Collections

Christy C. Jones, Esquire

SHERPY & JONES, P.A.

803-356-3327

Learning Objectives

• Value Proposition• Departmental Procedures• Importance of Loan Documents• Determining Collection Priorities• Basics of the Phone Call• Skip Tracing• Mortgage Modifications• Repossessions & Foreclosures

Value Proposition

• “With us, it’s personal.”

• What does the typical member value?

• What does the typical member expect?

• What should Collections Department do to honor this Value Proposition?

Resources for Policies

• NCUA Examiner’s Guide

• NCUA Accounting Manual

Departmental Procedures

• Lending Policies

• Education of Members

• Collection Policies

• Personnel Selection and Training

• Identification of Delinquency

• Computation of Delinquency

Departmental Procedures (cont’d)

• Schedule of delinquent loans

• Collection Procedures

• Documentation

• Control

Cross Collateralization

• Collateral for one loan is collateral for other loans

• Never call a loan unsecured or signature loan

• Member’s principal residence is not collateral for other loans

UCC

• Uniform Commercial Code

• Collectors Deal with Article Nine

• Secured Transactions

• In IA, located at 554.9100 et seq.

Cross Default

• When one loan is in default, all loans are in default

• Can creditor repossess collateral when a different loan is in default?

Wooding v. CinFed Empl. FCU

Outcome depends on the language contained in both loan

documents

Wooding Case (cont’d)

• CU must show that member read, understood and signed the loan agreements

• Both agreements must specifically say that collateral for one loan is collateral for all loans

Cross Collateralization

All default notices must reference all loans

Apply sale proceeds to all loans before distributing surplus funds

Options if No Cross-Default

• Obtain judgment on “personal loan” and execute the judgment

• Hold the title to the vehicle/ Do not release the CU’s lien

Holding onto Title

• Member will eventually notice

• When?

• Exercise with care

• Quoting payoffs

The Importance of Loan Documents

Reviewing Loan Docs

• TIL Disclosures

• Right to collect late fees, attorneys’ fees

• Co-Signor notices executed

• Collection notices are also required in many loan documents

• ID Defects in docs

ID Defects in Loan Documents

• No Certificate of Title

• Vehicle not properly described

• Credit Insurance not obtained but requested

• Mortgage not filed

Where are attorneys’ fees provided for in your docs?

Where do you file a mortgage?

Docs you need

• Signed application/ or Credit Agreement

• Signed Disbursement Voucher and Security Agreement or endorsed loan proceeds check (not preferable)

• Evidence security interest is perfected

• Subsequent action, modifications, substitution of collateral

• Co-maker notices

Collection Procedures

Break up into groups

Collections efforts

• Make collection calls• Send collection letters• Skip trace• Arrange for

repossessions• Arrange for returns• Obtain waiver of notice of

sale• Arrange vehicles for sale

(inventory vehicle, arrange for repairs, gas up, oil change)

• Arrange for public sale

• Arrange for private sale (oversee test drives, accept bids, negotiate with buyers, determine fair price)

• Send notice of sale• Send explanation of

deficiency/surplus• Modify mortgages• Modify other loans• Handle small claims court

cases

Collection efforts

• File judgments in counties with assets

• Perform asset searches

• Liaison with attorney• Field collections/

outside collections• Perform

administrative freezes• Perform set offs

• Make determinations about cross-collateral rights

• Flag accounts for bankruptcy

• Terminate services to extent possible

• Discontinue/ freeze lines of credit

Collection efforts

• Advise loan officers about effect of former bankruptcy on current loan applications

• Handle 1099’s• Handle member disputes

about credit reporting• Send Right to Cure letters

pre-foreclosure• Liaison with attorney for

foreclosures

• Arrange for listing and sale of foreclosed property

• Handle cancellation of credit life, disability insurance

• Facilitate members making claims under credit life, disability insurance

• Force place insurance• Cancel force placed

insurance

Collection efforts

• Verify insurance coverage

• Follow up on title issues (failure of member to have certificate of title with lien listed)

• Negotiate with towing/storage facility to release vehicle towed without CU knowledge

• File claims in probate court

Efforts increase in:

• Intensity

• Frequency

• Urgency

Setting Your Priorities

• First payment defaults

• Term Notes

• Real Estate secured loans

• Automobile loans

• Payroll deduction

• Other loans

• (Bankruptcy and deceased)

Rule 1

Verify Speaking to Member

Privacy Considerations

• Husband and wife

• Parent and child

• Member in military

Other Privacy Considerations

• Leaving message on voice mail

• Leaving name and title

• Leaving your title in your voice mail greeting

• Emails

Rule 2

Listen to the Member

Listening

• Credit Life or Credit Disability Claim

• Info re: setting off money on deposit

• Find missing collateral

• New job, address

Rule 3

Be tactful and sensitive to cues

Rule 4

Keep Voice Businesslike

Rule 5

Let Member tell his side of the story

Rule 6

Avoid Negative Questions

Rule 7

Always follow up

Planning the Call

Planning the Call

• Necessary if you want to have a suggested repayment schedule ready to suggest to the member

• Necessary if you are to illicit a PTP

• ID yourself, the CU, and why you are calling

Motivation to Pay

• Keep Credit Card Open

• Keep Line of Credit Open

• Avoid Foreclosure

Break Into Groups

• Brainstorm Examples of Motivation that you give to Members

• Examples should include Positive Incentives and Negative Incentives

• Be as comprehensive as possible

“Insanity: the belief that one can get different results by doing the

same thing.”

Albert Einstein

Basics:

• Keep it short

• Emphasize “you,” being the member

• Motivate member to pay or contact you

• Sign it

Letters

• Dear Mr. Sherpy

Sample Letters

• First letter

• Follow up letter

• Thank you, but . . . letter

• Partial payment letter

• Settlement negotiations letter

• First payment default letter

• Failure to call letter

Poorly written collections letter

Break into groups

Problematic Letter

Dear Member,

We consider your refusal to pay to be unwarranted and counterproductive. I must confess that I am somewhat perplexed with your refusal to call me back or communicate with me in some meaningful fashion. We expect you to cure this problematic situation.

Sincerely,

Collections Department

Problems

• Dear Member (not Member’s Name)

• We consider . . . I must confess that . . . (emphasize the CU’s position and not the member’s position)

• Exactly what is the member to do?

• How much is overdue?

• Flowery language

• Too long in general

SKIPTRACING

Where, oh where, are you tonight?

Loan Application

• Address

• Place of Employment

• References

• Co-maker information

• Alternative contact information

• Cell phone

Security Agreement

• Information about guarantor

• Information about collateral– Make– Model– Color– VIN– Accessories

Recent Credit Report

• Utilities set up?

• New employer made credit inquiry?

• New landlord made credit inquiry?

Other sources

Licensing authoritieswww.licensediniowa.gov

My Space/ Facebook/ Reunion

Department of Corrections

www.doc.state.ia.us/OffenderInfo

www.bop.gov/iloc2/LocateInmate

Department of Defense

Other sources

• Obituaries– Member may have passed away– Member may be relative and article gives

Member’s new town

Skip Tracing

• Tell us Your Fish Story

Pre-Legal Action

• Extensions

• Modifications

• Workout Agreements

Modification

• Mortgages must be modified in writing

• Permanent change

• Usually done when negative equity

• NOT A REFINANCE!

• No increase in line of credit

• No cash out to the member as a result of modification

Modification Example (p. 29)

• Date mortgage is filed is important, not date mortgage is signed

• Filed = Recorded

• CU would likely obtain subordination agreement with Countrywide

Ways to Modify Mortgage

• Reduce the Interest Rate

• Extend the Maturity Date

• Lower the Loan Balance

Hope for Homeowners Act

• Effective 10/1/08

• Participation is voluntary

• Cram down to 90% of balance

• HELOCs written off and discharged

S.A.F.E. Mortgage Licensing Act

• Secure and Fair Enforcement for Mortgage Licensing Act

• States must pass laws to govern licensing of mortgage brokers

• If a state doesn’t pass law, HUD will oversee licensing

Home Affordable Modification Program

• Effective February 19, 2009

• Mortgage originated before 1/1/09

• Mtg is delinquent or will be delinquent

• Property must not be vacant or condemned

• Member documents his hardship

HAMP

• Lenders whose mortgage is guaranteed by Freddie Mac or Fannie Mae cannot foreclose without going through modification

• Trial period (several months) before the mortgage is modified

• Has delayed many foreclosures

Set Off

I owe you

You owe me

Set Off = Right of Offset

• Provided for by Federal and State Law

• Provided for by common law

• Provided for in loan documents (sometimes)

• Which loan document can we find right of offset?

Termination of Service

• Expulsion of member is hard to do

• Member retains use of share savings

• Member can only conduct business in person

• What to do with joint account owners?

Self Help Repossession

• Hire a professional

• Cannot breach the peace

Voluntary Repossession

• Member can waive Notice of Sal

• Waiver must be signed after default

• Member cannot waive Notice of His/Her Right to Redeem

Agent v. Independent Contractor

• CU liable for Agent

• CU can control details of Agent’s job

• CU not liable for IC

• CU cannot control details of agent’s job

Post-Repo Issues

• Two employees inventory the vehicle

• Return Personal Property to Owner

• “Business Decision” about whether to repair vehicle

Right to Cure

• Iowa Code of Laws 537.5110

• Send before repossession, but after voluntary repossession if you want a deficiency judgment

• Gives member 20 days to pay the arrearage and fees

• Can’t send before 10 days delinquent

Right to Cure

• Send if insurance default

• Sent by regular mail and by certified mail (usually, but not required)

• Sent to all co-debtors, guarantors, etc.

Notice of Sale

• Iowa Code of Laws 554.9611

• Must say whether sale will be private or public

• Must be sent within “a reasonable time.”

Right to Redeem

• Iowa Code of Laws 554.9623

• Can redeem anytime before sale

• Must pay entire amount due

• Member cannot waive this right

Peaceful Repossession

• Do not breach the peace

• Do not break any laws

• Cannot enter home

• Cannot open any door to repossess

• Cannot engage in high-speed chases

• Bonded, licensed repo independent contractor

Selling Repossessed Vehicles

• Enhanced ethics policies prevent the sale of any repossessed vehicle to employee or immediate family of employee

• If financing the sale of a repossessed vehicle, then include FTC notice, page 57

• As-Is Disclaimer of Warranties, page 68

Foreclosures – Info to send to attorney

• Copy of Note

• Copy of Recorded Mortgage

• Assignments and Assumptions

• Modifications/ Extensions

• Title Insurance

• Plat

Foreclosures

• Demand Letter

• Complaint

• Judgment Decree/ Order for Foreclosure

• Publication of Notice of Sale

• Foreclosure Sale

• Deed

• About 150 day process

1099-C

• Forgiven loan is income to your member

• $600 or more forgiven

• 3 month testing period

• Decision to no longer collect

Attachment v. Perfection

• Security Agreement

• Mortgage Signed

• CU beats member

• Lien listed on title

• Mortgage Recorded

• CU beats other creditors