Written by attorney Charles Reiger Gallagher III

Foreclosure Loss Mitigation Underwriting--Borrower Beware!

They finally admitted it! After a recent deposition, counsel for the bank candidly said, “Of course we use financials for loss mitigation purposes to target suitable judgment debtors" for post judgment execution." After hearing the implausible party line mantra ad nauseum, that confidential personal financial disclosure would only be used to determine what loss mitigation options best fit the homeowners needs, finally a bank attorney was honest about the true reason banks seek financials from homeowners in foreclosure.

So what is loss mitigation underwriting? What is really necessary to determine of a mortgage modification is feasible? Sadly, loss mitigation is more art than science. Some lenders need three months to underwrite, while others need a month, some need a week and still others can underwrite on the fly in hour. Loss mitigation underwriting is the process in which the bank determines what, if any, foreclosure alternative best fits the homeowner. Options include a modification of the mortgage, short-sale, or a deed-in-lieu of foreclosure. The catch is that in order to be “eligible for review" the bank or servicer will require that you provide confidential financial information (tax returns, bank account statements, hardship letters, etc.) all in the name of evaluation of which assistance best helps the homeowner.

There is no uniform mandatory standard for loss mitigation underwriting. Making maters worse, there is no mechanism for oversight to police that loss mitigation underwriting follows some identified methodology. There is nothing to prevent banks from pulling numbers out of a hat forcing to keep a straight face as they assure you their offer was the result of a rigorous and detailed analysis. So what is the harm if banks misuse such confidential financial information? Well its no different than if you have provided your opponent in war the proverbial missile codes in advance of your attack. Armed with your tax returns and bank accounts, bank can carefully select who they want to pursue for deficiency judgments. With an eye into bank account banks are now primed select candidates for post-judgment execution.

At a recent Mortgage Bankers Association conference, a program entitled “Turning Data Into Dollars: Data Mining, Analysis and Reporting" recommended data mining under the guise of loss mitigation underwriting. Industry leader Lender Processing Services, offers data mining services to lenders in connection with loss mitigation applications. Additionally, another nationwide vendor to lenders and servicers, ComplianceTech advertises “specialized lending intelligence services." Further still, many available job listings for mortgage default collectors now include data mining as a required skill set.

So when you receive a letter from your lender offering help, while asking for disclosure of your most private financial information, think twice. Does this really help? Can the gratuitous disclosure of private financial information backfire on you? Much like the old adage of caveat emptor, borrowers would do well to beware when it comes to arming the bank with financials before it decides whom to target for deficiency judgments and post-judgment collection.

[1] Charles R. Gallagher III is the founder and principal of Gallagher & Associates Law Firm, P.A. His practice includes foreclosure defense, consumer law, real estate and business litigation and insurance litigation. Mr. Gallagher is a graduate of Rollins College and Stetson University College of Law. He is a graduate of Leadership St. Pete and was selected as a Rising Star by Florida Super Lawyers and selected as an “Up and Comer" by the Tampa Bay Business Journal in 2011. He frequently lectures and serves as a media commentator on foreclosure topics.

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