SPOCH.org - NJForeclosure

This essay will define several key terms that relate to the foreclosure process, the Fair Foreclosure Act of 1995, and it’s impact upon both Borrower, and Lender.

A mortgage is a security instrument that pledges property in exchange for repayment of a loan. The Borrower gives the mortgage to a Lender/Investor in exchange for the loan of money. A lender/investor can be anyone or anything including a Corporate Conglomerate, a local or National Bank, an Investment House, an Insurance Company, a Pension Fund Manager, or a rich Uncle. Most Lenders engage mortgage loan servicing companies (Chase, CitiMortgage, GMAC, Washington Mutual, Countrywide, Greentree, MTG Electronic, etc.) for the administration of the mortgage loan including the collection of monthly payments of principal and interest, penalties on late payments, acting as an escrow agent for collected funds to pay property taxes, insurance, and if necessary, to cure defaults and initiate foreclosure when a homeowner’s payments are seriously delinquent.

Mortgage Loans are to be repaid according to the terms and conditions indicated in a Mortgage Note, a document that accompanies the mortgage and details how the loan will be repaid, and what consequences the Borrower may face if the loan isn’t repaid according to the terms of the note.

If the Borrowers default, or fail to make payments as agreed, the Lender may initiate an expensive and complicated legal process that can result in the forced, public sale of the property, and displacement of the former homeowner. This process is called mortgage foreclosure, and is the Lender’s remedy of choice.

Let me repeat that: Foreclosure is the lender’s remedy of choice!

Despite rosy economic forecasts, evidence suggests that more people are facing mortgage default and foreclosure today than at any time since the Great Depression. In NJ, there are approximately 1200 new foreclosure filings each month, and not surprisingly, NJ leads the nation in bankruptcy filings. Soon, distressed homeowners seeking to file a petition for bankruptcy will find it more difficult, and more expensive. With limited awareness, few people understand this growing trend, or related legislation that may prove to exact an adverse impact upon us all.

Lenders anticipate that a certain number of Borrowers will default, and that a certain number of loans will be foreclosed. Historically, foreclosure would only benefit lenders during good economic times. But when real estate markets have excessive inventories of unsold homes, and a buyer pool whose employment is largely unstable... foreclosure might not be in the best financial interest for lenders seeking to recover money.... were it not for PMI (private mortgage insurance).

Many mortgage lenders, as a condition of making a loan, require that the Borrower purchase (for the lender’s benefit) an insurance policy insuring against losses sustained by the Lender arising from Borrower default. PMI is a Lender’s safety net. When and if the Borrower defaults to the terms of the loan, the Lender forecloses, liquidates but doesn’t recover enough to satisfy the debt (called a deficiency).... the PMI will pay a claim to the Lender in an amount represented in a percentage up to the Lender’s actual out of pocket losses... in some cases, depending upon the limits of the policy, up to 100%. But that doesn’t help you, the Borrower, or let you off the financial hook. You could still owe money long after you’ve lost your home!

For this essay, "equity" may be defined as the value in a home remaining after debt....after all liens are paid, and after all costs of sale are considered.

The portion of the amount a homeowner borrows for either a purchase or refinance compared against the value of the home is called Loan To Value, or LTV, for short, and expressed as a ratio. The maximum allowable LTV is determined by several factors of risk including the value and condition of the home, and the Borrower’s creditworthiness. LTV ranges from 60% for a poor credit Borrower with a home needing some TLC, to 100% or even 125% for some well qualified Borrowers whose homes are picture perfect. Risk also plays a factor when a lender decides at what interest a loan will be made. The greater the risk (or perceived risk) the higher the interest charged. A poor credit Borrower will pay a greater interest rate than a Borrower with a better credit history.

A loan payment is considered to be late if the lender has not yet received and applied payment by the due date. Though the Servicer may or may not may not charge a late fee during a complimentary ‘grace’ period... the payment is still considered to be late, and the Borrower in breach. Typically, once a payment is ‘late’ a data based, computer generated letter is sent that advises the Borrower of a late fee, and reminds the Borrower to send in the payment and accompanying late fee. Other "preliminary" procedures that the Servicer implements include, but is not limited to placing a call or calls to the Borrower’s home, place of work, a neighbor’s home, or another family member’s home with a "friendly" reminder. If passive collection techniques don’t work, the account is transferred from the first tier collection clerks to ‘default collection specialists’ who threaten the Borrower with foreclosure, eviction, and homelessness (hoping to coerce the Borrower into sending a payment) but simultaneously preparing to foreclose..

In response to the public’s fears of dramatic increases in mortgage foreclosure, the Fair Foreclosure Act of 1995 was initially intended to protect consumers by introducing legislation that would enact a set of uniform rules and practices which foreclosing lienholders would observe. However, pressure from financial giants GE Capital, Ford Consumer Credit, CitiCorp, GMAC and others threatening to withdraw from the NJ market while demanding self-serving legislation caused the original draft to be revised several times over several years... How the Fair Foreclosure Act actually ‘protects’ distressed homeowners, or how "fair" it really is for Borrowers is open for debate.... and that is the subject for another essay.

The Fair Foreclosure Act applies only to residential mortgages on property of less than four units, where one unit is occupied or will be occupied by the Borrower or the Borrower’s immediate family at the time the loan is made.

For immediate assistance, please have handy the most recent letter from your mortgage lender(s) and

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