My co-workers and I were talking the other day about how it doesn't matter whether you are rich or poor, some people just spend to the limit-and beyond. Chances are you have some clients who fall into this category, and I'm sure you know it if you do. But it's possible in the last few months that their situation-even beyond their investment portfolios-has deteriorated very quickly, and you might not know it. They might be embarrassed to admit that, after all, even to you. But now is the time to ask and press them for details.
That's because once these clients get near foreclosure, there might be very little that you can do. Most state home foreclosure laws are "tilted against homeowners," and that's a little-understood factor that is helping to accelerate the U.S. home foreclosure crisis, according to a major new report by the National Consumer Law Center (NCLC). Based on a survey of existing state laws, the NCLC report identifies some of the most antiquated state law provisions, including "fast track" foreclosures without any court oversight in 30 states and no requirement of direct notification to homeowners in 33 states upon the initiation of foreclosure proceedings.
"In recent months, a wave of foreclosures has swept millions of American families from their homes. The magnitude of this crisis defies easy comprehension: More than 8 million American families are expected to lose their homes to foreclosure in the next four years. Much has been written about the financial and economic causes of this disaster. Much less notice has gone to another factor that has accelerated and multiplied this grave loss of homes and savings: antiquated state laws that in some ways afford fewer protections to homeowners than to renters," says the report, Foreclosing A Dream: State Laws Deprive Homeowners of Basic Protections.
According to the NCLC report, examples of state laws tilted against homeowners include the following:
"Fast track" foreclosure. In 30 states and the District of Columbia, mortgage holders who allege that homeowners have fallen behind in their payments can bypass the courts and move directly to take away and auction off homes. This denies homeowners due process protection comparable to that given many tenants. It also places upon homeowners the heavy burden to get a judge to review the mortgage holder's claims and stop the foreclosure.
No direct notification of foreclosure proceedings. In 33 states and the District of Columbia, there is no requirement that homeowners be personally served with a foreclosure notice or legal documents that start a court foreclosure case.
No effort required to find solutions short of foreclosure. In every state but California and Connecticut, mortgage holders can move directly to foreclosure without being required by state law to consider or discuss ways to avoid loss of the home with homeowners, such as through modification of the terms of the loan.
Eleventh-hour payments can be ignored. In 29 states, a mortgage holder has no obligation under state law to stop foreclosure even if the homeowner, just before the house has been sold, comes up with the money to catch up on the owed payments and all incurred penalties and fees.
Heaping on of penalties that can send homeowners over the edge. In every state but Massachusetts, New Jersey and Pennsylvania, a mortgage holder who claims a homeowner has fallen behind in payments can immediately impose default fees and costs that reduce the chances that the homeowner can catch up by making the payments owed.
More penalties even after home is lost and sold at auction. In 36 states and the District of Columbia, mortgage holders can pursue so-called "deficiency judgment" claims against homeowners even after the foreclosed home has been sold at auction. These claims, seeking to recover the difference between the amount owed on the loan and the amount collected from the foreclosure auction, can be pursued without conditions in 15 states and the District of Columbia, and only under certain conditions in the other 21 states.
If you help such clients so they don't lose their homes, my guess is they'll still be your clients when we emerge from this mess.