation for lenders is very fluid. It is difficult to say from month to month what terms will be acceptable and what will be rejected out of hand. But right now, homeowners have more leverage than ever to renegotiate their mortgages in light of changed circumstances.