More Bad Creditor Behavior – Mortgage Servicers Attempt Collection of Discharged Debt.

URGENT We have written about debt collection by debt buyers and the issues that arise in this context ( ), but collection by mortgage servicers raises issues as well, especially if you have concluded a short sale or filed a bankruptcy case and are no longer legally responsible for the debt.

What is a mortgage servicer and why should you care? You have a mortgage and you are making monthly payments but really, who are you paying?  In many instances, the answer is that you are paying a mortgage servicer.  These companies have acquired the right to receive payments on your mortgage from the original lender.  Who are they?  The biggest names, especially in the subprime market are Ocwen and Nationstar.  These companies acquire the right to collect your mortgage payments on behalf of the original creditor.  Mortgage servicing has become a big business but the profit is not necessarily in collecting payments, it is the collection of fees and costs after a borrower has defaulted that rake in the profits.

When did the mortgage servicer acquire the right to collect payments on your mortgage matters?

Most of us are aware of the Fair Debt Collection Practices Act (“FDCPA”) and generally know about improper debt collection by creditors.  The Act does not cover actions by the original creditor (although the Massachusetts version of the statute provides additional protections.)  Mortgage servicers are not the original creditor on your mortgage loan so they are covered by the FDCPA correct?  Yes and No.  The answer depends on when the mortgage servicer acquired the right to collect your mortgage payments.  If that right arose after default then the mortgage servicers is covered by the Act.  Default means the failure to make the required monthly payments.

In some instances you may no longer owe the debt but the collection activity continues.  What should you do? 

Never ignore attempts at debt collection.  Debt collectors will not just go away and ignoring collection activity may result in a loss of your right to contest the validity of the debt.  These companies often file lawsuits and get judgment by default because people do not show up and contest the liability.  The creditor can then collect the judgment by asking the court to take a portion of your wages or attach property that you own.  If you receive collection notices or phone calls on debt you belief you do not owe respond to the collector in writing and most importantly, respond to lawsuits and show up at court hearings.

If you completed a short sale or filed a bankruptcy case and received a discharge you may not be responsible for the debt any longer.  Mortgage servicers obtain bulk assignments just like debt buyers and they often do not bother to check to see if the debt is actually legally owed before they begin collection activity. You still need to act to protect yourself and stop the collection activity even if you no longer have the legal responsibility to pay the debt.

Check your credit report after short sales or bankruptcy and pay attention to collection activity.

Make certain that your credit report is correct and that debt that has been avoided or discharged is not reported as active and in default.  You cannot get the benefit of a bankruptcy fresh start or the relief you sought in a short sale if your credit report is inaccurate. Do you have questions about debt collection?  Call our law firm, Gogel & Gogel, or visit our website