The Borrower Who Was Told to Stop Paying and the Deed-in-Lieu Deadline
A past client, Roger, calls his originator, Lena, at a Bismarck brokerage. Roger is five months behind on his North Dakota home and the servicer has sent a loss mitigation packet. Roger says a representative from another company told him he should stop paying entirely so the modification numbers work, and that he should sign a deed-in-lieu this week to keep a foreclosure off his credit. Roger asks Lena: if the house sells at a sheriff's sale, how long can he stay, and can he buy it back afterward? He also asks whether he should send the servicer $1,200 as a good faith payment while the modification is under review. Lena's company is a mortgage broker; it does not service Roger's loan, and it is neither a HUD-approved housing counselor nor a law firm.
1. Evaluate the advice Roger received from the other company's representative. Which parts are prohibited, and why?
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Advising a borrower to stop paying in order to improve modification numbers is steering a consumer into default, and it is prohibited. It damages credit, triggers late fees and default-related charges, can accelerate the loan, and moves the borrower closer to foreclosure - all on the theory that a servicer will reward the delinquency. Servicers evaluate documented hardship and a complete application; a manufactured default is not a qualifying strategy.
Pushing a deed-in-lieu within a week is a second problem. A deed-in-lieu transfers the property, usually extinguishes the borrower's ability to recover equity, and is normally a last-resort option after other loss mitigation has been exhausted and the servicer agrees. Presenting it as an urgent credit-protection move is misleading and high pressure. Characterizing the credit consequences of foreclosure versus a deed-in-lieu inaccurately compounds it.
2. How should Lena describe the North Dakota foreclosure process and the redemption question without giving legal advice?
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North Dakota foreclosures proceed through the courts rather than by a non-judicial trustee sale. The servicer files an action, obtains a judgment, and the property is sold at a sheriff's sale. After the sale there is a statutory redemption period during which the borrower can redeem by paying the amount owed plus allowable costs; the length and mechanics depend on the statute and the facts of the case.
Lena can explain that structure accurately, because it is public and general, and then stop. She should not quote a specific number of months, promise Roger he can stay until a certain date, or interpret how the redemption statute applies to his judgment. She should say plainly that the timeline depends on court filings and statutes, that she is not his attorney, and that he should speak with a lawyer or a HUD-approved housing counselor about his rights and deadlines. Offering a firm date is the mistake regulators cite most often in these calls.
3. What should Lena do about the $1,200 question and Roger's overall situation?
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Whether a payment made during a loss mitigation review is applied to the balance, held in suspense, or returned depends on the servicer's written policy, so Lena should not guess. She should tell Roger to get that answer in writing from the servicer before sending anything, to pay by a traceable method, and to keep proof of every payment. If he sends it, he needs to confirm in writing how it was applied.
On the bigger picture, if Lena is helping Roger with a new loan she should submit a complete application, confirm the servicer has acknowledged the loss mitigation package and identified a single point of contact, and document each contact. She should not promise approval, quote an approval timeline, or repeat the other company's advice. Her role is accurate information, a complete file, and a referral to a housing counselor or attorney for the legal questions; she should also keep a written record of what she told him.