Short Sales and 3rd Party Collectors

I don't have time to write that often here because I am an active realtor in California.  But sometimes, I just have to take the time to let you know some important information that is affecting many people throughout the country, as well as in my state.  I'm in the process of closing escrow on one of my short sale listings.  Not a bad one, but it has taken about 6 months, which is a pretty common length of time.  Now, let me tell you a little about this transaction.

This property has 2 loans.  Both were originally Countrywide loans, and of course since they basically went belly up, Bank of America took ownership.  So, after that happened,  my client got a terrible loan mod, a bunch of ridiculous and incompetent things happened with the appropriations of the payments of that loan mod, and my client just said, "I give up, lets short sale this house." So, we got the package together, listed and marketed the property and got a buyer for the property.

Bank of America, I must say, was pretty decent during the processing and negotiation of the short sale.  Except for 1 thing.  They sold the second mortgage.  It didn't get sold to another lender, nope, it got sold to a 3rd party collector named Real Time Resolutions (RTR).  What a group of incompetent, greedy, scum sucking bottom feeders!  So, B of A approves a sale price and approves a payoff contribution for the second, RTR.  But no, RTR, greedy SOB's that they are, don't want a couple thousand dollars, they want the whole blasted amount.

Now, you know that they purchased a huge portfolio of loans for pennies on the dollar, and they would come out ahead by accepting the amount that was offered to them.  But they just say they would rather let the first loan foreclose on the property than release the "lien" for a couple thousand dollars.  Finally, after months of going back and forth, my processor got them to approve a lien release of $6000, almost double what B of A was offering.  That is okay, because I built a requirement of the buyer to pay the difference, into the purchase contract ahead of time, so it would be covered.  However, RTR didn't stop there.  That was just to release the loan so we could close the sale.

The kicker to their payoff demand, (which was 4 pages long - the audacity!) is that they want an additional $3500 within another 2 weeks, to settle the almost $60k 2nd, or they would reserve the right to harass my client to death for the full amount.  There are quite a few things massively wrong with their demand letter, and what I'm going to tell you here may help you relieve you or your clients' stress, if they are in the same situation.  I'm going to touch on 2 points that affect homeowners in this situation.

First, my state, California, is a Non-Recourse state.  What this means for homeowners facing foreclosure or short sales, is that, if the loan was used to purchase the home (called Purchase Money), the lender has no recourse to pursue the deficiency created by the foreclosure or the short sale.  In plain English, THEY HAVE NO RIGHT TO COMMENCE COLLECTION ACTIVITY FOR THE DEFICIENCY - amount not paid off!  There are a number of states that have enacted non-recourse laws or statutes to help homeowners who have lost their home or sold through a short sale.

The second issue with this stupid payoff demand letter is that they seem to think they have the right to collect at all!  They never lent any money to my client!  My client never signed any contract with them!  They bought a note.  73 Am Jur states that "The right of subrogation does not exist for a stranger to the transaction".  Subrogation means "to substitute" and "stranger to the transaction" means a party that is not on the original contract.  So, the right to substitute  a 3rd party collector into a contract, does not exist.  They have no rights since they did not loan any money on the original contract and were not mentioned on the contract or were any part of the contract.  This goes for loans that have been transferred, assigned, sold, or changed hands in one manner or another.

So, if these, umm, I want to try and keep it clean instead of calling RTR names they really deserve, if these morons try to collect on this deficiency, I will be sending them a couple letters.  I will of course send them a demand for validation, Certified Mail, Return Receipt, and a Declaration of Fraud that applies to collection agencies.  I will of course let them know again that if they even start to put anything on my clients' credit, they will be sued since this loan was purchase money and they have no recourse.  

My letters will also let them know that my client is not a mindless idiot that believes all the crap that they spewed throughout their demand/approval. Nope, my client is signing it (under duress I might add) in order to get this sale closed, but we are prepared to stick it back at them and they will either back off immediately (which has been the most common action by collectors when they receive my letters), or they will be forced to remove all negative reporting and pay up the fines that go along with the violations they commit.

The moral of my story is this:  if you or your client has a purchase money loan that is now in the hands of a 3rd party collector, you may be in a non-recourse state and are protected by laws or statutes and don't have to worry, even if the 3rd party collector spews false information about their ability and rights to pursue the deficiency at a later date.  And if not in a non-recourse state or the loan is the result of a refi, HELOC, or not purchase money, you or they need to understand that they may have to fight a bit through validation, but there are laws in place, and case law to back it up, that as a 3rd party collector, no money is or ever will be, owed to that collector.

Financial Credit Bureaus You Should Know About

So, you thought there were only 3 credit bureaus. Nope, though there are the main 3, Equifax, Experian, and TransUnion that report your credit, there are some more that report on your banking activity.  I am sure you have heard of them and you probably have a report with something on at least one of them.

There are 3 main banking credit reporting agencies but, there are more than just those 3, and most of them are related to or share information with at least 1 of the other ones.  I'm talking about the ones the banks use to decide if they will open an account for you.  When you want to open a new checking account, many times they pull your credit from at least one of the big 3 credit bureaus, but they will usually pull your information from the financial reporting agencies as well.  Here is a list of some of them:

• ChexSystems.  This used to be Scan.  They have partnerships or business relationships with a lot of banks and merchants.  It is also now owned by eFunds, which leads the nation in electronic payments and risk management.
• TeleCheck.  They are part of the First Data family.  They work like ChexSystems and many banks and credit unions use their services.
• Early Warning Services (EWS).  They are also now in partnership with eFunds.  Many banks and credit unions use this. Sometimes you can open a bank account and then a week or two later it will be closed or frozen with pending closure because the bank's loss mitigation/risk management department pulled a report from EWS.
• Fidelity National Information Services.  Formerly Certegy, a real pain in the butt company, and now they are partnered with eFunds and Telecheck.
• Cross Check.  They partner with Telecheck.

So you see, there are so many different bureaus that have access to your personal information.  The ones I listed above are all considered Credit Reporting Agencies (CRA)  and have to comply with the FCRA.  This is good for you because the FCRA gives you the right to dispute anything on your report and they, like the big 3 credit bureaus, have to make sure that the information they report is 100% correct.  You are also entitled to a free report every year and a free report if you have been denied an account if it was based on information they supplied to the bank you applied at.

They sometimes can be more difficult to get negative entries removed from and many times they will try to only allow information to be removed if their subscriber, the bank that put the information there, tells them to.  But you can dispute, and you can get those bad reports removed.

I will follow up later with some more information about these financial CRA's at a later date and will give you some tips on disputing on the crap that shows up and makes your banking life a pain.  Hopefully, you will learn what you need to do to be able to open a new account, if that has been a problem for you, so you don't have to keep going to check cashing stores and paying ridiculous fees just to be able to use your hard earned money.  You'll be able to walk into a bank with confidence and sit down to open an account without fear, knowing that when they run your identifying information, you'll receive a handshake and congratulations for your new account!