REQUIRED READING: For the default servicing industry, the ups and downs of the current mortgage crisis have prompted a great deal of introspection and re-evaluation. Unfortunately, a challenging combination of sustained economic uncertainty and intense media scrutiny has created a pervasive and potentially distracting atmosphere of headlines and deadlines; press and pressures; rhetoric and reactions. Inside and outside the industry, there is talk of legislative remedies, large-scale structural changes and unnecessarily draconian solutions.
However, while the frustration and subsequent hyperbole is understandable, it is most likely unnecessary. As some servicing professionals have already discovered, in the midst of chaos and uncertainty, the best way to move forward is to look backward – to recommit to ‘old school’ notions of responsive and responsible servicing and to get back to foreclosure basics.
In a turbulent and uncertain marketplace, it is more important than ever to stick to fundamental default servicing principles, and to use those tried and true basics as a steadying influence. Inspiration and innovation will always be an important part of the mortgage industry, and new ideas and new technologies will continue to help move the industry forward. Nonetheless, proven principles, processes and core values will always form the foundation of quality servicing.
Consistently applying those principles and recommitting to the basics of default servicing is the best way for servicing professionals to ensure they are minimizing avoidable errors, utilizing resources responsibly and efficiently, delivering a high level of service to borrowers and professional partners, and executing their professional responsibilities with consistency, clarity and integrity.
The following examples are reminders of the key foreclosure fundamentals that can help save time, money, and a number of unnecessary errors and avoidable headaches.
Docs in a row
Perhaps the single most important thing that servicing professionals can do to minimize mistakes and maximize accurate and efficient servicing is to make high-quality documentation a top priority. Making sure that all documents are accurate, available and accessible is the first – and sometimes even the final – step to making the foreclosure process a smoother and more efficient process.
As the industry has evolved over the years, increasingly complex transactions have become the rule rather than the exception – a state of affairs that makes it all too easy to slip up as the result of a minor procedural or documentary detail. Lenders need to originate and service loans based on accurate information. If a loan is transferred, that transfer needs to be documented properly. If the note is properly endorsed, and the paperwork clearly reflects that transfer, the holder of the note will be able to prove ownership, which addresses most issues or disputes related to standing. This step alone eliminates a huge chunk of potential problems, allows the servicer to answer borrowers' questions quickly and efficiently, and enables the servicing attorney to proceed confidently.
Lenders and servicing professionals should make sure that any digital copies are accurate and up to date and that any digital copy clearly reflects any endorsements, changes, attachments or other modifications that have been made or amended to either side of the note. To avoid or resolve disputes or discrepancies, it is also important to have a system in place that enables the speedy retrieval of not only the electronic version, but also the original documents when necessary.
Looking before you leap
It is always advisable to engage in a thorough post-default audit prior to filing for foreclosure to make sure that the accounting on the loan is accurate and the documentation is flawless. For anyone who takes pride in the industry and knows how hard servicing professionals work to do things the right way, it is a frustrating irony that the events of recent years have all too often been traced back to avoidable errors and clerical or procedural oversights. Banks and the banking community used to be known for dotting every "I" and crossing every "T," and so many avoidable recent disputes and controversies have resulted from the failure to double- and triple-check items.
It makes sense to do your homework ahead of time, particularly when doing so can potentially save money, minimize waste, and avoid time-consuming delays and unnecessary disputes. A quality audit should review the file to make sure that the title insurance is in order and that all payments have been dated accurately and credited properly to ensure that the nature of the default has been properly communicated to the borrower, and to confirm that the lender and servicer are in compliance with all applicable laws and statutes. Taking the time to review the paperwork to ensure that all proper disclosures have been made and that there are no obvious errors before filing for foreclosure is one extra step that can save a lot of future trouble.
It simply does not pay to sacrifice quality for expedience. All business partners in the industry strive to provide efficient, timely and cost-effective solutions. However, in the case of the defaulted loan, we should all be ready to take a little extra time to get it right – not just get it done. Whether it is a paperwork or information audit, a little extra time with the borrower or some additional time communicating with counsel, those extra few minutes may be the difference between a successful loan resolution and a lawsuit.
One of the most important places to be methodical and precise is in the preparation and execution of documents. Taking extra time to maintain the highest standards of accuracy and accountability is critically important to ensure that key documents can be used and that a default is resolved effectively.
Talking the talk
Communication is one of those things that, ironically, everyone talks about but very few manage to engage in as consistently or effectively as they should. Clear and consistent lines of communication are essential throughout the process and with all parties. Borrowers, as the clients of the lender, should know who to contact, receive prompt responses and freely obtain the information they need. Default counsel should receive complete instructions and documentation at the time of referral.
It is helpful to remember that communication goes both ways, and the willingness and ability to truly listen when borrowers call in with a complaint, question, concern or dispute is as valuable as the ability to deliver information effectively. Be available and attentive to borrowers and maintain a clear and well-documented communication chain, both to ensure that the borrowers are getting the service they need and to protect yourself in the event that a dispute escalates.
In most situations, a borrower complaint is just the means by which a borrower establishes contact to address his or her underlying (if unspoken) concerns about a default. If the borrower has an issue, the problem needs to be accepted, dealt with professionally and resolved.
If a defaulting borrower calls in with a pay history dispute, for example, it is almost always a good idea to walk the borrower through the relevant documentation and determine the source of the discrepancy. In doing so, you may learn the borrower's true desire is to receive loss mitigation assistance, helping you to retain that borrower as a valued client.
It may seem like an idealistic or overly simplistic way of looking at things, but treating borrowers less like irresponsible people and more like true clients can frequently go a long way. There is a tendency to stop thinking of borrowers as customers once they are in default. Defaulting borrowers may go from valued customers to liabilities, creating or contributing to an unnecessarily adversarial relationship that is counterproductive to resolving a default.
Many defaults are caused by factors outside of borrowers' control, and the defaulting borrowers are normally under pressures beyond the inability to make mortgage loan payments. In many cases, borrowers feel de-humanized as they churn through the system.
By changing our mind-set, we not only allow the borrower the opportunity to be heard and to feel like a human, but we also take an important first step in implementing and maintaining an effective loss mitigation program. Engaging borrowers without judgment is not just an idealized pie-in-the-sky endeavor; it is a practical strategy that produces demonstrated results.
Whether it is the resolution of a default through the completion of a foreclosure sale, deed-in-lieu, short sale or some other mechanism, just giving people the opportunity to be heard can make it significantly more likely that they will accept their circumstances and opt to resolve the default in a way that ultimately saves all parties time and money.
Education and training of personnel is an all-too-often underemphasized piece of the servicing puzzle. Whether processing foreclosures or engaging with borrowers on the phone, educated and highly trained professionals are the single most valuable resource of any organization. As a result, it is important to not just say that, but also prove it: prioritize training and continuing education accordingly.
An educated and informed staff of qualified professionals is important not just to know how to help resolve problems and engage with borrowers, but also to know what the borrowers do not know; to be educated enough to understand when to escalate matters that are over their head or rife with conflict. Remember that it is never too late to train and educate your team: Ongoing professional training and refresher courses all help, and they constitute one of the wisest investments any servicing professional can make.
The best thing about an old-school approach is that it works. But another appealing aspect about a return to basics is that it flips the prevailing media narrative on its head. Instead of focusing heavily on what is going wrong, an old-school approach looks at what is going right – focusing in on what works. It promotes a constructive, solution-based mind-set with less hand-wringing and more focus on foreclosure fundamentals and the
core tenets of professional servicing.
In the final analysis, conscientious servicing and conscientious default processing come down to effective communication and quality documentation. These are not new concepts or radical changes. Quite the opposite, in fact; these ideas are relatively straightforward. Servicing professionals who are able to successfully rededicate themselves to these foreclosure basics will likely find that these old-school principles can pay some very new-school dividends.
Kip J. Bilderback is a partner at Millsap & Singer LLC, which provides default servicing representation throughout the states of Missouri and Kansas. He can be reached at (636) 537-0110 or kbilderback@msfirm.com.
