Chapter Eleven PDF

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Chapter Eleven: Loan Servicing and Collections Introduction  Loan Servicing: collect payments promptly and avoid delinquencies while maintaining the highest possible level of consumer satisfaction o Some developers have their own loan servicing and collection system while others employ firms  Some lenders specify that the developer may not collect and service their own loans, believing that an independent collection and servicing entity offers greater security and efficiency o Providing detailed payment and disbursement records covering principal, interest, taxes, insurance, maintenance fees, special assessments, and other payment categories  Most encourage electronic funds transfers o Prompt payment each month and saves the cost of billing, processing payment by check, and communicating with customers whose payments don’t arrive on assigned due date o Some even charge a lower interest rate to buyers who use a electronic fund transfers  Need to establish policies and procedures at the outset of project sales  Right to use sale: repossessing a unit week on which payments are delinquent is simple  Week sold with a fee simple deed: repossession entails significant legal fees and other expenses and is extremely time consuming  Solution: relive such purchasers of their continuing payment obligation and have them deed the property back to the developer in lieu of foreclosure  “deed in lieu” procedure allows the developer to keep whatever monies the former purchaser has paid and then return the property to inventory to be resold Loan Servicing o Process of billing, collecting, reporting, and properly accounting for the buyer’s monthly payments until the promissory note and/or the mortgage evidencing that financing has been satisfied o 2001 Gramm Leach Bliley Act required timeshare developers to send privacy notices to their consumers in an effort ot safeguard consumer financial information o Developer is responsible for creating an information security program that o security and confidentiality of purchaser information o Protects against potential threats to consumer information o Guards against any unauthorized use of such information o Servicing may also include delinquency collections: involves resolving any defaults or disputes o Debtor refers to the timeshare purchaser and the creditor to the lender, developer, or seller o Key Aspects of Timeshare Loan Servicing o In House Servicing:

Developer of the timeshare property facilitates all loan servicing functions with internal staff  Normally prepare to service their mortgage loan portfolios if they own the mortgage and have sufficient volume to warrant the investment in systems and personnel to manage their mortgage portfolio Third Party Servicing:  Developer outsources all loan servicing functions to an approved thirdparty service  Companies specialize in servicing timeshare mortgage loans  Common for lenders to require the developer to utilize third party agencies as a condition of pledging the mortgages as collateral for loans/credit lines Coupon Books/billing statements:  First step: notify debtor of payments due and how payment should be made  This can be accomplished with use of coupon books/monthly billing statements Electronic Check Processing:  October 28, 2004: federal government made it easier for companies to process check payments via a substitute check process by putting into place a law called “check 21”  Make check processing faster  Banks exchange payment information electronically Payment/Lockbox Processing  Automated process, payment coupons can be encoded with information in a scan line on the document to prevent posting errors  Typically, in the name of the developers lender so all payments with respect to notes pledged to that lender as collateral are submitted to the lenders lockbox account Automated Clearing House  ACH network is a reliable and efficient nationwide batch oriented electronic funds transfer system that provides for clearing of electronic payments  Debtor authorizes the developer or servicing agent to withdraw monthly mortgage payments from bank account  Debtor is required to sign an authorization and provide a voided check to the developer or servicing agent to verify account Electronic Funds Transfer:  Customer may remit payment by electronic funds transfer aka wire transfer  Authorizes bank to send wire transfer to lockbox bank  Costly  Funds received are collected funds not subject to charge back 

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o Credit Card Authorizations  May be asked to sign a monthly credit card authorization that allows the developer to charge each monthly timeshare loan payment to the customer’s credit card  Important for foreign accounts o Website Payment Processing  safe secure and simple Collection Tools o Collection of Past Due Accounts o Late Notices  “reminder notice”  Form of written notification sent to the debtor to advise that required payment has not been received on time  Dunning letter or past due billing statement o Telephone Contact  Frequency of calls- once every three days in the first few weeks o Instant Payment Methods  Western Union Quick Collect: take cash to a western union to send payment immediately  Western Union Phone Pay: gives collector personal checking account information over the telephone and information is transmitted to wester union to process check  Credit/Debit Card Payments: customer gives credit/debit card information to collector and info is transmitted to a credit card agency  Most costly since loan agency pays a discount fee  Web Based Bill Pay Services: set up payments through their banks to ensure payment is made o Credit Reporting  Method of notifying one or more of the national credit bureaus of the debtor’s payment history  Provides information in order to make educational decisions regarding extending credit to consumers  Also ensures that the debtors’ financial responsibilities are included on credit report  Overextending of credit occurs when funds are loaned to a consumer beyond his or her financial means to repay o Third Party Delinquency Collections  Involves the collection agency to collect past due accounts  Collection fee charged o Skip Tracing  Process of researching a debtors file and other records to locate the debtor when the collection agency or timeshare developer or manager does not have the debtors current address or telephone number

Collector uses skip techniques to locate the debtor that may include calling other creditors listed on the debtor’s credit report and calling relatives or personal references listed Applicable Federal Laws on Debt and Collections o Fair Debt Collection Practices Act: regulates the actions of collectors in the finance industry and protects the debtor from collection harassment o Prohibits the collector from using profane, obscene, or abusive language o Prohibits collector from sending late notices to the address of the debtor’s employer o Prohibited from speaking to a third party regarding the debtor’s information o Prohibits collector from making any false threats, misrepresenting the amount of debt, and misrepresenting the status of legal proceeding o Bureau of Consumer Financial Protection o Proposed revised and updated rules under the FDCPA o Federal Fair Credit Reporting Act o Requires that credit bureaus and consumer reporting agencies adopt reasonable and fair procedures from compiling consumer credit information to meet the needs of commerce for consumer credit o Ensure the credit information is reported accurately to assist the financial and banking industry in determining credit worthiness, credit standing, credit capacity, character, and general reputation of consumers o Right to know what information credit bureaus and consumer reporting agencies are distributing about them to creditors Default Resolutions and Foreclosures o Final Stage o Used only when the timeshare interest was sold in fee simple and conveyed to the purchaser prior to any default o Common Default Resolutions o Mortgage Modifications: legal document used to refinance or re amortize the loan and Is used more commonly in whole wornership than timeshare  Also used for a mortgage extension  Simply modifies the terms of the original note and mortgage to provide some relief to the debator in connection with repayment of the loan  Seller will require the dbtor to make a substantial payment prior to hthe completion of a mortgage modification to demonstrate commitment for future payments o Cancellation: processed when an account is defaulted for non-payment prior to the closing and title process  Purchase contract allows for cancellation in the event of default by the buyer for non-payment  Seller retains any deposit and payments made by purchaser as full and complete liquidated damanges  Seller also retains title to the property 

Commonly use when a purchaser defaults on a right to use or other non deeded timeshare interest (foreclosure is not required) o Deed in lieu of Foreclosure: signed by the debtor to transfer the title of the timeshare back to the seller instead of undergoing a costly foreclosure  Voluntary surrender of the property  Used in event of a financial hardship to relieve the debtor of future liability and avoid lengthy and costly foreclosure proceeding  Quick and easy way for the seller to take back title and resell it o Foreclosure: legal procedure for enforcing a mortgage resulting in the sale of the mortgage property back to the seller  Lender has the right to accelerate and declare the entire mortgage debt due  Foreclosure sale sets aside the mortgage and the property passes freee of the mortgage to the buyer at the sale, typically to the developer  Debtor remains laible for any unpaid balance Assessment Lien Collections and Foreclosure o Same methods used when timeshare owners association must collect unpaid or late maintenance fees and assessments o Allow the association to place a lien on any timeshare interest where the assessments remain unpaid after any grace period o Then has the right to institute collection procedures as permitted and eventually forclose on unpaid lein o Association may eventually own the timeshare interest on which they have foreclosed unless another party purchases the timeshare o Rights may be limited in cases where there is still a first mortgage in place o Often used the most cost effective metods they can find to collect and foreclose on assessment leins o Costs are passed on to another o Use of deeds in leiu of foreclosure and non judicial foreclosure methods are of great importance to timeshare associations ...