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| Question | Answer |
| Which is worse, delinquency or default? | Default. Delinquency occurs the day someone is late, default occurs after a period of time, usually 90 to 270 days. |
| A client comes to your office after receiving a notice to pay or get out on their front door of their apartment, days later they received an eviction action. They are 4 months behind in rent and can’t afford to pay, they ask you if they should attend the hearing or not. What would you suggest? | Clients should be encouraged to attend the hearing, even if they have no defenses. They can ask the judge to extend the time for moving and provide any special circumstances. |
| During the rental eviction process, a tenant receives a final judgment notice stating how many days the tenant has to get out; why should the tenant make every effort to move within the given time period? | If they don’t it will progress to the final stage where the sheriff will come to forcibly remove the tenant. This is humiliating and the tenant may have to pay moving and storage fees. |
| Repossessions can occur when a borrower is in default and a lender takes back the collateral that secures the loan; if you client is 3 months behind on their car payments, what are some things they should consider before it is too late and the vehicle is repossessed? | Right to cure, negotiate, sell the property, voluntarily repossess the vehicle, remove anything valuable |
| A creditor has the right to repossess collateral if the borrower is in default, there are many ways that default can occur other than paying late, name two. | If terms of the loan are broken, if the property is damaged, or if necessary insurance has lapsed |
| One option when faced with a probable repossession is to try to get back on track, some states offer this as a right, others do not – but often a creditor will allow a borrower to pay back what is past due and start making payments again, what is this term? | Right to cure |
| What is the difference between a self-help repo and a voluntary repossession? | In a voluntary repossession a borrower turns the collateral back to the lender on their own; a self-help repo is a clause in the original contract that allows for repossession of the collateral w/o a court order. |
| Give an example of how a repo agent may breach the peace. | take a car out of a locked garage, use bodily force, use tricks |
| Following repossession, a creditor will likely get a deficiency judgment against the borrower. How is the deficiency determined, and is this judgment a secured or unsecured debt? | balance owed, plus any fees associated with repo, minus sale price – a deficiency judgment is an unsecured debt (low priority) because they took their collateral back. |
| There are few options after repossession; what is the difference between reinstatement and redemption? | - Reinstatement is allowed in some states, it allows a borrower to bring the loan current (pay the past due amount) in addition to paying all fees associated with the repo at which point they get their car back and start making monthly payments again. - Redemption occurs when a borrower is able to pay the total amount owed (not just past due) plus any fees associated with the repo to get their car back free and clear of the lien. |
| If a repossessed vehicle is sold at public auction and the delinquent borrower is able to buy the car himself at a very good price, what happens to the deficiency balance? | The borrower will still owe the deficiency balance; the lender will likely get a deficiency judgment against the borrower. |
| How can filing bankruptcy help a delinquent borrower get his repossessed car back? | If he files before the car is sold the automatic stay will delay or stop the sale of the car, giving him more time to negotiate. In a chapter 7 filing, the borrower can pay what the car is worth and keep the car free and clear of a lien. In a Chapter 13 filing, a lender can be forced to give the borrower back the car and the borrower can make payments through their repayment plan for just 3 to 5 years. |
| Describe a bank set off. | A clause that allows a lender to automatically remove money from a deposit account to cover a missed payment on a loan with their institution. |
| Unsecured creditors only have 3 options as far as collection efforts are concerned, what are they? | close the account, report the default to a credit bureau, or file a collection lawsuit |
| There are a few circumstances in which a creditor is less likely to sue, name two. | if the debtor owes few assets, if the debt is under $1,000, if the disputes the debt and threatens to raise a reasonable defense, if the debtor is making small payments, if the collector has historically not filed many lawsuits. |
| A client comes to you frustrated over harassing phone calls from a creditor; a family member gave them advice to send a cease letter. Although a cease letter will like stop the harassing phone calls, what will likely happen? | The creditor will likely proceed quickly, turning a bad debt over to the credit bureaus and filing for a collection judgment, as they are out of all other options. |
| The Fair Debt Collections Practices Act protects consumers against abusive collection practices; a consumer can even sue a debt collector for illegal conduct – up to what dollar amount? | $1,000 for damages and attorney fees |
| List a couple of the protections that are provided through the Fair Debt Collection Practices Act (FDCPA). | Collection agencies and lawyers must respect a consumers’ privacy, they cannot harass or use vulgar language, cannot lie or misrepresent and it limits the contact that they can have. |
| The FDCPA limits contact with consumers to convenient times or places. What is considered convenient? | 8am to 9pm in the consumers’ time zone |
| The FDCPA limits who a collector or lawyer can contact in their collection efforts, who can they contact? | a spouse, attorney, the original creditor or the credit reporting agency. |
| Your client lives with their grandmother, a collector calls and talks to grandma asking where they might find your client, is this behavior allowed, per the FDCPA? | Yes, others can be contacted if the sole purpose of the call is to locate the borrower and they do not reveal that a debt is involved. |
| Once a creditor decides to sue and the delinquent borrower has been served a summons, the borrower is often humiliated and chooses not to respond at all, not responding to the request for admissions or appearing for court. How can this hurt their situation? | The request for admissions requires a response, or the judge will find that everything listed is true – not responding is admitting to everything on the form. By not appearing in court, the creditor will receive a default judgment and will be able to proceed with collection efforts. |
| A client comes to see you as they received a summons for a collection judgment for a credit card bill that is very old, a possible affirmation defense might be what? | Statute of Limitation of the debt |
| If a defendant appears in court and argues his case, but the judge finds in favor of the plaintiff, what kind of judgment is it? (Default or Summary?) | Summary judgment – if you fight it, if you don’t show up you lose by default |
| Once a collector has received a collection judgment, they can perform a debtors’ examination, what are they looking for? | any income or assets that are not exempt and can be seized to pay off the debt |
| Once a collector has a collection judgment against your client, they can get their money in a few ways, list 2. | Seize personal property, wage garnishment, freeze and seize bank accounts, put liens on property |
| A client loses a collection judgment, the judge issued a money judgment describing the amount of money the she owes the creditor. She does not understand why a credit card with a maximum available balance of $1,500 could end up being $3,150 owed. What is likely the difference? | A money judgment includes interest, court costs and attorney fees as well as the original balance. |
| A contractor does some remodel work for a couple who writes him a bad check for $1,200. He takes them to court and is able to put a security interest on their property, what kind of a lien is this? | a mechanics lien |
| What does it mean to be collection proof? | the creditors’ only income source is exempt, such as child support or social security benefits |
| What is the difference between exempt and non-exempt property, give an example of each | Exempt property is protected from collection efforts, often a person’s home or a portion of it; Non-exempt property is not protected, a consumer may be forced to sell this property to pay a collection judgment, such as a rare coin collection or an RV. |
| What is the difference between a promissory note and a deed of trust? | A promissory note describes in detail the mortgage agreement, a deed of trust is the document that gives the lender security interest in the home. |
| Escrow accounts are utilized to collect a prorated amount from a borrower monthly; this amount is held in an account to apply to annual insurance premiums and property taxes. Can lenders require that any and all borrowers have an escrow account? | No, if 80% or more of the value of the property is borrowed, the lender can require an escrow account |
| Escrow accounts are utilized to pay necessary homeowners insurance and taxes how does the servicer handle over or under payments? | The servicer must provide periodic statements at least once a year and refund any surplus over $50. If there is not enough in the escrow account to pay the bills, the servicer still has to pay the bills, but the homeowner will be required to pay the shortage – they may have as much as a year to make monthly payments on the shortage. |
| What is the difference between forced place insurance and private mortgage insurance? | Forced place insurance is only necessary if a homeowner fails to keep required homeowners insurance. Private mortgage insurance insures that the mortgage will get paid, it is often required if a borrower borrows more than 80% of the value of the property. |
| If you find a client has credit life/credit disability insurance attached to their home loan, it may be financially beneficial for them to consider term life insurance instead, why is this? | Credit life insurance is issued in an amount equal to the amount that is owed on a loan, thus as the loan balance goes down so does the coverage amount; whereas the value of term life insurance will stay the same over time. Similarly, credit disability insurance is issued in an amount equal to the amount that is owed on a loan; a consumer may be able to purchase disability insurance through their employer at a cheaper rate. |
| What is the difference between a mortgage lender and a mortgage servicer? | A mortgage lender is the bank or financial institution that financed a home loan, a mortgage servicer is an outside company hired to service a loan, collect payments and send statements. |
| The most common type of foreclosure is by mortgage lender – due to loan default; however a homeowner could face foreclosure under other circumstances as well, name one. | Unpaid taxes, court judgments or unpaid condominium fees |
| Homeowners may choose to seek a mortgage work-out plan to avoid foreclosure, what is one possible mortgage work out plan? | recasting, spreading missed payments out, reducing or suspending payments temporarily, suspending principal payments, lowering interest rate, or loan term extension |
| A client seeks your advice about beginning the process of requesting a mortgage work-out plan, who should they contact with their request? | the mortgage servicer |
| A home owner who seeks a mortgage work-out plan will write a short letter describing to the lender why they fell behind on payments. What is this letter called? | a hardship letter |
| Through one common mortgage workout plan, a lender will agree to put the past due amount on the end of the note, if the borrower agrees to keep making monthly payments, what is this called? | recasting |
| There are a handful of special mortgage protections, name one. | Government backed mortgages, active military, home improvement scam, fraud or oppression by lender, or manufactured home mortgages |
| What is the difference between a short sale and a deed in lieu of foreclosure? | In a short sale the lender lets the home owner sell the property through a realtor, and waives the difference; In a deed in lieu of foreclosure the homeowner transfers the title back to the lender and is released from their mortgage obligations, they may negotiate a waiver of the deficiency balance. |
| Anytime that a portion of debt is cancelled or written off there is a likelihood that there will be tax consequences as the IRS may see this as income. Name one circumstance that may lead to tax consequences. | Debt Settlement, work-out plan, deed in lieu of foreclosure and a short sale |
| 22 states use judicial foreclosure as their main type of foreclosure, what does this mean? | the creditor has to file an action in the court to proceed with foreclosure, whereas in a non-judicial they only have to advertise the sale |
| During the foreclosure process, your client receives a notice of a Right to Redeem, a required notice in all states. They are excited thinking that they may be able to keep their home after all. What does this mean, and what is the likelihood of redeeming? | A home owner can redeem and keep their home if they are able to pay the entire balance due in addition to any fees or costs associated. It is unlikely that a homeowner facing foreclosure can redeem if they were having difficulty paying monthly payments, they probably don’t have enough money available to redeem the home. |
| Can filing bankruptcy stop a home foreclosure? | Yes and No. Filing a Chapter 7 bankruptcy will merely delay a foreclosure, filing a chapter 13 can stop the foreclosure permanently if the homeowner is able to make required payments. |
| A client is thrilled to have completed a 3 year debt management plan with your credit counseling agency. He would love to buy a home, but says that he will never be eligible to buy another home because seven years ago, he had a home foreclosed. Is this true? | No, although a foreclosure will affect his credit score for 7 years, a creditor may be willing to extend a mortgage if the debtor can show their financial problems are behind them. |
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