Navigating the Real Estate Default Referral Process
“I have a mortgage account in default – what should I do next?”
It is a common question, but it’s not the only one our Real Estate Default Group encounters. From how to complete a foreclosure referral form to understanding the 120-day rule and completing demand letters, real estate default is a complex topic. Fortunately, we are here to help you through the process!
In a recent Weltman webinar, our real estate pros answered rapid-fire questions about real estate default and referrals. The 30-minute session was moderated by the illustrious Casey Hicks, who holds many titles: shareholder, Chicago office managing attorney, Real Estate Default Group chair, and host of our popular #CoffeeWithCasey webinar series. The sharp and intelligent panelists of this session included attorneys Greg Czaicki and Megan Katz.
Here is a quick recap of the top questions answered!
Q: What is the 120-day rule?
A: As you prepare to initiate a mortgage foreclosure action, one of the first things we look at is the 120-day rule. Part of Regulation X – 12 CFR Part 1024 – Real Estate Settlement Procedures Act (RESPA), the first notice or filing cannot occur until the mortgage account is more than 120 days delinquent.
Delinquency begins on the first day the payment is due and not paid. For example, if payment is due on September 1st and not paid, delinquency begins on September 2nd. This regulation applies to both judicial and non-judicial foreclosures. It also applies to non-payment-related breaches.
The 120-day rule applies to all federally backed loans, loans from institutions insured by the Federal Deposit Insurance Corporation (FDIC), and small receivers (service fewer than 5,000 mortgage loans).
Q: Are there any exceptions to the 120-day rule?
A: Yes, there are some exceptions. They include circumstances such as:
- The loan was a temporary loan such as a construction loan.
- The home is not in a 1-4 family unit dwelling.
- The home is not in a state or territory of the United States.
- The foreclosure is caused by a due-on-sale clause in the mortgage contract. Selling the property to another party without the lender agreeing that the buyer can assume the loan can trigger a due-on-sale clause.
Q: What documentation do I need for a referral?
A: Weltman aims to make the referral process as straightforward and painless as possible. We provide you with a foreclosure referral sheet that asks you for a few details including:
- Loan number
- Social security numbers for each borrower
- Current address for the borrowers
- Intended lien position
- Investor name/type (if applicable) copy of note
- Copy of mortgage (and any assignments of mortgage)
- Copy of note (and any allonges or endorsements)
- Copy of any loan modification agreement(s)
- Payoff figures
- Reinstatement figures
- Last periodic statement
- Complete loan payment history (jurisdiction dependent)
- Copy of any demand letter (if sent)
- Copy of state-specific pre-suit notice (if applicable)
- Copy of death certificate (if applicable)
- Title policy (if applicable)
- Copy of note (and any allonges or endorsements)
- Copy of any loan modification agreement(s)
Completing this form is optional, not mandatory, but it does help ensure an efficient experience for our clients. The more information you provide your attorney, the better.
Q: What is the correct language for demand letters?
A: A demand letter, also known as a breach letter, notice of default or notice of intent to accelerate, must be mailed to the individual(s) who signed for the mortgage loan. Weltman prepares demand letters on behalf of clients. Some clients prefer to prepare and mail their own letters.
If you choose to have Weltman send out the demand letter, then we will need the: a.) Reinstatement figures good 30 days out; and b.) Payoff figures good for 30 days out. Our letters give borrowers 33 days instead of 30 days to provide for the U.S. mail to be delivered.
The demand letter must closely track the language/terms of the mortgage documentation. For example, the Weltman demand letter template follows the Fannie Mae/Freddie Mac uniform mortgage language. Additionally, your Weltman attorney will ensure that the exact information, language and requirements of the mortgage ‘Notice of Default’ paragraph are met and fulfilled.
Q: Do demand letter requirements vary by state?
A: Yes, they do. As a national firm, Weltman’s attorneys are well-versed in demand letter requirements across various states. For example, Indiana requires a 30-day statutory pre-suit notice before foreclosure can be filed. The state of North Carolina has a 45-day statutory pre-foreclosure notice. You also need to create an online account and upload a copy of the demand letter to the North Carolina Housing Finance Agency within three days of your mailing. In New York, there is a 90-day statutory pre-foreclosure notice.
Q: What are the differences between protective answer and an answer cross-claim?
A: A protective answer lets the parties involved and the court know that you are interested in protecting your lien interest in the case. On the other side, an answer cross-claim functions as an answer to the initial complaint and a separate claim against the borrower. It is used when the borrower is also in default on your loan as well as the plaintiff’s. It follows the same fee schedule as a complaint referral. The protective answer does not state an actual claim against the borrower or anyone else in the case.
Q: What should I do if my institution is named in a complaint?
A: First and foremost, you should refer to our REDG referral inbox - FCReferrals@Weltman.com as soon as possible with the referral sheet and loan documents.
Remember, timing is everything. Civil rules provide that answers must be filed within a certain amount of time after the date of service. If we are within the response time period, we can still file an answer but must seek leave of the court. The longer the response time, the harder it may be to obtain leave to answer.
To get more questions answered, watch the full webinar today. Our team is constantly monitoring changes to the industry. If you would like to learn more about Weltman’s real estate default solutions, contact Casey, Megan and/or Greg at any time.
About the Weltman Real Estate Default Group
Our team provides various solutions to support the increasing demands of real estate default portfolios. Serving mortgage lenders and servicers, we focus on resolving nonperforming assets in a timely fashion with one goal in mind – to provide a thorough and timely recovery while minimizing your exposure and liability.
If you have questions about real estate default, reach out to our team today.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
