Chapter / Trick #2 – Ghosting
Ghosting means to disappear from a relationship without warning and cut off all communication. This happens in personal and business relationships, such as after you lend a friend money and they stop calling you back or after you apply for a job, and you never hear back from the interviewer. If you are the employer, one of your workers might suddenly stop showing up for days on end without calling in sick or telling you they are quitting. It might be a website that you order from online that disappears after you pay for the item on your credit card.
Lenders and mortgage servicers will rarely ghost you altogether, although they will disappear when it suits them. This will play out differently with first and second mortgages and with mortgage servicers.
Ghosting trick # 1 – The disappearing Second Deed of Trust.
If you got a loan between 2004 and 2007, you might have gotten talked into a first and a second deed of trust, what was called a piggyback loan. The first deed of trust or mortgage would be for 80% of the purchase price/ value, and a second deed of trust or mortgage for 10% of the purchase price. Both of these would be originated by the same lender, the first being securitized into an RMBS and being secured by the value of the property, and the second being retained by the originator to be kept or sold on the secondary market.
After the stock market crashed in 2007, along with depreciation in housing values, many people stopped paying on these second deeds of trust, and they became non-performing loans. In some cases, the value of the house was at or below the first deed of trust, leaving the second completely unsecured with nothing to be gained by foreclosure. When second deeds of trust became unsecured, the servicers were happy to stop servicing them. Once these loans became non-performing and the servicer stopped servicing them, you had no company to make your mortgage payments to, even if you wanted to.
Once people stopped paying, the servicers stopped servicing, but they never stopped transacting these non-performing seconds on the secondary market. These unsecured seconds were bought and sold for pennies on the dollar by investors intending to hold them and wait for their value to come back. Sometimes, they would be sold and resold for ever-increasing amounts as the value in the underlying asset continued to come back, that being the properties against which they were recorded. These second deeds of trust/ mortgages would come to be known as "zombie mortgages" or "sleepy seconds" because they would lay dormant for many years until the value returned to your property when they sprang back to life. That would be when the current investor would suddenly appear, wanting you to pay the full amount plus interest, an amount that would now wipe out all the equity you had accumulated.
Ghosting trick # 2 – The disappearing first deed of trust
Federal law requires that servicers continue to service mortgages, and this applies even when they go into default.[1] It requires that servicers notify you in writing when there is a change in servicer.[2] It requires they do this no later than 15 days after the change in servicing rights so that you have advance notice of who you will be paying.[3]
Despite these federal protections, servicers use this time of changing servicers as an opportunity to stop sending you mortgage bills and to stop accepting payments. They use it as an opportunity to lose mortgage payments, or they may suddenly add an escrow payment to your account so that your amount goes up, and they can declare your regular payment is insufficient and use that to throw you into default. The servicer is more likely to use a change in servicing to disappear if you have paperless billing or if you pay over the phone or by cashier's checks. If you have automatic payments coming out of your bank account, you may not notice for a while that your payments are no longer being withdrawn.
There are servicers whose sole business model is to purchase the servicing rights for highly leveraged or "non-performing loans" with the intention of foreclosing.[4] These servicers buy your servicing rights when you are a few months into default, or even when you are consistently late, and use the transfer of servicing rights to prolong your default by up to six months before they even contact you. By that time, you are so far into default that your options are severely limited. These types of servicers are strictly in the business of foreclosure and do not offer modifications, so don't get sucked into applying.
Ghosting trick # 3 – The disappearing Single Point of Contact.
Ghosting also happens during a modification when California statute requires the servicer to provide you with a single point of contact.[5] This point of contact will make all kinds of promises seem so nice, and then all of a sudden be gone, the number changed, moved to a different department. If you're in the middle of a modification, you'll be forced to start all over again, maybe with a new point of contact or a new service, so you must re-request a single point of contact.
The new single point of contact will contact you by letter and will not be available when you call them. You might get a voice message on your phone, but that person won't be there when you call back. This will delay your default by months, which is the intention. This is how the servicer gets around that Single point of contact statute.
[1] 12 U.S.C. §1265
[2] 12 U.S.C. §1265(b)
[3] 12 U.S.C. §1265(c)
[4] Housing Wire February 16, 2018, Freddie Mac Announces first non-performing loan sale of 2018. Available at: https://www.housingwire.com/articles/42548-freddie-mac-announces-first-non-performing-loan-sale-of-2018/
[5] California Civil Code §2923.7(a) When a borrower requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact and provide to the borrower one or more direct means of communication with the single point of contact.