When Is It Acceptable to Forgo Payments to Your Creditor or Landlord?
Credit card, loan and lease agreements contain terms that regulate the debtor / creditor or landlord / tenant relationship. Not surprisingly, a large portion of these contracts are dedicated to the creditor’s or landlord’s rights in the event that the debtor or tenant defaults under the terms of an agreement.
Unfortunately, a job loss, a reduction in income, an illness or other unforeseeable event can cause a payment default. In other cases, a lender’s or landlord’s action or inaction can make it difficult for one to continue making payments. But no matter the reason, without receipt of timely payments, it’s certain that one’s creditor will declare a default. Sure, the easiest way to cure a default is to catch up on back payments. But here are three situations when it is inadvisable to send money after a “default” is declared:
Settlement Proposal. When a debt collector calls and offers to settle a past due balance for a reduced amount, make sure that they provide the terms of the offer in writing, no matter how appealing the settlement. Don’t be pressured by their arbitrary deadlines into paying over the phone without first reviewing written settlement terms. With today’s technology, obtain the settlement and release through email. Otherwise, they can use “snail mail”. Review the written offer and, if agreeable, make payment over the telephone. Making a payment based upon a debt collector’s verbal representation is unacceptable and if you do, don’t be surprised to learn that your original outstanding balance was reduced by the payment, and nothing further.
Landlord -Tenant Dispute. When a landlord repeatedly fails to address a problem under the terms of the lease, withholding rent may be the only leverage a tenant feels they have. But a tenant’s failure to make monthly payments is legal grounds for eviction. If a tenant feels compelled to withhold rent because of a legitimate issue, then the best method to show good faith is for the tenant to set up an escrow account at their bank or credit union. Designate the account as the rent account for the landlord’s benefit. Maintaining an account without verifiable deposits is pointless. In the event of an eviction, this demonstrates to a judge that payments are being made under the terms of the lease but that the landlord’s corrective action is necessary. (By the way, if it gets this far, it’s time to find a new rental.)
Mortgage Lender. When a mortgage company declares the mortgage in default, this means the borrower is in jeopardy of losing their home to foreclosure. But once a default is declared, all back payments and any applicable administrative fees become due. Sending in partial payments will not cure the default, nor will it stop a scheduled foreclosure sale unless the lender or its attorney has agreed to accept the partial payments. Seek out legal assistance to help you negotiate a payment plan to reinstate your mortgage.
One item common to all three of the above scenarios is the need to have written documentation of the original agreements and all subsequent agreements in writing. Read and understand the terms that bind the parties. Remember, don’t accept explanations about terms and conditions of a contract from the very party that at a later date could be one’s adversary. Finally, too many times people fail to read the provisions of the initial agreement, thinking that the terms therein will not apply to them, yet they act surprised when these same terms are enforced against them.
About the Author: Since 1990, David Soble has represented lenders, loan servicers, consumers and business owners on residential and commercial real estate, finance and compliance issues. He has been involved in thousands of real estate transactions, being responsible for billions in real estate loan portfolios throughout his career. He has over 24 years of real estate and lending law experience to support his tempered cynicism. Disclaimer: You should not rely or act upon the contents of this article without seeking advice from your own attorney.