Why Investors Should Not Do Their Own Loan Servicing

Beginning in 2006, the economy of virtually every nation in the world was hit with a major economic downturn that impacted virtually everyone.  In the United States, it has been called the Great Recession in reference to being one of the worst economic downturns since the Great Depression.  As a result of this economic shock, the U.S. Congress enacted some sweeping legislation relating to lending laws generally and specifically towards loan servicing (as did the California State legislature).  In light of these massive legal changes at both the federal and state level (more specifically, the Dodd-Frank Act and California’s Homeowner’s Bill of Rights (“HOBR”) Act), loan servicing by individual investors just became infinitely more risky.

Loan Servicers

The new laws separate loan servicers into two groups: large servicers (files more than 175 Notice of Defaults per year) and small servicers (VCI is one of these of course) .  Large servicers have very significant restrictions and requirements upon them. Small servicers are given some exemptions but still have new rules like the large servicers to follow relating to issues such as foreclosure, periodic billing statements, early intervention rules, and notice.

If your loans are serviced by a large servicer or you are doing it on your own and you are not a California Bureau of Real Estate (“BRE”) licensed broker, these are things to worry about:

• You must be in compliance with both Dodd-Frank and California’s HOBR;
• Error Resolution and Information Requests;
• No notice of the foreclosure process unless loan is more than 120 days delinquent;
• Under the federal rules, you must provide for continuity of contact for the borrower;
• Loss mitigation rules (loan modifications, forbearance agreements)
• Limits on forced placed insurance.

Key Exemptions

As a small servicer licensed with the California Bureau of Real Estate as a licensed broker there are some key exemptions to the larger servicer law requirements, but these are some items to be aware of:

• Error Resolution and Information Requests;
• Forced place insurance.

Federal and State Loan Servicing Rules

Make no mistake about it!  The penalties for not properly adhering to the new federal and state loan servicing rules can be severe.  For example, a mistake or error on the periodic billing statement rules might allow a borrower who can prove her damages to recover not only her actual damages, but statutory damages as well as attorney fees.

There are many professional organizations that exist which are well-equipped to handle the new legislative changes affecting loan servicing of your private money trust deed portfolio.  We believe loan servicing has become more complicated which makes it better performed by people doing it each and every day and preferably by a small loan servicer.  If you have any questions about your loan servicing portfolio, please contact Val-Chris Investments, Inc. as we have been servicing loans since 1975.