Consumers prefer a paper trail
Contact: Ruth Susswein, 301-718-2511 Linda Sherry 202- 544-3088 
     
The message is clear: Consumers overwhelmingly prefer to receive bills and statements on paper rather than electronically, according to a new survey of more than 2,600 people by the non-profit Consumer Action.Up to three-quarters of those surveyed opted for bills to arrive by mail. For each of nine types of bills and invoices, consumers chose paper over digital delivery: insurance (66%), utilities (63%), medical bills (74%), property taxes (71%), internet services (51%), mortgages (45%), motor vehicle renewals (69%), credit cards (61%) and phone bills (56%).
“Even more compelling is the fact that respondents accessed our survey online and still prefer to receive paper statements for most important bills and notices,” noted Consumer Action’s Director of National Priorities, Linda Sherry.
Many of those who gave reasons for their paper preference mentioned the ease of viewing and accessing the bills for future reference. Paper statements help some people remember to pay their bills on time.
“We manage numerous accounts for which paper files are kept. We have power outages fairly regularly and sometimes need answers when there is no access to my records kept electronically,” explained one survey respondent.
For some older, disabled or lower-income consumers, paper documents are not just an option, they’re a necessity. Those who are not tech-savvy, have difficulty using a computer or have no internet access at home find paper statements essential.
More than one-third (38%) of respondents said they prefer mailed copies of other important communications from service providers, and nearly as many (35%) said it depends on the type of communication. Twenty-six percent chose email or online notice. Consumers prefer paper notices for:

• Bank statements (57%)
  
• Medicare and prescription drug summaries (55%)
• Social Security statements (68%)
  

The only category where respondents prefer to receive information electronically—51 percent—was data use and privacy notices.
However, the majority (55.5%) of survey respondents said they prefer to pay their bills online.
What’s more, how consumers receive the bill does affect how likely they are to review the details. More than three-quarters (78%) of those who receive bills by mail said they review the transactions printed on paper statements. Of those who receive bills electronically, less than half—only 43 percent—said they go online to review their transaction details.
While the majority of respondents (66%) have not been charged to receive a paper statement, there is some cost-shifting. Nearly 9 percent of respondents said they have paid a paper-statement fee for phone, pay TV or cable bills, and 16 percent have paid for bank statements.
“No one should be forced to receive [bills and notices] electronically only, or to pay to receive proper notices and statements by mail,” said a survey respondent.
Under the federal Electronic Signatures in Global and National Commerce (E-Sign) Act, if the law requires that a statement or disclosure be made in writing, financial institutions can substitute electronic statements for paper ones, but only with a customer’s consent. As a member of the Keep Me Posted campaign, Consumer Action supports an individual’s right to choose between receiving important financial information online or in print and believes that paper should be the default.

“Customers should get paper bills and statements until they proactively consent to electronic delivery,” said Sherry. “Bottom line, consumers need to know that they have the right to switch back to paper at any time they desire.”
For more on what consumers’ rights are in receiving a statement of their choice, see Consumer Action’s latest issue of Consumer Action News: Paper or digital?  (https://www.consumer-action.org/news/articles/paper-or-digital-winter-2018-2019)

Consumer Action’s online survey of 2,607 people was conducted from Nov. 7-27, 2018.
The results may not be cited for commercial or advertising purposes.
To view the full survey, visit: http://bit.ly/paper_digital.

Latest Consumer Protection Data Spotlight Finds Seniors Sending Thousands in Cash to Scammers Claiming to be their Grandchildren

Older consumers who report losing money to fraud are reporting a disturbing trend: Scammers claiming to be a loved one in trouble are getting people 70 and over to send thousands of dollars in cash.

In the second Consumer Protection Data Spotlight, the Federal Trade Commission examined complaints about family and friend imposter scams. These scammers often call seniors claiming to be a grandchild. The FTC is seeing an increase in the number of people ages 70 and over who say they sent cash in response to this particular scam – one in four said they mailed cash in 2018, compared to one in fourteen the prior year. In about half of these types of complaints, the scammer said they were in jail or some other legal trouble and in need of money to get out of trouble.


All age groups reported losing more money over the last 12 months to family and friend imposter scams – a total of $41 million, compared to $26 million the previous year. The most striking concern is individual losses by older Americans. The median loss for this scam was $2,000, but when seniors ages 70 and over said they put cash in the mail, their median loss was $9,000.

The FTC urges those who might get such a call to not act right away. Instead, the FTC recommends calling the family member or friend using a known number, or checking out the request with someone else in their family or a mutual friend.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). 

Contact Information
CONTACT FOR CONSUMERS:
Consumer Response Center
877-382-4357


Related Resources

• Consumer Protection Data Spotlight: New twist to grandparent scam: mail cash

For Consumers

• Blog: Putting cash in the mail
  

Statement of Remington A. Gregg, Counsel for Civil Justice and Consumer Rights

Note: [Hotel chain] Marriott reported today that the private data of upwards of 500 million customers may have been breached. This hack follows other breaches this year at Macy’s Inc., Sears Holdings Corp., Kmart and Best Buy Co., Inc., among others. 

We need a strong federal law that allows individuals who have been harmed by data breaches to hold companies accountable.

Not only are people wondering if their sensitive information has been compromised and is up for sale on the dark web, but the monitoring service, Kroll, that Marriott hired to alert customers if their data was stolen includes a jury waiver and class-action ban in its terms of service. This requires customers who later have claims against the monitoring service to file in Davidson County, Tenn. This attempt to keep customers from joining together if they have claims against the company and forcing them to sue in Tennessee repeats blunders of the Equifax consumer catastrophe. There, too, the monitoring service chosen by Equifax tried to impose restrictions on consumers’ ability to bring claims in the future.

Kroll should immediately revise its terms of service to allow those impacted to sue in convenient locations, should disputes arise, and without restrictions on the ability to join together with similarly situated consumers.

Still, the biggest duty falls on Marriott. As the company moves to mitigate a data breach that speaks to its own failures to properly protect the personal, sensitive data it collects from customers, it must affirmatively guarantee that its already victimized customers are not victimized again by unfair contract terms that limit their right to recovery in the event of misconduct by Kroll.

###

--
Remington A. Gregg | Counsel for Civil Justice and Consumer Rights
Public Citizen 
W: 202.454.5117 | M: 718.619.2152

 We are launching a new “Tell YOUR Story” tool that will enable residents, families, ombudsmen, and those who work with them tell their story about nursing home or assisted living care.

The form is available on our website at https://nursinghome411.org/tell-your-story/.
 
One can fill out the form on the website, download it to fill out on a computer or phone, or print out a hard copy to mail in. All personal identifying information is kept confidential unless the individual provides specific permission otherwise.
 
Stories about resident care can have an enormous impact on advocacy for better care and dignity. We would appreciate any help you can provide in getting the word out and passing this along!
 
Other news from LTCCC…

1. Dementia Care & Antipsychotic Drugging.
   
2. We have just published the latest antipsychotic drugging rates for all U.S. nursing homes and citations for inappropriate drugging. Sadly, recent data indicate that drugging rates are no longer going down! https://nursinghome411.org/learning-center/dementia-care-antipsychotic-drugging/  [Please note that some facilities with a low resident population are not included in these data.]
   
3. Safe Staffing.
   
4. We recently published the staffing levels for all U.S. nursing homes in easy-to-use files. Staffing is critical to quality, yet too many nursing homes have insufficient staffing. For the first time, these files include city and county information, to make searching for your nursing home, or those in your community, even easier. https://nursinghome411.org/nursing-home-data-information/staffing/
   
5. Resident & Family Councils.
   
6. We have issued a new Issue Alert on family and resident council rights, https://nursinghome411.org/ltccc-issue-alert-resident-family-councils/ and have launched our new Family & Ombudsman Resource Center, https://nursinghome411.org/families-ombudsmen/.
   
7. Webinars on Quality of Care & Resident-Centered Advocacy.
   
8. Please join us for our next free “lunch-and-learn” program on November 20 at 1pm Eastern. Topic: Making Your Voice Heard in the Nursing Home… and Beyond. https://nursinghome411.org/upcoming-webinars-nursing-home-care-resident-centered-advocacy/
   
9. New Report on Assisted Living: Promising Policies and Practices. https://nursinghome411.org/ltccc-report-assisted-living-promising-policies-and-practices/
   

All of these resources are free to use and share. If you would like to sign up for future updates and alerts, please email info@LTCCC.org.
 
Sincerely yours, Richard
 
Richard J. Mollot, Executive Director
The Long Term Care Community Coalition
One Penn Plaza, Suite 6252
New York, NY 10119
Phone: 212-385-0355
www.nursinghome411.org

A bill pending in the U.S. House of Representatives, H.R. 5082, Practice of Law Technical Clarification Act of 2018 (Mooney-Gonzalez) (amending the previously filed H.R. 4550), would exempt attorneys and law firms engaged in litigation from the Fair Debt Collection Practices Act (FDCPA) and eliminate Consumer Financial Protection Bureau (CFPB) authority over them.

The changes made in HR 5082 make it even more harmful to consumers than H.R. 4550 because it would add an exemption from the FDCPA for “any other activities engaged in as part of the practice of law . . . that relate to the legal action.” This vague language expands the scope of the exemption significantly. While the bill requires attorneys to “attempt” to give the consumer legal notice of the lawsuit, abusive activities would be exempt even if the consumer never had actual notice.

Congress1 and the courts2 have recognized for decades that consumers must be protected from false, deceptive, misleading, and unfair practices by lawyers collecting debts in courts. This bill attempts to turn back the clock, and would allow collection attorneys to engage in egregious practices such as:

•     Proceeding to trial without any witnesses or admissible evidence, hoping that consumers will not show up or asking the court to reschedule if they do.3

•     Routinely filing court documents without confirming the accuracy of that information,4 often resulting in default judgments based on inaccurate information.

•     Filing lawsuits in courts hundreds of miles away from the consumers’ homes,5 making it nearly impossible for most consumers to appear in court to defend themselves.6

*     Filing lawsuits on ancient zombie debt after legal time limit to sue has expired7 and when consumers are less likely to have critical records to prove their payments.

•     Seeking fees or costs that are not legally allowable,8 adding to the amount of judgments against consumers who cannot afford attorneys.

•     Misusing state garnishment proceedings,9 such as by knowingly seizing Social Security or other income or property that is exempt from collection."

State Consumer Protection Laws May Not Cover Attorneys.

Maintaining coverage of attorneys under the FDCPA is important because many states do not have laws that are equivalent to the FDCPA. In these states, exempting attorneys from coverage under the FDCPA would mean that no federal or state laws would protect consumers from abusive litigation practices by consumer attorneys.10"

States Do Not Have the Capacity to Protect Consumers.

Even in states that have the legal authority, resources are insufficient to monitor the tens of thousands of debt collection lawsuits that are filed yearly in each state11 or to bring sufficient enforcement or disciplinary actions in response to abusive litigation activity.

Court and Ethical Rules Are No Substitute for the FDCPA.

To date, neither the courts nor bar associations have been effective in policing litigation abuses by collection attorneys.12

There is no reason to believe that these agencies will suddenly step up now if FDCPA sanctions against collection attorneys for litigation abuses are eliminated.

Collection Attorneys Would File More Lawsuits.

H.R. 5082 would exempt lawyers from the FDCPA for conduct in litigation that would be a violation outside of court. For example, misstating the amount owed in a lawsuit would be exempt from FDCPA liability but misstating the amount owed in a pre-litigation letter or phone call would be a violation. As a result, attorneys would be encouraged to file suit first rather than attempting to reach a resolution with consumers outside of court. This would drive a huge increase in collection lawsuits filed in state courts, further clogging the already overburdened trial courts.

H.R. 5082 Would Prohibit CFPB Supervision and Enforcement.

The CFPB has special insights into abusive collection practices through extensive national data from consumer complaints and information gleaned from industry supervision. H.R. 5082 would tie the CFPB's hands and prevent it from acting on abusive practices by attorneys or law firms when they are engaging in debt collection litigation. Previous CFPB enforcement actions against collection law firms have focused on law firms operating large debt collection “mills” churning through a high volume of lawsuits with minimal attorney oversite.13

H.R. 5082 would protect attorneys who engage in abusive litigation collection practices that hurt American consumers. We urge members of Congress to oppose this bill.

For more information, contact attorneys April Kuehnhoff (akuehnhoff@nclc.org or" "617.542.8010) or Margot Saunders (msaunders@nclc.org or 202.595.7844).

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How Criminal Steal $37 billion a year from the elderly
by Nick Leiber, Bloomberg.

Marjorie Jones trusted the man who called to tell her she’d won a sweepstakes prize, saying she could collect the winnings once she paid the taxes and fees. After she wired the first payment, he and other callers kept adding conditions to convince her to send more money. 

As the scheme progressed, Jones, who was legally blind and lived alone in a two-story house in Moss Bluff, Louisiana, depleted her savings, took out a reverse mortgage and cashed in a life insurance policy. She didn’t tell her family, not even the sister who lived next door. Scammers often push victims to keep promised winnings a secret, says an investigator who helped unravel this sinister effort to exploit an 82-year-old woman.
 
Her family didn’t realize something was wrong until she started asking to borrow money, a first for a woman they admired for her financial independence. But by then it was too late, says Angela Stancik, one of Jones’s granddaughters. Jones had lost all of her life savings—hundreds of thousands of dollars.

About one week after calling Stancik at the family business in Ganado, Texas, to borrow $6,000, Jones committed suicide.

Click to read the rest

library.nclc.org
Defending a Home from Foreclosure: Consumer Debt Advice from NCLC
by Geoff Walsh, National Consumer Law Center (NCLC)

This is also the third in a series of three articles dealing with home mortgages. This article explains a homeowner’s general rights to defend or delay a pending home foreclosure, how a chapter 13 bankruptcy can avoid foreclosure, the homeowner’s rights after the foreclosure sale, and additional rights to deal with nine special types of foreclosures.

The first article dealing with home foreclosures covered how to obtain information about your mortgage payments, what happens if you make only a partial payment, disputing the amount due, and key information about escrow, property taxes, and insurance. The second article set out options to lower or delay mortgage payments for Fannie Mae, Freddie Mac, FHA, VA, and RHS mortgages.

You are not powerless when you face with a foreclosure sale, but you need to be realistic in defining your objectives.

You often have a good chance of achieving one of the following two objectives:

1. If you have the financial resources, you can keep your home by paying back delinquent payments and legitimate fees or costs. It also is possible to prevent foreclosure by “redeeming” your home.


2. If you do not have the financial resources, you can delay the foreclosure sale to give you enough time to find a long-term solution to the underlying problem that caused you to fall behind on your mortgage payments.

This article also has special advice for nine particular types of foreclosures:

• • If your mortgage is backed by three different government agencies—FHA, VA, or RHS;
• • If you or your spouse are now on active duty in the military;
• • If you have a land installment sale contract;
• • If your mortgage resulted from a home improvement scam;
• • If your mortgage is for a manufactured home;
• • If your manufactured home is facing eviction from a manufacture home park; and
• • If your condominium faces foreclosure for unpaid condominium fees.

Your Rights in the Mortgage Foreclosure Process

Preliminary Notices.

To protect your rights, you need to be informed about what is happening—the worst thing you can do is ignore everything. If you are behind on your mortgage payments, stay on top of things: carefully read the notices you receive, keep track of deadlines, and contact the servicer or foreclosure attorney at regular intervals.


In every state, you are entitled to notice of a pending foreclosure on your home. But do not rely on the fact that you will get this notice—either because of servicer negligence or problems with mail delivery. Always pick up any certified or registered mail, even if returned to the post office. Keep all the notices that you receive from the servicer, lender, or foreclosure attorney in one place, like a folder or notebook. Also document all related phone calls with the date, time, name of person that you spoke with, and the substance of your conversation.


Notice of Default.

You will almost always get a “notice of default” or “notice of delinquency” from the loan servicer that says that you have fallen behind on your payments. It may look like any other collection letter. It tells you how many payments you are behind and the payment amount to catch up and get out of default, often called “the arrears.” It will also give you a deadline to make this payment to avoid foreclosure.


Typically, your payment of the total amount of the arrears will stop any foreclosure. Partial payments are often rejected unless they are made as part of a workout agreement or loan modification.


If you cannot pay the total arrears, review the prior article in this series about seeking a workout agreement or loan modification. Otherwise, do not delay, but review immediately your other rights to deal with the foreclosure. The deeper you get into the foreclosure process, the harder it will be to stop it. A big advantage to paying off an arrearage when you get the initial notice is that you will not yet be responsible for major foreclosure fees and costs that come due after the case is referred to an attorney for foreclosure.


Notice of Acceleration.

After notice of default, or sometimes combined with the notice of default, you typically receive a notice of acceleration. It says that now you don’t just owe the past due installments, but you owe the full mortgage balance, payable either immediately or by a certain date. Receipt of a notice of acceleration indicates that the foreclosure process is moving quickly and that you must act immediately to deal with the pending foreclosure.


The Right to Reinstate.

Many states and mortgage contracts allow you a second chance even after the servicer demands the full balance on the loan, by “reinstating” the mortgage. Usually, this means getting caught up on your missed payments together with foreclosure fees and costs. Many mortgage contracts give you this “right to reinstate” up until five days before the foreclosure sale, and some servicers accept payment right up to the sale date. Your servicer may require that the payment be by certified or bank check and sent to the law firm handling the foreclosure.


Occasionally, servicers claim you did not meet your obligations in some other way, such as failing to keep the property insured. These defaults can also be “cured” by taking care of the problem.


Even where you do not have a legal right to reinstate your mortgage, servicers often will agree to reinstate voluntarily, although others will not. When the servicer will not allow reinstatement, you can often force the lender to allow a reinstatement by taking the matter to court. Most judges will not want to put your family on the street when you have money to pay the arrears, and even in states where judges do not have this power, offering to pay in front of a judge sometimes embarrasses the lender into accepting the payment.


Using Bankruptcy to Cure the Default.

Even where the servicer will not accept payment of your arrears to reinstate the mortgage, if you file for bankruptcy before a foreclosure sale is completed, you then have a right to cure any default by paying the amount overdue. In a chapter 7 bankruptcy, you have to pay the arrearage immediately if you want to avoid foreclosure. If you file under chapter 13, you can make those payments in installments over a period of years.


The Right to Redeem.

You also can “redeem” your home up to the time of a foreclosure sale (and in a few states for a limited number of days after the foreclosure sale). To redeem, you must pay the servicer the whole mortgage balance in one payment plus the lender’s foreclosure fees and costs. Some states allow a second type of redemption where, after the foreclosure sale, you pay the person who bought your home at the foreclosure sale the amount that person paid to purchase the home plus the person’s related costs. Unless you can obtain a new loan to do so, either type of redemption is clearly impractical for you if you are having trouble even making your monthly payments.


How Long Does Foreclosure Take?

A foreclosure can take from three months to a year or more. Much depends on your state, the servicer, and your own actions. Check local practice and stay on top of all foreclosure-related notices. But no matter how long the foreclosure takes, your own delay in developing a plan always will make matters worse for you.


How a Lender Gets Permission to Foreclose.

Foreclosure procedures are established by state law and by local practice. In some states, the lender first files suit in a court, usually in the county where your home is located. You receive a summons or a similar notice usually brought to the house by a sheriff, constable, marshal, or process server. This notice gives you a period of time to respond to the foreclosure lawsuit and to raise your defenses. Your answer must be in writing and filed with the court. If you do not respond at all, a default judgment will be entered against you. If you file a response the court may only enter a judgment against you if it finds your defenses have no merit. A court judgment for the lender gives the lender permission to sell your home unless you can work out an agreement or take some other action (such as bankruptcy) to prevent the sale.


[NOTE: OREGON LENDERS TYPICALLY USE NON-JUDICIAL IF THEY CAN SO YOU MUST GET HELP AS SOON AS YOU KNOW YOU ARE THREATENED WITH FORECLOSURE -- Don't wait for a summons that may never come!]

Other states use “non-judicial foreclosures.” Servicers are allowed to hold a foreclosure sale without a court or other official permission to go forward. They advertise the home for sale, using a legal notice in a newspaper. The servicer sends you a notice of the time and place for the sale. If you want to challenge this type of foreclosure, you must either file for bankruptcy or file a lawsuit and ask the court to stop the sale. With a lawsuit, you may have to file a bond protecting the lender.


The Foreclosure Sale.

Servicers must send you notice of the date and time your home will be sold. In some states, this notice is combined with the notice of acceleration, discussed above. The sale date is a key date because that is when you lose your rights as the owner to obtain a workout or to use the bankruptcy process to prevent foreclosure.


Generally, a foreclosure sale is a poorly advertised and poorly attended auction, either at your home or at a local courthouse or government building. Where a court ordered the foreclosure, the auctioneer will be a sheriff or court official. Otherwise, it will be conducted by someone hired by the servicer. Often only the foreclosing lender attends, who bids no more than the balance of the debt. You can bid at the auction, but you will have to make an immediate down-payment and pay the balance within a short period of time. After a foreclosure sale you will receive notices about eviction. In most states the servicer must go through a separate court procedure to get permission to evict you. Only a government official can carry out an eviction. The eviction consists of a supervised change of locks and removal of your personal property from the house.


The Mortgage Deficiency or Surplus.

Once a foreclosure sale is completed, pay careful attention to all notices you receive. These may include notices of who bought the property and how much they paid. Always ask on your own who bought the property and the sale price because sometimes this information is not sent to you.


[IN OREGON, YOU ARE NOT GENERALLY LIABLE FOR A DEFICIENCY ARISING FROM FORECLOSURE ON YOUR PRIMARY RESIDENCE, BUT YOU NEED TO SEE A LAWYER TO BE SURE.]


If the sale does not bring in enough to pay off the amount due on the loan, in many, but not all states, you will remain responsible for the balance, called a “deficiency”—the remainder due on the loan plus costs, minus the amount the lender was paid from the sale proceeds. You may also receive notices about the deficiency, including collection letters and court papers. In some states your deficiency can be limited if you act to protect your legal rights by responding to these notices or court papers. If you do have to pay a deficiency, this will be an unsecured debt like credit card or medical debt and it is thus low priority debt, until the lender sues you for that debt. Because deficiency claims are unsecured debts, they can be discharged in bankruptcy.


An exception is if your loan is insured, guaranteed, or made by the VA or the Rural Housing Service (RHS). When these agencies seek a deficiency, they can seize your federal tax refund. Also they can seize a portion of your Social Security and certain other federal benefits, although the first $750 a month is protected from seizure. But, even though the debt is owed to the federal government, you can also discharge it in bankruptcy.


On the other hand, if the sale brings in enough to pay off the amount due including all foreclosure costs, you are entitled to any amount by which the sale price exceeds that, called a “surplus.” Although consumers are rarely owed a surplus, if your home sells for more than the outstanding balance, contact the servicer or its foreclosure attorney. If they say you are entitled to a surplus, be sure to give them your new address when you move, so they can send you a check.


If the servicer does not tell you whether you are entitled to a surplus, send a Qualified Written Request to the servicer, as described in a prior article in this series. If fees and costs eat up your surplus, and they seem unreasonable, dispute them or even challenge them in court.


Getting Legal Advice to Stop a Foreclosure; Advice to Avoid

When threatened with foreclosure, immediately seek legal help. It is better to get this help too soon rather than too late. Free help may be available at a neighborhood legal services office (go to www.lawhelp to find a legal services office) or a bar association panel of pro bono attorneys. A small number of lawyers in your area may handle foreclosure defense cases for a fee and many lawyers will help you file a bankruptcy. Exercise care in hiring a lawyer. The highest priced lawyer may not be the best. Find someone you feel comfortable with, at a price you can afford. Also try to get a referral for the lawyer from someone you trust.


Another good source of help is nonprofit foreclosure prevention counseling (sometimes called “default counseling”). Contact a local nonprofit housing organization to find out where this service is offered in your community or call 800-569-4287 (TDD 800-877-8339) or visit www.hud.gov to find a HUD-approved housing counseling agency near you.


Scams to Avoid.

Some businesses offer help to people facing foreclosure in order to rip them off. A pending foreclosure of your home is public information and scam artists will find that information and then contact you. Scammers may ask for thousands of dollars, saying they are offering you a loan or have arranged a payment plan or loan modification. In reality they will do nothing. Even worse, these scammers may (even without you realizing it) have you sign your deed over to them, with a bogus option to buy it back.


If someone seeks you out to save your home, odds are the offer is bogus and will only get you deeper into debt and prevent you from taking the steps that will save your home or improve your situation. Requests for high fees or for money to pay the mortgage are another sign of a scam. An offer of a new mortgage as a way out of foreclosure will be on terrible terms and will just make your situation impossible to resolve. If you do sign a new mortgage under pressure of foreclosure, you have three business days to cancel.


Delaying the Foreclosure Process

Foreclosure can move very quickly, but you can exercise your legal rights to slow down the process. Delay gives you time to put in place a long-term solution, such as to refinance your mortgage, sell your home privately, arrange a workout agreement or loan modification, or save up money to get you caught up on your payments. You cannot properly delay foreclosure just because you need more time. The actions you take must be based on some underlying legal claim or defense that is raised in good faith.


Procedural Defenses May Delay the Process.

Foreclosures are rarely contested by homeowners, and lenders’ attorneys may be sloppy in their procedures and sometimes do not comply with pre-foreclosure requirements. Lender errors can be to your benefit when you are contesting foreclosure, forcing the lender to start over or at least to comply with procedural requirements.


You are likely to need the help of a lawyer or other professional to determine lender compliance with required procedures. Examples are failure to give you proper notice, failure to give you a fair chance to correct the default, failure to properly advertise the sale, failure to introduce the original documents in the foreclosure proceeding, failure to sue all the proper parties, failure to bring the foreclosure proceeding in the name of the real mortgage owner, or discouraging bids at the foreclosure sale. There may also be procedural requirements that involve considering you for loss mitigation options. Under certain state laws you may be able to defend against a foreclosure if the servicer seriously violated these procedures.


In states where foreclosure actions are brought in court, raise defenses in that action. In states where lenders use the non-judicial foreclosure process, you have to bring a legal case of your own, asking the court to stop the foreclosure.


Servicer’s Past Acceptance of Late or Partial Payments As Grounds for Foreclosure Delay.

Courts may refuse to allow foreclosure if the servicer surprises you by suddenly calling the whole loan due when the servicer has been lenient in the past in accepting late or partial payments. It instead must warn you that late or partial payments are no longer acceptable before it calls the whole loan due and attempts a foreclosure. If the servicer accepts a payment after the foreclosure has started, you can argue that there is no longer a default, and the servicer must restart the foreclosure process. This may involve giving a new notice of acceleration.


Asking the Court for More Time.

A judge may give you a delay if foreclosure will cause serious hardship. The hardship should be documented and involve more than just the loss of your home, such as that a family member has a serious illness. The hardship must be temporary as well; if permanent, the judge may feel that now is as good a time as any to allow the foreclosure.


If you have a great deal of equity in your home, a judge may allow you a short period of time to sell the home without foreclosure, allowing you to get the best possible price and recover your home equity. Even if you are unable to make payments during this time, the lender is not hurt because there is enough value in the property to eventually pay the lender’s full claim.


A Chapter 7 Bankruptcy May Create a Temporary Delay.

A chapter 7 bankruptcy case cannot address a foreclosure in the long term but filing the bankruptcy typically delays the foreclosure at least 60 days, as long as you have not recently filed another bankruptcy case. While the bankruptcy is pending, the lender cannot continue foreclosure without permission of the court.


You cannot file a chapter 7 bankruptcy solely to delay foreclosure. You must have some other legitimate purpose for filing bankruptcy. For most homeowners in financial distress, this is hardly a problem because there are lots of other debts outstanding.


A Chapter 13 Bankruptcy May Stop a Foreclosure Permanently

Unlike a chapter 7 bankruptcy that only delays a foreclosure, a chapter 13 bankruptcy filing may eliminate the threat of foreclosure by letting you slowly get caught up on past due payments over a period of years, while at the same time, you must continue to make your regular monthly payment. Do not file the chapter 13 bankruptcy too soon, and instead pursue options to modify your payments discussed in a prior article in this series. But you definitely do not want to wait too long and certainly should file the chapter 13 bankruptcy before the foreclosure sale.


You also need to leave yourself enough time to participate in required credit counseling with an approved credit counseling agency before filing bankruptcy. Fortunately you can do this over the Internet or by telephone.


Curing Delinquent Payments and Reinstating the Mortgage.

Chapter 13 bankruptcy works best where you fell behind in your mortgage payments because of a temporary financial setback and you have resolved the problem that caused your setback. Filing the chapter 13 bankruptcy (the same as in chapter 7) automatically stops the foreclosure—at least temporarily. In addition you can pay back your delinquent payments in installments over a period of three to five years, but you must also make your regular monthly payments as they come due. You may have to pay interest on the back-due amount, a commission to the bankruptcy trustee for handling your payments, and certain fees the servicer has already charged, if they are legitimate.


For example, assume you are six months behind on $800 monthly mortgage payments so that you owe $4,800 and also assume the servicer has charged $600 in various fees. In a five-year chapter 13 case, you cure by making future $800 payments as they come due and catching up on the past due $5,400 in sixty monthly payments of $90 each, plus interest and the trustee’s commission, so you pay $890 a month plus interest and the commission.


As long as there has not been a foreclosure sale, you can cure delinquent payments in a chapter 13 bankruptcy even if the servicer has already demanded you pay at once the full loan amount or even if a court has ordered a foreclosure sale. The bankruptcy process also gives you an opportunity to raise defenses to the lenders’ claim, including defenses that fees are excessive. These defenses can be raised as part of the determination as to how much you have to pay under your chapter 13 bankruptcy plan. Chapter 13 bankruptcy may also permit you to get rid of other liens and mortgages on your property.


Sale of a Home in a Chapter 13 Bankruptcy.

If you can no longer afford your future mortgage payments, you will not benefit from bankruptcy’s ability to cure past delinquencies. You can, however, use the bankruptcy process to sell the home on your own in an orderly fashion, thereby keeping your equity and avoiding the problems of a foreclosure sale. This is likely to work only if the home’s sale price is enough pay both the mortgage lender and at least something to your other creditors.


Request that the court approve your realtor. When a sale is arranged, many title insurance companies require that you obtain an order from the bankruptcy court approving the sale and allowing the property to be sold free of liens.


State Temporary Bans on Foreclosure;
Conference and Mediation Programs

Several states and local court systems have created programs that offer settlement conferences and mediations for foreclosures. These programs are designed to encourage the servicer to agree to alternatives to foreclosure. Even though how these programs work will vary, they all give you the the opportunity to discuss your situation with a live person as opposed to leaving messages in the servicer’s voicemail system. Often the programs refer you to housing counselors and other advocates who can help you through the process.


Carefully review any notices you receive about mediation programs. Sometimes a mediation session is scheduled automatically when a servicer starts a foreclosure. In other programs, you have to request mediation and you may have only a limited time to make the request.


State and local governments also have at various times authorized stays of foreclosures limited to the duration of a particular economic crisis or natural disaster. Check for any restrictions on foreclosures in your state. State bans are only temporary, but they may give you an opportunity to get back on your feet.


Your Options After the Foreclosure Sale

Redemption and Setting Aside the Sale.

Some states, for a very limited number of days after the foreclosure sale, allow you to “redeem” the home back from the lender—in other words, they allow you to pay off the full mortgage and related fees and charges. This way, you end up with clear title to the property. Another option in some states is to redeem your home from the person purchasing it at the foreclosure sale, paying that person the total purchase price plus interest and allowable costs. State law may provide you only a very limited number of days after a foreclosure sale to redeem in this manner, but other states give you up to a year to redeem from the purchaser. Even if you do not have a right to redeem after the sale, you may be able to buy the home back from the purchaser, particularly if the buyer was your mortgage lender.


In some areas there are local non-profit agencies that help borrowers with financing to purchase their homes back after foreclosures. Another option is to find another purchaser for your home willing to pay more than the redemption amount. You still lose your home, but you get to keep the difference between what you sell the home for and the redemption amount. Those funds may be very helpful in your search for new housing. Redemption has strict time deadlines and strict procedures, so it is best to try to have an attorney to assist you in redeeming the home.


You can also ask a court to set aside the foreclosure sale because proper procedures were not followed or because the price was unconscionably low. This is a long shot and you must act quickly, almost always with an attorney’s help.


Rights As a Tenant in Your Own House.

After the foreclosures sale, you are a tenant at will in your own home, now owned by someone else. To evict you, the new owner must comply with your state’s landlord-tenant eviction law. This usually means filing a lawsuit in court. You can save the new owner from dealing with the difficulty and time involved in an eviction processes by vacating voluntarily if the new owner gives you cash to help in the move and to find new housing. This option is called “cash for keys.” You can also offer the new owner that you will pay rent if you are allowed to stay in the home. Even a short extension can help you find a new place to live.


Special Protections Against Foreclosure for
FHA, VA, and RHS Mortgages

FHA Loans.

Lenders cannot begin legal foreclosure proceedings on an FHA-insured loan if your only default is an inability to pay an escrow shortage in a lump sum. They also cannot foreclose for missed payments until at least three monthly payments are overdue. After the President declares a disaster affecting your home, the lender may not start or continue a foreclosure on your home for 90 days.


You also may be able to delay a foreclosure if the servicer has failed to comply with servicer requirements for an FHA-insured mortgage loan. Key requirements are that the servicer must:

• • Consider whether you qualify for FHA loss mitigation options before initiating a foreclosure.
• • Give you notice of your default by the end of the second month of your delinquency, explaining what you must do to get reinstated.
• • Make reasonable efforts to arrange face-to-face or telephone interviews with you before three full monthly installments are overdue.

If you have an FHA mortgage and are threatened with foreclosure, and you do not have an attorney, you should at least contact a HUD-approved counselor. To find a HUD-approved counselor, call 800-569-4287 (TDD 800-877-8339) or check www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm Sometimes a counselor can convince a lender to give you a second chance. Alternatively you can call HUD for help at 877-622-8525. Stay on the line until a HUD field officer picks up.


VA Mortgages.

If you have a VA mortgage, the lender cannot foreclose unless you fail to make three full monthly payments. The lender must give the VA thirty days’ warning of its intent to foreclose and must make all reasonable efforts at forbearance before actually foreclosing on the property. The lender must consider temporary suspension of payments, extension of the loan, and acceptance of partial payments. If the lender still intends to foreclose, you can stop the foreclosure by paying all overdue payments, all late charges, and any of the lender’s foreclosure expenses to date.


The lender’s failure to meet its obligations in this area can be a defense to foreclosure. For example, send a letter to the lender asking it to consider foreclosure avoidance strategies. The lender’s failure to respond appropriately is evidence of its failure to meet its responsibilities. Another option is to contact the regional VA office serving your state, explain the reasons for your default, and ask about the best plan for getting your mortgage payments back on track.


RHS Mortgages.

For private loans guaranteed by the Rural Housing Service (RHS), the lender must follow RHS guidelines when they foreclose. For example, you can assert a defense to foreclosure that the lender failed to consider RHS loss mitigation options before foreclosing.


Other loans come directly from the RHS. Before it forecloses, RHS must notify you about loss mitigation options, consider you for them if you ask, and implement the options you qualify for. RHS’s failure to perform any of these obligations can be raised as a defense to foreclosure. You can also appeal the RHS’s loss mitigation decisions with the Department of Agriculture (RHS’s parent agency), and a foreclosure should not proceed until an appeal has been resolved.


Special Protections for Active Duty Military

If you are on active duty in the military or left within the past nine months, or you are the spouse or dependent of someone on active duty, you have special protections from foreclosure under the Servicemembers Civil Relief Act. This Act applies to all types of mortgage loans, but only applies if you entered into the loan before your current period of active duty.


Even if you are in a state that allows non-judicial foreclosures, the lender must obtain a court order or your written permission to foreclose on your home. You can also ask make a written request with the court for a ninety day (or even longer) delay in any court foreclosure case brought against you. The request must explain why your military duties affect your ability to appear in court, give the date when you will be able to appear, and include a statement by your commanding officer that your military duties prevent you from appearing in court and that leave is not authorized.


Make sure you get in writing that the case against you has been delayed. The court also can lower your mortgage payments or add your back payments to your loan balance if your military service affects your ability to make your payments.


Foreclosure of Land Installment Sales

Your foreclosure rights are very different if you have a special type of home mortgage called an “installment land contact,” “land sale contract,” “contract for deed,” or “bond for deed.” This article calls them “land installment sales.” In a land installment sale scenario, you do not take title to your home until you have made all the monthly payments that are due, often for more than 10 or even more than 20 years. You pay property taxes and are responsible for repairs, but you do not yet have title to your home.


Land installment sales have far fewer protections from foreclosure than do other types of home mortgages because state foreclosure laws often do not apply. You may not have the right to certain notices, and may not have the right to reinstate or cure delinquent payments or to redeem your home.


In fact, if you miss a payment, the lender may try to evict you under your state’s rules for landlords and tenants, which offer you less protection than state laws dealing with foreclosures. Fortunately, this is not always the case—for example, in Illinois, Maryland, Ohio, Oklahoma, and Texas, your rights are closer to those that apply in a normal home foreclosure.


Some (but not all) bankruptcy courts treat land installment sales like mortgage loans, so that a chapter 13 bankruptcy plan can cure back-payments over a three-year to five-year period. When bankruptcy courts do not treat land installment sales like mortgages, you still have important rights in bankruptcy to keep your home.


Foreclosure Protections
Where Mortgage Resulted from a Home Improvement Scam

You have special rights if your foreclosure results from a home improvement loan and the contractor deceived you or performed shoddy work, and the contractor was the one who initiated the loan or referred you to the lender. In this scenario, you can argue in court that you do not have to pay the loan because of the contractor’s performance.


The loan agreement may even say that you can raise the seller’s conduct as a defense on the loan. Because you do not owe on the loan, they cannot foreclose. On the other hand, small errors or minor problems with the work probably will not be enough to be a foreclosure defense.


You will have to raise this issue either in the judicial foreclosure action or in your own court action where the lender seeks to foreclose without a judge’s order. You may fare best where you get the help of an attorney. Ask the attorney to refer to NCLC’s Federal Deception Law Chapter 4.


Foreclosures of Manufactured (Mobile) Homes

The law often is unclear as to whether a manufactured home is considered real estate. If the manufactured home is treated as real estate, the foreclosure rules are similar to any other home. If the manufactured home is treated as personal property, the foreclosure rules then are similar to car repossessions discussed in a prior article in this series. The answer will vary from state to state and often will depend on where the home was when the loan documents were signed. Was it on the dealer’s lot or was it attached semi-permanently to your own land or at a manufactured home park? Is there a title to the home or are the ownership documents recorded in the local land records?


You should consider seeking a loan modification (as discussed in a prior article in this series) if you are behind on payments, whether your manufactured home is classified as real estate or as personal property. Similarly, no matter how your state law treats manufactured homes, filing bankruptcy can stop its seizure and provide options for curing the default. In addition, manufactured home loan documents often state that you have the right to “cure” your delinquent payments. You can stop the seizure if within 30 days of the notice date you pay past-due amounts, late charges, and related fees.


If your manufactured home is treated as personal property, a lender may send a representative to repossess your manufactured home; more likely, however, your lender will take you to court and try to have the court order a sheriff to seize your manufactured home. Like other court actions, you should get legal help as soon as possible to defend against the lender’s claims.


Manufactured Home Evictions from Parks.

If you rent park space for your manufactured home, failure to make your lot rent payments can result in your eviction. Typically, the park owner must first file a legal action to evict you. In some states, this legal action will be similar to other landlord and tenant actions. Other states have special legislation dealing with manufactured home park evictions, and these may even allow a park owner to seize your home.


You will need to check with a specialist who is knowledgeable about these issues in your state, such as a lawyer, manufactured home park tenants’ association, or manufactured home owners’ association. You should deal with your lot rent as a priority debt just as high as your manufactured home loan payment.


Foreclosure for Unpaid Condominium Fees

If you do not pay your condominium fees, in many states the condo association has a priority lien on your home, meaning that it can foreclose on your unit to collect the amount due. Such a lien can also complicate your ability to obtain a loan modification from your mortgage lender, unless you first get caught up on your condo fees. Other times the condo association may just sue you in court for the fees.


Communicate with the condo association’s trustees or property manager if you cannot pay your condominium fees. Let them know the reason and see what kind of payment plan you can work out. As the other owners are your neighbors, they may be willing to work out an agreement that helps you through difficult times.

library.nclc.org
What Every Homeowner Should Know About Mortgage Payments:
Consumer Debt Advice from NCLC [National Consumer Law Center]

by John Rao

First in a series of three articles dealing with home mortgages. This article covers

* how to get information about your mortgage payments
* what happens if you make only a partial payment
* disputing the amount due, and
* key information about escrow, property taxes, and insurance.

The next article will cover new guidelines to modify mortgage loan payments, and the third article will explain rights to defend or delay a foreclosure.

First Considerations
Mortgage problems tend to have a snowballing effect if not resolved quickly. Small issues grow into big problems that can eventually lead to foreclosure—always act sooner rather than later.


If you are having trouble resolving mortgage-related problems on your own, try a nonprofit housing counselor or attorney. The Department of Housing and Urban Development (HUD) certifies housing counseling agencies and you can locate such an agency by calling HUD at 800-569-4287 (TDD 800-877-8339) or by going to www.hud.gov.

[In Oregon, try Oregon Homeowner Support]

If a housing counselor cannot help, the counselor may refer you to a local attorney or legal services program.

Do not wait too long to get assistance.
An experienced advocate in your corner may help you fix the trouble before it grows.


Your Mortgage Servicer Plays the Key Role.

To resolve an issue with your mortgage, do not contact the lender owning your mortgage loan.
Always contact your mortgage servicer who has been hired by whoever owns your mortgage loan.

The servicer receives your mortgage payments, applies them to your mortgage balance, and deals with other day-to-day activities on your account. If you have any questions about your mortgage—always contact your mortgage servicer.

Occasionally the owner of your mortgage, the servicer, and the original lender are the same entity, but more often they are three different companies. For example, Acme Mortgage Company may have given you a loan, and then sold your loan to Best Bank that has hired ABC Servicing Company as its mortgage servicer.

You may have several different servicers during the life of your loan. Your servicer changes if the owner of your mortgage loan decides to hire a new servicer, or if the owner sells your loan to someone who uses a different servicer. Whenever your mortgage loan is sold to a new owner, you will get notice of the contact information for both the new owner and your new servicer. You also can request in writing that the servicer tell you the name and contact information for the owner of your mortgage loan.


Your Rights When Your Servicer Changes. Federal law requires that you get notice whenever your servicer changes, including the effective date of transfer and the new servicer’s contact information, including a toll-free number to call with questions. You also get notice as to the date when you should start sending payments to the new servicer instead of the old one.


You can keep sending on-time payments to the old servicer for up to 60 days after that date, and the new servicer must treat it as a timely payment, and cannot charge a late fee, claim your account is in default, or report the payment as late on your credit report. This applies even if the old servicer does not forward the payment in a timely way to the new servicer.


Surprising Facts About Partial Mortgage Payments

Try not to make a mortgage payment for less than the amount due (a partial payment). The servicer typically does not apply a partial payment to your mortgage. Instead the servicer may return your partial payment check back to you un-cashed. If so, you should set the money aside and not use it to pay other bills, so you can use it later to help with your mortgage payments. In the worst case scenario, if foreclosure becomes inevitable, you will have some money saved for moving expenses.


Other servicers keep your partial payment in a “suspense account” until you pay the remaining amount due for that one monthly payment and instead assess you a late fee. As a result, it is easy to get confused as to how much you owe. To avoid problems, check your most recent mortgage statement for the monthly payment amount, since it can change over time. Also check your statement each month to be sure last month’s payment was applied correctly. If a partial payment is put in a suspense account, the statement must explain what you must do for the payment to be applied.


How to Determine the Status of Your Mortgage Loan

You receive monthly statements from your mortgage servicer or a coupon book with similar information. The statements include the amount due for the billing period; an explanation of the total amount due on the account including fees; a breakdown of how your last payment was applied; transaction activity; partial payment information; and contact and account information.


If you are more than forty-five days behind on your mortgage payments, the monthly mortgage statement also includes: the date when the account became delinquent; a notification of possible risks, such as foreclosure, and of the expenses that may be charged if the account is not brought current; an account history for the previous six months or the period since the last time the account was current; a notice indicating any loss mitigation program to which you have agreed, if applicable; a notice of whether the servicer has started foreclosure; the total payment amount needed to bring the account current; and a list of homeownership counselors and counseling organizations that you can contact.


Disputing the Amount Due

You can dispute the amount the servicer says is due in a monthly statement. For example, your servicer may have failed to or incorrectly credited your payment, neglected to make payments out of your escrow account and instead forced you to pay for extra insurance, charged unnecessary or duplicative fees, or improperly refused to accept a payment. Contact the servicer right away.


Dealing with your mortgage servicer can sometimes be frustrating. Many mortgage servicers are large companies that handle tens of thousands or even hundreds of thousands of mortgages. You may speak to a different person each time you call, and you may get conflicting or confusing information from one person to the next. Make a note in a notebook each time you talk to someone at the mortage servicing company, including the date, time, name of the person you spoke with, and what you talked about.


Provide any documentation that the servicer requests and keep copies for yourself. Make a note in your notebook of what you provided, when you provided it, and how you sent it to the servicer (email, fax, mail, overnight mail service). If the servicer does not provide you with the information you requested or if you dispute how the servicer is handling your account, you may send the servicer a more formal request, called a “notice of error” or “request for information,” to ensure that they respond in a timely manner and correct any errors.


Sending Your Servicer a Notice of Error or Request for Information.

Your servicer must respond to a written request for information or investigate any claims of error concerning your account, including your escrow account. Your writing must identify your account, such as an account number, along with your name and the address of the property. Include the reasons you believe the account is in error. Be clear and as specific as possible about any question you have or information you are requesting. Your letter can both dispute an error and ask for more information.


Your request should not be written on a payment coupon or included with your payment, but should be in a separate letter to your servicer. Make a copy and send the letter return receipt requested, so that you have a record of when the servicer receives it.


You must send the notice to the address the servicer has identified as appropriate for such a request, which often is different than the address for mailing payments. Otherwise, the servicer may not respond or you may lose the legal right to force your servicer to correct the error. The servicer may have sent you a separate letter listing the address or it may be listed on a transfer of servicing statement, an annual escrow statement, or a monthly billing statement. You can also check the servicer’s website or call the servicer’s customer service center. Be sure to send your notice to the correct address as your servicer may have many different addresses listed on its website and statements.


Here is an example of such a letter to the servicer:


SAMPLE “REQUEST FOR INFORMATION/NOTICE OF ERROR”
Ken and Susan Consumer
12 Budding Bloom Lane
Elizabeth, New Jersey

January 23, 2019

Last Dollar Mortgage Co.
398 Rockefeller Drive St.
Albans, WV 25177

Attention: Borrower Inquiry Department RE: Account #123234 Dear Last Dollar Mortgage Co.:

We dispute the amount that you claim is owed on our monthly Mortgage Statement and request that you send us information about the fees, costs, and escrow charges on our loan. Please treat this letter as a “notice of error” and a “request for information” under the Real Estate Settlement and Procedures Act (section 2605(e)).

Specifically, we are requesting the following information:

• • A payment history or schedule that can be easily read and understood listing the dates and amounts of all payments and transactions credited or debited to our account, including any escrow account and any suspense account, and showing how they have been applied or credited or, if not applied, showing how they have been treated;
• • A breakdown of the amount of claimed arrears or delinquencies on our account, including an itemization of all fees and charges you claim are currently due;
• • The current balance in any suspense account and the reason why such funds were deposited in the account;
• • The payment dates, purpose of payment, and recipient of all foreclosure fees and costs that have been charged to our account or have been advanced on our behalf since [insert date Last Dollar Mortgage took over the servicing];
• • The payment dates, purpose of payment, and recipient of all escrow items charged to our account in the last twenty-four months;
• • A breakdown of our current escrow payment showing how it was calculated and the reasons for any increase or decrease in the last twenty-four months (include a copy of any annual escrow statements prepared within the last twenty-four months); and
• • Any notes created by your personnel reflecting communications with us about our mortgage account.
• Also, on October 1, 2018, we sent our October payment to First Dollar Mortgage Co., which had been servicing our mortgage before it was transferred to you. Our October payment was never credited to our account. Please correct this error. Thank you for taking the time to acknowledge and answer this request as required by the Real Estate Settlement Procedures Act (section 2605(e)).
  
• Very truly yours, Ken and Susan Consumer [certified mail]
  

The servicer must acknowledge receipt of your request within five business days of receipt, and must respond within thirty business days (forty-five days if it notifies you of the extension). The response cannot simply state that it was right or that it has no information. Federal law requires that the servicer conduct a “reasonable investigation” based on your request. Its written response should show that it did this investigation. For sixty days after you send a notice of error about a payment dispute, the servicer cannot give any information to credit reporting agencies that a payment related to your inquiry is overdue.


Request Validation of the Debt. The first time an attorney for the lender or for the servicer sends you a letter demanding payment, that letter should include a notice of your right to dispute the mortgage debt. Sometimes the notice of your right to dispute will arrive seperately within five days after the attorney first communicates with you about the debt. If you then dispute the debt in writing within the next thirty days, the attorney must stop collection efforts while your dispute is investigated.


Setting Up a “Tender” Defense. If you dispute the amount you are delinquent on your mortgage loan, you may want to offer the undisputed amount that is delinquent, while not paying the amount you dispute. This is called a “tender.” The letter should also state that the amount is offered in “full satisfaction of the dispute.” That way, if you are right about what is owed, you are not delinquent and the servicer should not be able to foreclose. On the other hand, if you also withhold the amounts that are not in disputed, the servicer can claim it has the right to foreclose.


Most often, your tender will be returned and then you may have the defense that the money was offered and refused, depending upon your state law. Keep your letter and the servicer’s response as proof. You should set the money aside, if possible in a bank account, while the dispute is being resolved. You can add the claim of tender to your defenses in the legal process, if the matter reaches foreclosure.


Escrow, Taxes, and Insurance

Your Rights Concerning Your Escrow Account. If your monthly mortgage payment includes an amount to cover property insurance and taxes on your home, you have a mortgage with an “escrow” or “impound” account. Your servicer is supposed to pay the insurance and tax bills for you when they are due.


Under federal law your servicer must give you an initial statement when your escrow account is first set up and periodic statements at least once per year after that. These statements must include the amount of your current escrow payment, the amount your escrow payment will be for the next year, the total amount you paid into the escrow account during the past year, and the total amount paid out of the escrow account during the past year for taxes, insurance premiums, and other escrow bills. However, the servicer is not required to send this statement if you are more than thirty days behind in payments.


If your annual escrow account statement shows that there is a balance of $50 or more from the previous year, you are entitled to a refund. If your statement shows that your account has a balance smaller than expected (a “shortage”) or a negative balance (a “deficiency”) your servicer will include this amount in your next annual escrow statement so that it is paid back in future escrow payments over the next year. If you want to spread out repayment of this shortage or deficiency for more months than the servicer is offering you, ask the servicer. If that does not work, ask for the supervisor in the escrow or collection department. On the other hand, as long as you pay what the servicer requests for escrow, the servicer must pay your property tax and insurance even if there is not enough money in your escrow account.


Servicers should pay from your escrow your taxes, property insurance, and other escrow bills on time, before the deadline for avoiding penalties such as interest or late fees. You should not have to pay for interest and late fees, and should ask the servicer for a refund if these are included in your escrow account statement. If the bill for interest or some other penalty is sent to you instead, send this bill to your servicer (keeping a copy) and insist that they pay it with their funds.


Avoid Force-Placed Insurance.

If you do not have an escrow account and the servicer believes you do not have homeowner’s insurance covering your home, it will purchase over-priced insurance providing you only limited protection, and then charge you for it or add it to your monthly payments. This is called “force-placed insurance” and you should avoid this at all costs.


If your own insurance company or servicer notifies you that you do not have homeowner’s insurance, take this seriously and act immediately. If you do have insurance, provide the servicer with proof—the policy number, the name of your insurance company or agent, and written proof you have the insurance. If you don’t have insurance, obtain your own insurance as soon as possible, and provide the servicer with proof and request that they cancel the insurance that they purchased for you.
If your insurance is being canceled for nonpayment and there is an escrow account on your mortgage, the servicer must pay your existing insurance policy rather than purchase force-placed insurance, even if there is not enough money in the escrow account to pay your policy. The servicer will then require that you repay any money it advanced to pay your policy, usually by adding the amount to your future escrow payments.


Private Mortgage Insurance.

Most mortgage borrowers are required to purchase private mortgage insurance (PMI) protecting the lender against a mortgage loan default. This cost is included in your monthly payments. PMI is expensive and only protects the lender. Cancelling PMI brings down your mortgage payments and has no down-side for you. If you have PMI, the servicer must cancel it on your request if your remaining mortgage loan balance is less than 80% of your home’s purchase price. Also try to ask the servicer to cancel PMI whenever your home is worth a lot more than your mortgage balance.


Credit Life and Disability Insurance.

Credit life, disability, and unemployment insurance coverage pays off some of your mortgage loan if you pass on, become disabled, or unemployed. This insurance is overpriced, expensive, and offers limited protection. Consider cancelling it, particularly when you are having trouble paying your mortgage. Look at your loan documents and monthly statement to see if it is listed there.

Reduced Mortgage Rates for Active Duty Military

When a homeowner entered into a mortgage loan prior to become active duty military, federal law requires that the homeowner while on active duty and for one year thereafter shall not pay an interest rate exceeding 6%. This includes any fees or other charges payable on the loan (late charges, for example). Any interest that you have been paying over 6% is eliminated while you are on active duty and for another year—the excess interest is not just put off until later.


If you are paying more than 6%, you not only can get your rate reduced, but the lender has to give you a credit for any interest charged to you above that rate while you were on active duty. One year after you leave active duty, the rate can be increased to the old rate.

To take advantage of this law, you must provide the lender or other creditor with written notice including a copy of the orders calling you to military service and any orders extending active duty. This must be done no later than 180 days after the date of the termination of military service. The interest rate reduction is then retroactive to the date active duty began.

(Continued in Parts II and III)

Stopping Debt Collection Harassment: Consumer Debt Advice from NCLC
by April Kuehnhoff

This article focuses on stopping debt harassment. Do not let debt collectors pressure you. The article explains the limits on what a debt collector can do and sets out eight ways to stop debt harassment—including four sample letters. The article also enumerates illegal debt collection practices and explains how it is practical to hire an attorney to sue the collector for damages.


Do Not Let Collectors Pressure You

Do not let debt collection harassment force you into wrong decisions. Make your own choices about which debts to pay first based on what is best for you.

You are not a deadbeat—circumstances outside your control prevent you from paying all your debts. The most common reasons most people cannot pay their bills are job loss, illness, divorce, or other unexpected events. And, creditors and collectors know this. The debt collector’s job is to try to convince you to pay their debt first. Your job, however, is to make the right choices for you and your family.


What Collectors Can Legally Do to Collect on a Debt

Most debts, such as almost all credit card obligations, medical bills, and cell phone charges are “unsecured.” You do not have to put up any collateral such as your home or car to secure repayment. An unsecured creditor collecting a debt that is not owed to the government (for example, tax debts or federal student loans) can only legally do the following four things if you do not pay their debt:

1. Stop doing business with you. A credit card issuer can cancel your card or a dentist might refuse to let you continue as a patient. Usually, even if one merchant stops doing business with you, you can find someone else who will do so, on a cash basis or even on credit.


2. Report the delinquent debt to a credit bureau. The fact that you are behind on your bills will likely end up on your credit record. You cannot stop this, short of always being current on all of your bills. While this is unfortunate, it still may not make sense to prioritize this particular bill first just because that collector is threatening to ruin your credit record.

Many creditors routinely report the status of all of their accounts each month to a credit bureau. When the account is turned over to a collection agency, this also may be indicated on your credit report. By the time a collection agency is threatening you about your credit report, your report may already include the fact that the debt is a number of months delinquent and has been turned over for collection. If that is true, the damage to your credit score has already happened. Paying now will not do much to improve your credit rating and failing to pay will not likely do much more damage to your credit rating. Moreover, if the creditor does not normally report information to a credit bureau, the creditor will not start with you.


3. Contact you to ask you to pay. Creditors will attempt to contact you to arrange for payments on overdue accounts. Your account may then be placed with debt collectors who also attempt to reach you. Traditionally most of these communications have been in writing or by phone, but some collectors now use email, text, or other types of communication. Below you will find several different sample letters that are effective in stopping a debt collector from contacting you if you want to avoid debt harassment. In addition, federal law prohibits third-party debt collectors from telling friends, relatives, employers or other third parties about the debt they claim you owe.


4. File a lawsuit to collect the debt. It is hard to predict whether a particular creditor will actually sue on a past-due debt. How aggressively a collection agency threatens suit is no indication whether the creditor will sue, even if the threat appears to come from an attorney.


If the creditor sues you, you have a right to respond and raise defenses. Doing so may stop the creditor from pursuing the case. However, failing to respond to a lawsuit or failing to show up in court when required may result in a win by default for the creditor.


If the creditor does pursue a lawsuit to its conclusion and the judge rules that you owe the debt, the unsecured debt becomes a court judgment. A court judgment is a higher priority debt than the previous unsecured debt. Post-judgment the creditor may be able to use powerful collection tools such as wage or bank account garnishment (depending on state law).


Eight Ways to Stop Debt Collection Harassment

1. Investigate the collector. You may receive calls from scammers pretending to be debt collectors. Do not make any payments unless you are sure that the collector is legitimate. Investigate whether the person calling you is legitimate by asking for the caller’s name, company, phone number, and business address. Simply asking these questions may discourage a phony debt collector from contacting you again.


Also check to see if your state licenses debt collectors and if the company that is contacting you is licensed. If your state does not license debt collectors, check the registry for a neighboring state. A few states also provide licensing information to the Nationwide Multistate Licensing System at www.nmlsconsumeraccess.org. That website will thus provide a few more states where the debt collector might be licensed.


2. The “stop contact” or “cease” letter. The simplest strategy to stop collection harassment is to write the collector a “stop contact” letter, also called a “cease” letter. Then the collector can only acknowledge the letter and notify you about legal steps the collector may take. This a federal right, however, and only applies to collection agencies hired by the creditor and does not apply to creditors collecting their own debts. But even creditors collecting their own debts will often honor such requests. Below is a sample letter:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about an alleged debt you are attempting to collect. You contacted me by [phone/mail], on [date]. You identified the alleged debt as [any information they gave you about the debt].
• Please stop all communication with me and with this address about this alleged debt.


• Thank you for your cooperation.
• Sincerely,
• [Your name]

Important: Even if debt collector stops contacting you because of the letter, you will still owe the debt.

Keep a copy of the letter and send the original by mail, return receipt requested. If a debt collector still continues to contact you, send another letter and once again keep a copy. Let them know that you are aware that they are violating the federal law by continuing to contact you. Keep a careful record of any letters and phone calls you receive after sending the letter, which will be helpful if you sue the debt collector.

You do not need a lawyer to send a cease letter. However, if a cease letter does not stop collection calls, a letter from a lawyer usually will. Collection agencies must stop contacting a consumer known to be represented by a lawyer, as long as the lawyer responds to the collection agency’s inquiries. Even though this requirement does not apply to creditors collecting their own debts, these creditors usually honor such requests from a lawyer. A collector’s lawyer is bound by legal ethics not to contact you if you are represented by a lawyer.


3. The “exempt income” letter. If your only sources of income are state or federal government benefits, your income may be “exempt” or protected from collection. If you inform the collector that government benefits are your only source of income, the collector may voluntarily stop contacting you about the alleged debt.


You can inform collectors over the phone if all of your income is exempt, and you can also send a letter like this one:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about an alleged debt you are attempting to collect. You contacted me by [phone/mail], on [date]. You identified the alleged debt as [any information they gave you about the debt].


• I am living on _______________/month which comes from [name of government benefit(s)]. I believe that all of my income is exempt from collection and creditors may not garnish these payments.


• Sincerely,
• [Your name]

You may want to ask in the letter or a separate letter that the debt collector stop contacting you—see #2, above, for a stop contact or cease letter. Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


4. The “verification” letter. Often it is not even clear what debt a collector is calling you about, and in that case you should never pay the collector, at least not until you obtain more information. Federal law gives you the right to obtain a verification of a debt from a third-party collector if you send a letter within thirty days of receiving the first written notice from the third-party collector. However, if you have questions, you can still send a verification letter even after the thirty-day period has passed. The collector may still respond.


This sample letter outlines some of the different types of information you might request about the debt—you typically do not need to ask for all this information:

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name]:
• I am responding to your contact about an alleged debt you are trying to collect. You contacted me by [phone/mail], on [date] and identified the alleged debt as [any information they gave you about the debt].
• Please supply the information below so that I can be fully informed about the alleged debt:
• Why you think I owe the debt and to whom I owe it, including:
• • The name and address of the creditor to whom the alleged debt is currently owed.
• • The name and address of the original creditor and any other names used.
• • A copy of the original contract or other agreement.
• • The name of any other person that is or was required to pay the alleged debt.
• The amount and age of the debt, including:
• • Provide a copy of the last billing statement sent to me by the original creditor.
• • State the amount of the alleged debt when you obtained it.
• • State the date when you obtained the alleged debt.
• • Provide an itemized list of any alleged interest, fees, or charges since the last billing statement from the original creditor.
• • Provide a copy of any agreement expressly authorizing such interest, fees, or additional charges.
• • Provide an itemization showing any payments since the last billing statement from the original creditor.
• • State when the creditor claims this debt became due and when it became delinquent.
• • Identify the date of the last payment made on this account.
• • State when you think the statute of limitations expires for this debt, and how you determined that.
• Details about your authority to collect this debt, including:
• • Provide the number of any license to collect debt in [insert name of the state where you live] and the name of the issuing agency.
• • Provide the number of any license to collect debt in the state where you are located and the name of the issuing agency.
• Please treat this debt as disputed until you provide the information requested.
• Thank you for your cooperation.


• Sincerely,
• [Your name]

Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


5. The “dispute” letter. If you do not think the debt is yours, you should send the collector a dispute letter. Collectors make a lot of mistakes, and disputing the debt may resolve the matter. The letter also stops collection contacts until they send you more information verifying the debt. Here is a sample letter.

• [Your name]
• [Your return address]
• [Date]
• [Debt collector name]
• [Debt collector address]
• Re: [Account number for the debt, if you have it]


• Dear [Debt collector name],
• I am responding to your contact about collecting an alleged debt. You contacted me by [phone/mail], on [date] and identified the alleged debt as [any information they gave you about the debt]. I do not have any responsibility for the debt you’re trying to collect.


• Record that I dispute having any obligation for this debt. If you stop your collection of this debt, and forward or return it to another company, please indicate to them that it is disputed. If you report it to a credit bureau (or have already done so), also report that the debt is disputed.
• Thank you for your cooperation.


• Sincerely,
• [Your name]

Keep a copy of any letters that you send. It is best to send the letter by mail, return receipt requested.


You may want to ask the debt collector to stop contacting you in the same letter. Alternatively, you may wish to combine a dispute with a request for verification of certain information. See #2 and #4, above.


6. Negotiating work-out agreements. Too often consumers respond to debt harassment by agreeing to make payments to the collector. You should not pay even a little on a credit card, medical, or other unsecured debt if doing so means that you become delinquent on high priority debts like your rent or payments for a car that you need to get to work or have insufficient resources for essential family expenses like food.


Be wary of making a partial payment on old debts. You cannot be sued on a debt that is a certain number of years old (depending on your state). If you make even a small payment on an old bill, courts may treat this as starting the time period over again, and you can then be sued on the debt only because you made that payment.


Beware of debt settlement companies that promise to negotiate with the creditor on your behalf. These companies typically take large fees and often produce far less than promised. If you do decide to negotiate a payment plan for a reduced amount of the debt, you may get a better deal if you try to work with the creditor and not the debt collector.


Drive a hard bargain on any payment plan you agree to—ask them to reduce the debt. Be careful not to agree to pay more than you can afford. If you’re uncomfortable negotiating on your own, ask a social worker, trusted friend, or relative to help you. Get any deal in writing. Also negotiate to get the creditor to help you with your credit report.


Determine if you are judgment-proof. Being judgment proof means that if the creditor sues you, that creditor will not be able to seize your income or property because they are all exempt under your state law. If you are judgment-proof, offer the creditor little or nothing and just say that it is not worth pursuing you since you are judgment-proof. Also tell them to stop contacting you. See letters at items #2 and #3, above.


7. Complaining to the Consumer Financial Protection Bureau. Send a complaint about a debt collector to the Consumer Financial Protection Bureau at www.consumerfinance.gov/complaint. The agency will forward your complaint to the debt collector and work to get you a response, usually within fifteen days. You can also complain to the consumer protection division of your state attorney general’s office. Some states offer mediation services for consumer disputes.


8. Bankruptcy. Filing your initial papers for personal bankruptcy instantly triggers the “automatic stay” that stops all collection activity against you. As a rule, a bankruptcy filing does not make sense where your only concern is debt harassment since you can stop the harassment with a cease contact letter (see #2, above). Save the bankruptcy option for when you have serious financial problems. For this reason, be wary of an attorney offering to file bankruptcy for you if the only problem is debt harassment.


Illegal Debt Collection Conduct

The major law dealing with illegal debt collection conduct is the federal Fair Debt Collection Practices Act (known as the FDCPA). The FDCPA only applies to debt collectors (including collection attorneys), but state law may have similar requirements for the creditor’s own collection efforts.


The FDCPA requires collection agencies to take certain actions, including:

• • The collection agency must stop contacting you if you make a request in writing.


• • The collection agency, in its initial communication or within five days, must send you a written notice identifying important information about the debt. If you raise a dispute in writing within thirty days of receiving that notice, the collector must suspend collection efforts on the disputed portion of the debt until the collector responds to the request.

The FDCPA also prohibits collection actions from engaging in harassing conduct, including:

• • Communicating about a debt without your permission with your relatives, employers, friends, neighbors, or others. Collectors may contact attorneys, credit bureaus, cosigners, and your spouse. They can contact others only to locate you and cannot reveal that a debt is involved.


• • Using any communication, language, or symbols on envelopes or postcards that indicate that the sender is in the debt collection business.


• • Communicating with you at unusual or inconvenient times or places. The times 8:00 a.m. to 9:00 p.m. (in the time zone where you live) are generally considered convenient, but daytime contacts with a consumer known to work a night shift may be inconvenient.


• • Contacting you at work if the collector should know that your employer prohibits personal calls.


• • Contacting you if you are represented by a lawyer.


• • Using obscene words, racial slurs, insulting remarks, or threats of violence.


• • Telephoning repeatedly with intent to annoy, abuse, or harass.


• • Falsely representing the character, amount, or legal status of a debt.


• • Falsely stating or implying a lawyer’s involvement.


• • Stating that nonpayment will result in arrest, garnishment, or seizure of property or wages, unless such actions are lawful, and unless the collector fully intends to take such action.


• • Failing to disclose in communications that the collector is attempting to collect a debt.


• • Collecting fees or charges the collector is not entitled to collect.


• • Depositing post-dated checks before their date.


• • Creating the false impression that the collector is an affiliate or agent of the government.

Finding an Attorney to Sue a Debt Collector.

You can sue debt collectors that violate your rights under federal law. If you win a lawsuit under the FDCPA, you can recover money for any injuries, up to $1000 in additional damages, and attorney fees.


The National Association of Consumer Advocates (NACA) is a good resource to help you find an attorney to take your case to sue a debt collector for illegal debt collection conduct. Members by state and specialty are listed at www.consumeradvocates.org/find-an-attorney.


Families with low incomes and limited assets may be eligible to obtain free legal services from a neighborhood legal services office. You can find legal aid programs at www.lawhelp.org/find-help. Other consumers can contact local bar associations for attorney referrals.


What You Should Tell Your Attorney. Once you find an attorney, tell him or her how the collector’s misconduct affected you and your family. Overcome any reluctance to discuss your feelings about the harassment, since the details will be critical in determining what kind of legal case you have. All symptoms of emotional distress should be discussed, including: anxiety, embarrassment, headaches, nausea, indignation, irritability, loss of sleep, and interference with family or work relationships. Did you consult a doctor? Were there illnesses brought on by the harassment?


Share information about out-of-pocket losses with your attorney, from loss of employment to loss of wages because of time taken off from work to try to resolve the dispute. In addition, telephone charges, transportation, medical bills, and counseling services could all be part of your actual damages. Keep a record of all expenses related to the collection effort.


Make a log of all collection contacts with as many details as possible for each contact: time, date, company, caller, and what was said. Abusive voicemail messages should not be erased, if at all possible.

library.nclc.org


Wage Garnishments and Bank Account Seizures:

Consumer Debt Advice from NCLC
Author --- Carolyn Carter


This article focuses on consumer rights and strategies to deal with your civil court judgment debt. Creditors and debt buyers bring millions of collection lawsuits which usually result in a court judgment for the creditor or debt buyer. A court judgment for the creditor triggers the creditor’s right to seize your wages, benefits, bank accounts, cars, and even your home. This article sets out consumer rights and strategies for responding to and limiting these creditor rights.As discussed below, once a debt becomes judgment debt, it can quickly lead to loss of wages, benefits, bank accounts, personal property, and even your home. In extreme cases, it can even result in your incarceration.

You have rights to limit these consequences, but to protect your property you must understand these rights and raise them aggressively when a creditor tries to take these steps.


Although you should have received notice of a lawsuit against you and notice of any ruling from the court that you owe a debt, surprisingly often consumers never know that a judgment was entered against them. The first they learn about the court ruling is when their wages are garnished, their bank accounts frozen, or their property seized. Always pay close attention to any legal documents sent to you so that you can head off the worst.


On the other hand, a creditor cannot seize your wages, bank account, or property unless and until it brings a law suit and a court enters a judgment against you. There are two exceptions to this:

1.  * Secured creditors, such as your auto or mortgage lender, can seize their collateral if you get behind on your payments to them.
2. * The government can garnish your wages and seize tax refunds to repay student loans or other debt owed to the government.

But for credit card, medical, and other unsecured debt owed to private creditors, your wages, bank account and property are not at risk until a court issues a judgment against you.


Even if a court does enter judgment against you, there are still legal limits on how much or if any of your wages, government benefits, and money in your bank account can be seized and limits on whether property can be sold to pay off your debts. For many people, these limits mean that there is nothing that a creditor or court can do to make you pay a court judgment. This is called being “judgment proof” or “collection proof.”


To be collection proof, your income must be low enough that it is fully protected from garnishment, that all of the money in your bank account (if you have one) consists of government benefits or is otherwise protected from seizure, and that your personal property and home are all exempt from seizure. In that case, you do not have to worry about the judgment debt until your financial situation substantially improves. When your financial situation does improve, however, the creditor may be able to collect on its debt at that point.


If you are not collection proof, then you must pay careful attention to the implications of a court judgment against you. This article outlines how to protect your wages and property from seizure to pay your court judgment debt and other steps you should take when your wages and property are at risk.


Garnishment of Your Wages

When there is a court judgment against you, the creditor has the right to “garnish” your wages. This means that the creditor can get a court order requiring your employer to deduct a portion of your wages from your paycheck and send it to the court to be applied to the judgment debt. With the exception of a student loan debt or a debt owed the government, garnishment can take place only after the creditor obtains a court judgment against you.


After obtaining a court judgment, the creditor must file a request for garnishment with the court clerk, sheriff, or another local official depending on state practice. A notice is then issued to the “garnishee” (your employer), directing it to turn over a portion of your paycheck at a specified time. You must be given notice of the garnishment and you can request a hearing to prove that state or federal law protects your money from garnishment. In some states, you have the right to ask the court to reduce the amount of the garnishment because of hardship or because you have recently received public assistance.


A portion of your wages is protected from seizure. Federal law protects most of your wages from garnishment, and, if your wages are very low, your paycheck is entirely protected. “Wages” that are protected include commissions, vacation pay, sick pay, disability benefit payments, and pension and retirement payments. The first $217.50 from weekly take-home pay, after taxes and Social Security are deducted, cannot be garnished at all. This amount will go up if the current federal minimum wage of $7.25 per hour goes up.


If your take-home pay is between $217.50 and $290 a week, then only the amount over $217.50 can be garnished. If your take-home pay is more than $290 a week, then 25% of your wages can be garnished. For example, if your weekly take-home pay is $250, then $32.50 a week ($250 minus $217.50) can be garnished. If your take-home pay is $600 a week, $150 a week (25% of your pay) can be garnished. A higher amount can be garnished if the debt is for child support or alimony. If your wages are garnished, your employer will be given instructions about how to make these calculations. You do not have to do anything to trigger the protected amounts, but you may want to double-check your employer’s calculations.


Importantly, this is the federal limit on garnishment.

State law may limit garnishment even more or even prohibit wage garnishment. However,

Neither the federal nor state limits on wage garnishment may apply once your paycheck has been deposited into your bank account.


Federal law also protects you from being fired because you are being garnished for a debt. This protection does not apply, however, if your wages are being garnished for more than one debt.


If you are an independent contractor. Some workers are classified by their employers as independent contractors. (Your employer is probably treating you as an independent contractor if it is not deducting your Social Security contribution from your pay check.) Most courts rule that federal limits on wage garnishment do not apply to payments you receive as an independent contractor.


In theory, a creditor could get an order seizing all of the payments to you as an independent contractor to repay a judgment debt. However, this will be complicated for the creditor and many creditors won’t even try to do so. In addition, some states protect independent contractor payments the same as wages.



Government Benefits Completely Protected from Garnishment
Many types of federal and state benefits are completely protected from garnishment. Examples are Social Security, Supplemental Security Income (SSI), and veteran’s benefits (except to pay certain child support obligations). These benefits are protected no matter how much you receive. States also usually exempt TANF (Temporary Assistance for Needy Families) and unemployment compensation benefits from garnishment as well. But once you put these benefits into your bank account, different rules apply.



Freezes and Seizures of Your Bank Account

A creditor can get a court order seizing money from any of your bank accounts to repay a judgment debt. Certain federal benefits, such as Social Security, SSI, and VA benefits, that are deposited in your bank account are protected (with exceptions for child support and debts owed to the federal government).


Federal law requires your bank to protect certain benefits that are direct-deposited into your account within the last two
months. The bank is prohibited from turning over any Social Security, SSI, or VA benefits deposited within the last two months. The bank must send you a notice telling you what it is doing, but you do not have to take any steps to protect these benefits.


Social Security, SSI, or VA benefits deposited into the account more than two months beforehand are also protected—but the protection is not automatic. You will usually have to fill out papers and possibly go to court if you need to protect more than the last two months of benefits.


An easy way to protect all your Social Security, SSI, or VA benefits is to have them loaded onto a Direct Express prepaid card, instead of sent to a bank account. Those funds will then be automatically protected, no matter when they were received. You can sign up for the Direct Express card by calling 1-800-333-1795 or by visiting www.USDirectExpress.com.


As discussed below, other protections for your bank accounts require you to fill out papers and possibly go to court. For example, states usually protect workers compensation, unemployment compensation, and state employee retirement benefits from seizure, and some even allow you to protect wages deposited into your bank account. Some states have laws that protect a set amount in a bank account, such as $200 or $1,000, regardless of the source of the funds.


When a creditor obtains an order to seize your bank account, the bank typically will freeze the funds in your account, giving you a short period of time to claim that the funds are protected from seizure. The burden is on you to show that the funds are protected.


Usually you will find out that your funds have been frozen when you try to withdraw money, write a check, or use your debit card. Social Security, SSI, or veterans benefits directly deposited into your account during the last two months cannot be frozen. But other benefits can be frozen, and you must act quickly to show that at least some of the frozen funds are protected by law and should be unfrozen.


If some of your money on deposit is protected from seizure but some isn’t, it may be helpful to set up two accounts, one of which receives just protected funds. That way, it’s easier to prove that all the money in that account is protected. Spend the money in the unprotected account first.


Protecting Your Car and Personal Possessions from Seizure

In theory, after a creditor gets a court judgment, it can ask a sheriff to seize your car, household goods, or other personal property and then creditor would sell the property to repay the debt, often called “judgment execution.” In practice, most states limit this kind of seizure so much that a creditor has no financial incentive to have this property seized and sold. You have more to fear from wage garnishment or seizure of your bank account than from loss of personal property.


In many states, exemption laws protect your car and other personal property from seizure to pay a court judgment. (Exemption laws do not apply to secured creditors. For example, an auto lender can repossess your car if you do not keep up on your car payments.)


Exemptions laws vary considerably by state. Some laws specify that a specific dollar amount of all your personal property is exempt from seizure, such as $8,000. You can choose which items of your personal property you want to keep, as long as what you keep has a value of $8,000 or less. Others specifically exempt an item of personal property, such as a car, if its value is under a certain amount.


The value of your car or personal property typically is not determined based on what the property is worth, but how much “equity” you have in the property. Your equity is how much the property is worth now minus any amount you still owe on a loan that takes that property as collateral. For example, if your car is worth $10,000, but you owe $7,000 on your car loan, your equity in the car is only $3,000. A $3,000 property exemption would fully protect your $10,000 car from seizure to repay a judgment debt. Remember, however, that if you do not keep up on your payments for the $7,000 car loan, the auto lender can still repossess the car.


States may list certain types of personal property that are totally exempt from seizure, no matter how much money they are worth, such as tools and supplies required for your occupation, clothing, a bible, and certain household goods.


Some creditors or their attorneys or collection agents may try to force you to turn over property that by law is exempt from seizure, pointing to small print in the contract that says you agreed to waive rights under state exemption laws. Do not give in—these contract provisions are illegal and unenforceable.


If the creditor asks a sheriff to seize personal property that is exempt, file a notice of exempt property or take similar steps specified by your state law. In many states, you will need to file papers with the sheriff or a public official by a certain deadline in order to get the benefit of an exemption. The sheriff also cannot seize property in your possession which does not belong to you. To stop its seizure, the property’s rightful owner may have to file a declaration of ownership with the appropriate office.


If the sheriff is able to properly seize your property, it will then be sold at public auction, and the part of the proceeds that are not exempt will go to the creditor to help pay off the judgment. These auctions are usually poorly attended and bring low bids. For this reason, creditors rarely seize used household goods, which will have minimal resale value. If property is sold at auction, you or your friends can attend the auction and re-purchase the possessions at a bargain price. After a sale, if the sale proceeds are not enough to pay the judgment in full, the creditor may keep trying to collect the remainder.


Court judgments remain on the books for many years. Even if a creditor does not try to seize and sell your property after obtaining a judgment, it still may try to do so years later.


Because state exemption laws are complex, you may want to get professional help to understand which items of your personal property are subject to seizure. Look also for a guide to exemption laws for your state, which may be available from the local bar association, a legal services office, or a nonprofit consumer credit counseling agency. Make sure the guide is up-to-date.


Protecting Your Home from Seizure

Your home is at risk of foreclosure if you do not keep up on mortgage payments. Your home is also at risk of being sold if you owe a judgment debt, but that risk is much smaller. When a creditor obtains a court judgment on a debt, even just credit card or medical debt, the creditor can then put a lien on your home for the amount of the debt. With a lien in place, the creditor can then force a sale of your home or the creditor can simply hold onto its lien and wait for you to sell the home before trying to collect on the lien.


In some states, if husband and wife own a home jointly, the home cannot be seized to pay the debts that only one spouse owes. On the other hand, if both spouses are obligated on the debt, the judgment creditor can force a sale.


Most states have a homestead exemption that protects your home from being sold to pay a judgment debt as long as your equity in the home is less than a certain amount. While some states protect $100,000 or more, many states protect less. And few states completely prohibit a creditor from forcing the sale of your home to pay a judgment debt, no matter how much the home is worth.


A homestead exemption can protect your home from seizure based on a judgment debt. However, a homestead exemption does not protect you if you are in default on a first or second mortgage, on a home equity line of credit, or on any other debt if your home is collateral for that debt. In addition, in some states, to benefit from a homestead exemption, you must file a declaration of homestead with your registry of deeds office. In a few states, the declaration must be filed before the credit is granted. If you live in a state where a declaration is required, you should always file it as early as possible. In other states, the protection is automatic.


The homestead exemption is a powerful protection. The exemption’s dollar amount applies not to your home’s value, but instead to the equity in your home—home equity is your home’s present value minus the amount you owe on your first and second mortgages as well as any home equity lines of credit or other loans if your home is collateral for the loan.

• Example:
• Mr. J lives in a state with a homestead exemption of $75,000.


• His home is worth $200,000.
• He has $100,000 in principal still due on his first mortgage.
• And Mr. J has $25,000 owed on a home equity loan.
• The total secured debt on his property = $125,000.

In this case Mr. J’s equity in his home is $200,000 - $125,000 = $75,000.


Since the homestead exemption is $75,000, his home is fully protected. A creditor cannot force the home to be sold to pay a judgment debt.


If Mr. J’s home increases in value to $220,000, and if the total secured debt on his property stays the same, then his equity increases to $220,000 - $125,000 = $95,000. The homestead exemption of $75,000 no longer protects all of Mr. J’s equity. The creditor can force a sale.


The first $100,000 from the sale goes to pay off the first mortgage holder. The next $25,000 pays off the home equity loan. Mr. J. keeps $75,000, the amount of the homestead exemption. After these deductions from the sale price, the judgment creditor gets whatever is left up to the amount of the debt. If there are still any sale proceeds left over, those go to Mr. J.


Even though the home is worth $220,000, the creditor under such facts will probably not try to sell the home to satisfy its lien. If the forced sale of the home only brings in $210,000 and selling expenses are $10,000, then there will be nothing left for the judgment creditor. The judgment creditor instead may wait until Mr. J sells the property, since the judgment creditor’s lien stays on the home for many years. When Mr. J sells his home, anything Mr. J clears over $75,000 (after paying off the first mortgage and home equity line of credit) goes to pay off the judgment creditor’s lien, up to the amount of the debt.


One possible way of getting rid of judgment liens is to file for bankruptcy. To the extent the property is exempt when you file for bankruptcy, the lien can be permanently removed.


The Debtor’s Examination and Debtor’s Prisons

There are no debtor’s prisons in the United States, but you can still be imprisoned if you do not show up for a debtor’s examination. After obtaining a court judgment, a creditor can ask a judge to order you to appear in court or in the office of the creditor’s attorney to answer questions about your income and assets to help the creditor find income or property that the creditor may seize. In some states this procedure is called a debtor’s examination, but the procedure goes by other names in other states. Some creditors routinely request a debtor’s examination. Others never do.


A debtor’s examination is a court-ordered appearance. Failure to show up can result in arrest, citation for contempt, and a jail sentence. A notice to appear for a court examination should never be ignored. Always appear or ask the court in writing for a postponement. Courts usually grant a postponement if the creditor agrees to the request or if you have a good reason.


In responding to a notice of a debtor’s examination, review your assets well before the examination. Determine if all your property is protected by law and if all your income is exempt from garnishment. If so, immediately tell the creditor’s attorney listed on the notice. This may be sufficient to get the creditor to drop the request for an examination since it will just be a waste of everyone’s time. But make sure to get this in writing—do not rely on an oral promise that the examination will be dropped.


If there is an examination, be careful how you answer questions since your answers are made under oath and often are recorded by a court reporter. Lying under oath is perjury, which is a crime punishable by jail. On the other hand, do not volunteer information until you are asked for it. If the examination reveals that you have assets or income not protected by law, the creditor can obtain court orders allowing it to seize those assets or income.


In some states, judges also have the authority to order debtors to make payments on the judgment debt. If you do not pay, the judge can hold you in contempt of court and put you in jail. But even in these states, you must be given an opportunity to prove that you do not have the financial ability to make the payments.


Exemption Planning

If you have property that can be seized to pay a judgment debt, consider “exemption planning” that maximizes the protection of your state’s exemption laws by converting property that can be seized (for example, cash) into property that cannot be seized (for example, household goods or your home).


For example, Mrs. Q has $10,000 in equity in her home and $10,000 in a bank account. Her state has a $20,000 homestead exemption and lets her exempt $3,000 in cash. Her home is thus completely exempt from seizure by a judgment creditor, but $7,000 in her bank account is at risk of seizure.


Instead of losing $7,000 to the creditor, Mrs. Q can prepay the mortgage by $7,000. Her equity in the home increases from $10,000 to $17,000, but her home is still protected by the $20,000 homestead exemption. Her remaining $3,000 in cash is fully protected by the state’s $3,000 cash exemption.


Courts often—but not always—rule that exemption planning is valid. Exemption planning is different than an improper transfer of property where you try to give away property to a friend or relative or sell it for a less than it is worth to someone who will later return it. Creditors can have these bogus transfers cancelled as “fraudulent transfers” or “fraudulent conveyances.”


Workout Agreements to Protect Wages and Property

If your wages, bank account, personal property, or home is at risk from judgment debt, you can approach the creditor or whomever is collecting the debt about a “workout” agreement, even after a court judgment is entered against you. Offer to pay all or a portion of the amount due, over a period of months or even years. The amount you offer to pay should be directly related to what the collector can seize. Do not offer to pay $3,000 over twelve months when the only items the creditor could seize have a market value of $500.


Always get a workout agreement in writing. The written agreement should excuse you from attending any debtor’s examination that has been scheduled and should contain a promise not to use wage garnishment or seizure of your property as long as you continue to make payments. Also ask for an agreement to waive the remainder of the debt if part is paid. Some creditors accept partial payment if they know they can’t get payment in full. For the creditor, some payment is better than none.


Bankruptcy Is the Most Powerful Way to Protect Wages and Property

The most powerful way to prevent loss of wages or property from a judgment debt is to file for bankruptcy. The bankruptcy will immediately stop any seizure and may allow you to keep your property permanently.