During the course of foreclosures when parties are discussing or attempting loss mitigation, borrowers submit financial records for lenders and servicers to review.
Sometimes, these records show a borrower’s financial condition to be unhealthy – not due to hardship like loss of job, reduction in income, divorce, medical bills, or funeral expenses – but due to uncontrolled, undisciplined, and/or unnecessary personal discretionary spending.
Review of some financial records have shown significant funds being spent on fast food, food deliveries, music downloads, lingerie, vacations, gambling at casinos and online, and even psychic advice instead of on existing financial obligations.
Then, after all of this money is spent on these non-essential items, borrowers want their lenders/servicers to modify their mortgages – the terms of which they previously agreed to in writing – to get them out of their financial rut. They want lenders/servicers to take the hit for their financial irresponsibility.
This should be no surprise to lenders/servicers as mainstream media, government officials at all levels, and many in the court system believe that mortgagors can do no wrong and are victims of a banking system that is coined as "the evil empire," "predatory," and "greedy."
It seems that mortgagors have become a de facto protected class. It appears to be taboo or politically incorrect to discuss borrowers’ excessive personal discretionary spending at court proceedings including mediations. If such topic is broached, the response is likely met with comments like: "the bank is beating up on the homeowner."
With mainstream media, government officials, and others repeatedly referring to borrowers as victims, the victim syndrome has become ingrained in our collective social consciousness. This card cannot be played indefinitely.
A pragmatic solution may be that borrowers in foreclosure, as a prerequisite to seeking participation in foreclosure diversion or mediation programs, be required to first obtain certificates of consumer counseling – much like the bankruptcy filing prerequisite.
To the extent counties and courts have such requirements but are not religiously or consistently enforcing them, lenders/servicers could then condition trial-period plans (TPPs) or other agreements on obtaining such certificates.
Alternatively, or in conjunction with the foregoing, is monitoring borrowers’ spending while they are in TPP’s or loan modifications by requiring periodic submissions of certain financial records. Though it may seem that these requirements are parens patriae in nature, some individuals would likely benefit from them and may exhibit more disciplined spending habits if “big brother” is monitoring them.
The foregoing requirements appear permissible under HAMP and Pennsylvania law, in particular. Template TPP’s and loan modification agreements may need to be revised or updated; or, lenders/servicers could task the drafting of such agreements to local counsel, who are already familiar with their jurisdiction’s laws.
Troy Freedman, Esquire serves as managing attorney at Richard M. Squire & Associates. The opinions expressed above are his own.