Where to turn for advice when a co-signer defaults on his house loan?

December 8, 2011 4:48 PM

Where to send my wonderful neighbor who really, really needs help? My neighbor is one of the kindest, most amazing people I have ever had the pleasure to know. He just came to ask me for advice about a financial problem that he is now facing. He co-signed for a mortgage loan for his son-in-law a few years ago, and just found out that his son-in-law lost his house. A collection agency just called my neighbor at work and is demanding payment of $90K. Where can I send him for help?

My neighbor, T., is a first generation Mexican immigrant (U.S. Citizen) who works incredibly hard. He is a widower who raised his four sons on his own, and the last one is now a senior at a local college. He just won a fight with colon cancer (and he worked most of the way through it) and recovered from a work accident which has left one of his corneas scarred.

Even though he has been through all of these horrible things, the man is always gentle, kind and never has a negative word to say about anything and anyone. I've come out on a winter morning, and he's shoveled my walk (he gets up around 4 am) or on a fall morning, he's raked my leaves. We compete trying to mow each other's lawns, or weed out dandelions for each other. He brings my daughter little gifts and teaches her Spanish, his new wife cooks us food and brings it to our door. Can you tell that I love this neighbor?

I'm just kind of reeling here. I have no idea who to send him to for advice. And that is all he is looking for, he made that perfectly clear. He just wants advice. He owns a house (and has his own mortgage) and I don't think that he ever imagined that his son-in-law would just blow this so badly. He was at work and received a call from the collection agency that the bank has turned the mortgage over to. They told him that he was now responsible for $90K.

He doesn't want to lose his house. Friends of his are telling him to file for bankruptcy, and he doesn't know what that would entail or how to do that. He is a very smart guy, but English is his second language and it isn't easy for him to understand more technical English jargon.

Where can I send him? To complicate matters, I am going out of the country tomorrow and won't be back or available until the end of the month. I really want to help him, I don't know what to do.

posted by jeanmari to work & money (27 answers total)

Sounds like he needs a lawyer.
posted by jon1270 at 4:51 PM on December 8, 2011 [1 favorite]

Start with LAF, if they cannot help they will know who can.
posted by crush-onastick at 4:54 PM on December 8, 2011 [2 favorites]

But what kind of lawyer and where does one go about finding a lawyer who specializes in taking these kinds of cases?
posted by jeanmari at 4:54 PM on December 8, 2011

Yes, he needs to speak to a bankruptcy lawyer. Most of them have free consultations and can outline what his options are going forward. They won't push your friend toward any particular decision.
posted by wierdo at 4:55 PM on December 8, 2011

I'd seek out a bankruptcy lawyer to start with, and then ask that person whether there are options other than bankruptcy and whether that lawyer can either advise about those options or refer your friend to a lawyer in another specialty who would know what those other options are.
posted by decathecting at 4:59 PM on December 8, 2011

Oh, and you can find an attorney in the directory at martindale.com. Many of the attorneys are rated by clients and peers. Don't necessarily go with the first one you talk to, as sometimes people just aren't a good fit, regardless of legal competence. Your friend wants to be comfortable with the person representing him.
posted by wierdo at 5:03 PM on December 8, 2011

I'm sure there are Spanish-speaking bankruptcy lawyers in your city.
posted by grouse at 5:16 PM on December 8, 2011

Bankruptcy may allow him to keep his house, but he'll lose any other savings that he has.

Still, it sounds like an attorney who specializes in bankruptcies is the way to go.
posted by alms at 5:19 PM on December 8, 2011

If you're looking for a bankruptcy (or any other specialist) lawyer, you can check the web site of local bar association: they should have a referral service that includes a bankruptcy lawyer or two who will give a no-obligation low-cost consultation. They may also be able to help with the language issue.
posted by immlass at 5:21 PM on December 8, 2011

Bankruptcy may allow him to keep his house, but he'll lose any other savings that he has.


Not necessarily true. Please only take advice like this from a lawyer who knows the specifics.
posted by the young rope-rider at 5:21 PM on December 8, 2011 [1 favorite]

I think discussion of bankruptcy at this stage is premature. He needs a Spanish-speaking attorney who understands mortgage law. The collection agency is trying to intimidate your neighbor into paying without question because that's what they do. For all we know, your neighbor might not be on the hook at all.

To me, the first step would be to get an attorney. An attorney should be able to outline the specific steps your neighbor needs to take, but it seems to me that the first step would be making the collection agency validate the debt, producing proof that 1.) they own the debt and 2.) that your neighbor is responsible for it.
posted by MegoSteve at 5:22 PM on December 8, 2011 [16 favorites]

I think he needs to take two paths here. One, is call his son-in-law/daughter and find out what is going on from their point of view. Can the house be sold to pay off the mortgage? Are they still in the house? If not, who has it? Etc.

Second, I would call legal aid, tell them the story and ask what they think he should do and to whom he should speak. Obviously, ask about a Spanish speaking attorney.

I would also give him a huge hug as he sounds like a terrific man in need of a huge hug.
posted by JohnnyGunn at 5:29 PM on December 8, 2011 [2 favorites]

Your profile says you're in Chicago. Have your neighbor start with LAF or Micah or the Loyola Community Law Center. CVLS does bankruptcy work and the Catholic Charities Legal Aid services do lots of really good work with immigrants in all sorts of legal matters.

Any of these organizations will be able to help or will tell him what sort of attorney he needs--he may need a consumer protection advocate; he may need a bankruptcy lawyer; he may need something else entirely. Fortunately, a legal services agency can help him get an appropriate referral. At the very least, they will be able to tell him how to handle the debt collection agency which undoubtedly will play dirty pool with him. For instance, under most circumstances, a debt collector may not call him at work. At the very least, if he tells the collector he is not allowed to accept personal calls at work, they must not call him at work. Any of these organizations will have self-help docs for that.

Your neighbor should gather copies of the mortgage line he signed with his son-in-law as well as any communication from the debt collectors that he has received. Any information about the debt collection agency or the bank that holds the note, as well as information about how to contact his son-on-law, will be necessary. He shouldn't go declaring bankruptcy or even planning it until someone acting on his behalf helps him validate the debt. It wouldn't hurt for him to have his own mortgage documents handy when he talks to someone the first time.
posted by crush-onastick at 5:31 PM on December 8, 2011 [6 favorites]

I agree with MegoSteve, bankruptcy talk is way too early. Talk with an attorney that specializes in consumer law. He should not talk with the collection agency. Their job is to bully and intimidate and they will do anything to get money from someone and a person who isn't a native speaker is especially vulnerable.

He doesn't know what is going on with the house. What does the son-in-law 'lost' it really mean? Is he still living there or has he moved out; can the house be sold. He needs more information and someone to guide him through his options. And it could be that the collection agency is just shit out of luck.
posted by shoesietart at 5:33 PM on December 8, 2011

Seconding that bankruptcy is WAY premature; I might have missed what state this is in, but many states have full non-recourse loan requirements. Many other states have limits on lawsuits in recourse loans as well. And selling the house, even at a (likely much smaller than $90,000) could be another option- there really needs to be more information on the table.

If you are living in a non-recourse state, this should be a simple issue: the son turns the keys in and the loan obligation is ended. Any equity is gone, but obviously that is not the issue. But in any event, a lawyer is what's important here just to get bearings on what kinds of options are available (and again, in some states those options might be as simple as saying "Eff you" to the lender and walking away from the loan/house.).

As MegoSteve noted, collections agencies are in the business of badgering people to pay even when they don't have to/don't owe.
posted by hincandenza at 5:38 PM on December 8, 2011

Good advice on lawyering.
Also, tell him not to speak to the collection agency. They will outright lie, especially if they hear an accent then it's a free for all.
posted by Neekee at 5:38 PM on December 8, 2011 [5 favorites]

Oh, and to be clear: a recourse loan is still a case of the house itself being the collateral against the loan; the "recourse" is for the lender to be able to sue against personal assets for the difference, if the market value of the house is now less than the outstanding loan amount (an underwater loan). If the house is above water, then it's like a non-recourse loan: you can either sell the house or just walk away from it.

In a worst-case scenario, the son-in-law/your neighbor should only be on the hook for the difference between what the house is now appraised at and the outstanding principle. So for the collections agency to be calling (out of the blue?) they are presumably looking for the full loan amount, and not the difference in market value and principle remaining.

And on preview, Neekee is nthing the advice: the collections agency can go fuck themselves, the only communications should be between a mortgage lawyer retained by your neighbor and the company holding the mortgage.
posted by hincandenza at 5:43 PM on December 8, 2011 [1 favorite]

I agree that the bankruptcy lawyer talk is very premature. You want to ask around for a business lawyer. I practice business litigation and transactions generally (and have handles a similar situation so a specialist isn't necessary) and there are a lot of us out there. Not sure your neighbor needs a litigator (although our eyes are always on strong advocacy for one side), but anyone familiar with contract law generally ought to be able to help.

The best way to find one is to ask people you know. Even if you don't get to the right type of lawyer right away, you will eventually find one. I get a ton of referrals from my law partner who practices estate planning ...his rich clients sometimes get in a contract dispute or some such and I am there to help. I mention this because you might have a work colleague who had a will done and that lawyer might be able to point you in the direction of a commercial litigator/lawyer.

Sorry to hear about your neighbor's problem. I've got one just like him (we have yard "wars" too and he always wins) and I would do anything for him.
posted by murrey at 6:05 PM on December 8, 2011

Yes, he definitely needs to:

1. Tell the collections agency not to call him at work
2. Talk to a legal services agency (that LAF looks like the best bet to me, out of the ones already mentioned.)

He must be very careful to not tell the collections agency anything other than "don't call me at work," until he talks to the legal services folks.
posted by SMPA at 6:05 PM on December 8, 2011

Most cities have resources for this sort of thing. Around here (in California) calling 211 would be a good first step. They will be able to connect him with city or county organizations who protect people against financial exploitation. If he needs a lawyer and can pay for one, they'll be able to point him in the right direction.

If 211 or its equivalent isn't useful, the city or country credit counselling organization will likely know where to send him, too.

There are a lot of resources around for him, though he might have to be aggressive about making use of them, because creditors are ruthless right now, and try to get money from anyone they can, even if people who aren't actually legally liable.
posted by small_ruminant at 6:29 PM on December 8, 2011

Try www.211.org too.
posted by small_ruminant at 6:29 PM on December 8, 2011

Nthing that it's way too early to talk about bankruptcy. Illinois is a recourse state. However, here is an interesting thread on Loansafe from last year where an underwater borrower in Illinois talks about his foreclosure. Several of the commenters point out that the lender has to go to a court for any deficiency judgement that would allow recourse beyond the house value, and judges are very reluctant to give such judgements now. This is something that a local consumer lawyer would certainly know about. Get a good, tough lawyer to talk to the lender.
posted by zipadee at 7:02 PM on December 8, 2011

This has been invaluable and I am once again so grateful to be part of the Mefi community. I just typed up a summary of some of these answers, a list with phone numbers (and printouts in Spanish) from Micah and LAF, and ran it over to him.

Turns out the collection agency was giving him the impression that they would be able to access his bank accounts (!?) even without his permission. I don't think he has slept in many nights. He'll be calling tomorrow, and I coached him on telling anyone who contacts him or harasses him, "I will have my lawyers call you."

Now I'm off to pack and take my malaria pill. You all are the best.
posted by jeanmari at 8:01 PM on December 8, 2011 [2 favorites]

I know someone who defaulted on their mortgage, the house was sold at auction, and because the house had appreciated in value in the three years this person owned it, they got the remainder of the proceeds from the auction sale once the mortgage was satisfied.

While I don't think this is the case here, I am wondering if the house has been sold yet and where the house is in that process. This might be something for your neighbor to ask his lawyer about.

Good luck to your neighbor.
posted by jbenben at 8:48 PM on December 8, 2011

Let me say this about getting a lawyer - once he's able to tell the collection agency that all contact will be through his attorney, things are going to get a lot better for him. I don't know what he does and doesn't truly owe, if anything. But having an attorney as a firewall is very empowering and will give him some relief. The collection agency will (likely, I've heard stories otherwise) play it on the level after that. Good luck; my neighbors growing up were Mexican-American, and I will forever hold them as part of my family.
posted by azpenguin at 9:15 PM on December 8, 2011

I mailed (to the email in your profile) some consumer debt defense attorneys I've worked with in the past, in case your neighbor needs a private attorney. Both firms do good work, but I don't know how well either firm works with clients who has Spanish as a first language.
posted by crush-onastick at 6:13 AM on December 9, 2011

A follow-up: My neighbor had a really great conversation with Micah and feels very supported. Already they have found out information for him that he didn't know about the situation. It is still too early to tell how this will go and he is still chasing down all of the paperwork needed, but they are able to talk with him in Spanish, guide him with what he needs, call him to check up on things without being pushy, and be generally awesome. Thanks, Mefites, I knew I could count on you! Great, great advice.
posted by jeanmari at 6:23 PM on January 13, 2012 [1 favorite]