Facing Foreclosure - What Is The Loan Servicer's Responsibility?

What is a loan servicer's responsibility to a borrower in default due to a sub-prime mortgage adjusting? Do they have the responsibility to inform the borrower about possible remedies available to them? Do they even have a responsibility to be civil to them?

The reason that I'm asking this question is that yesterday I got a call from a lady who has gotten caught up in this sub-prime mess. When she purchased her home she did so on an 80/20, 2 year adjustable with an initial interest rate in the 7's. In November the rate adjusted into the 12's and she simply can't afford it.

When they got the notice that their mortgage rate was adjusting they called to see if they might be able to refinance the mortgage since her job situation had improved and were told no, that they would not qualify for a conventional mortgage. From what I understand, they ended up falling behind on their mortgage payment as they attempted to juggle it and their other obligations. After having missed a third payment in a row, they mailed a check that would have made up two of the payments, but not the entire amount.

That check was returned to them with a letter explaining that they had handed the loan off to a "foreclosure firm". They contacted that firm and were told a workout plan was possible, but that they would need to send them a check for $1,200.00. Apparently (I don't know this for a fact and am relying upon this lady for this information), they cashed that check and did nothing. They were told that they needed to bring the loan current or else this company was going to move forward with the foreclosure. Calls to the initial lender were referred to the "foreclosure firm", who basically demanded what was now 4 months of payments.

Now, I'm not that well versed on "Project Hope" or any other "workout" plans, but shouldn't a firm that specializes in foreclosures be familiar with these programs? From what I've read this morning, it would seem that this lady and her husband would probably qualify. I would have thought that a mortgage servicer would have been eager to work something out with these people. They are both employed and from what I understand making their payments before the big interest rate adjustment, so why not work something out with them? Half a loaf is better than no loaf, isn't it?

Right now, I'm waiting for her call so that we can conference the loan servicer to see what can be worked out. From past experience I've found that loan servicers are generally a bit more reasonable when there is a "dis-interested third party" on the phone with them and not just the borrower.

I don't know these people from Adam and to tell you the truth, they're probably isn't a "deal" in this for me, but it seems like the right thing to do to attempt and help them. Hopefully, I will be able to help them negotiate an acceptable work out plan and maybe I'll learn something in the process. One way or the other, I'll keep you posted!

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services, St. Louis' largest discount/full-service real estate and mortgage company. If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com