Advising Clients on the Collections Question

I enjoyed the well-written and informative article, “Advising Financially Stressed Clients” (Sept. 2011, page 50). Due to my germane knowledge and background working as a special assets officer at a community bank, I would like to elaborate on two areas in the article.

The deed in lieu of foreclosure is, as noted, cheaper for the lender, but is also beneficial to the client. The process can be less traumatic and stressful than being foreclosed on and sued for any deficiency. Clients also avoid the legal costs and the stigma of having their name printed in the local paper, announcing the foreclosure process. The owner also does not necessarily have to move and may have the option to lease the property from the bank.

The first bullet point under “Actions the Client Should Avoid” advised that “[c]lients should not contact creditors who have not contacted them.” Countless times I have had the clients adopt this ostrich approach. The clients finally want to communicate when it is practically too late to be of assistance. The better plan of attack, when it comes to this situation, is to contact the lender early on when the issue occurs.

The client should also return the bank’s telephone calls and messages. Ignoring these only further exasperates the situation. The issue could be something as simple as being unemployed or being embarrassed by a temporary issue. Not including the bank is a detriment to resolving the issue. It is much easier to work with a slight issue versus waiting until several months later, when the issue has grown substantially.

In a scenario I’ll call “ignore the bank,” clients simply do not make the payments and ignore the bank’s calls, letters and visits, and correspondence from the bank’s attorney. They get three to four months behind in their payments. The bank has to start the foreclosure process. Once the property goes to sheriff’s sale, as it does in Michigan, the deficiency is set. At this point the homeowner can be sued on the deficiency.

However, in a better scenario, clients elect to communicate and work with the bank. Homeowners talk to the bank regarding what happened and their plan. The bank looks at the situation and what can be done to keep them in the home. The bank now has the opportunity to modify the mortgage and promissory note. The bank could extend the amortization to lower the payments, decrease interest rates and/or split the note into two distinct notes. Clients can now afford the payments. Foreclosure is not needed, and they can hope that things will change for them in the future.

Charles Parker II, J.D.
Swartz Creek, Mich.

Author’s reply: I was a creditor’s rights attorney for 16 years and can fully appreciate Mr. Parker’s concerns. I am not suggesting that clients should just avoid the lender at all cost. However, our article was written with a progression of events in mind. Of course, we advocate working with the lender from the onset. Most of our clients have tried that long before they consult with us and often have liquidated many of their assets. When debt negotiations fail, the lender usually steps up its collection efforts, and the debtor wonders what else he can do. At that point, collection calls are very stressful, and we recommend that the client avoid taking them. Foreclosure options are complicated and require careful counseling; bankruptcy should only be considered as a last resort.

Gail P. Petravick, Esq.
Bloomington, Ill.