Can My mortgage company contact my tenants?

Question

Hey guys,Covid special here, I am in forbearance and my mortgage company is leaving notices on my tenants door saying we have gone to collections. The property is an owner occupied triplex in Kitsap county, WA under a VA loan. We have the funds to be able to become current on the loan but are holding the capital for security during these uneasy times. I just want to make sure my privacy rights nor my tenants are not being violated. When I call my mortgage company they acted as if its not there problem and said they will put a note in the system but doubt it will do anything as well as assured me to not worry about the notices it doesn't apply to me. Any advice would be much appreciated!

Patricia Steiner · Answer

@Samuel Fletcher Hardy

Oh, I don't doubt for a moment that you've done everything absolutely right. I do find what they did to be against disclosure laws when they do not have a judgement against you. The computer didn't just generate demand letters and drop them on your tenant doors.  The lender screwed up.  To fix this once and for all, you need to do one thing very loudly. (I'm a former senior level banker).  Advise that you will have no choice but to report them to the Insurance and Banking Commission should it happen again. This wasn't a computer glitch...this was illegal and stupid.  I'm sorry it happened to you; there's no excuse.

Adam Martin · Answer

I didn't pay much attention to the actual wording but I remember from my most recent closing that I had to sign a document stating something that I was not entitled to rent if I was not paying the mortgage and that they could collect directly from the tenant if I refused to pay.  I wonder if this is stemming from that and just got sent out even though you were in forbearance.  I will say though that these are uncertain times and I don't know your full circumstances but it seems dishonest to me to claim forbearance if your tenants are still paying and you have income coming in.  From talking to contacts in the mortgage industry this may come back to bite you later down the line if you seek additional loans or financing so keep that in mind.

Dillon Dale · Answer

@Samuel Fletcher Hardy I dont think they would directly contact your tenants, but I think they're entitled to post notices on the property. Not sure why they would though assuming the forbearance was done correctly. It seems weird to me that they did that

Samuel Fletcher Hardy · Answer

@Adam Martin I don't mind telling the full situation. I was medically retired from the navy in late December and opened a small business in January that has been drastically impacted by covid. My tenant is a bartender and has done the best she can but it a month and a half behind on rent we are working together to resolve it and she has kept me informed the whole time. And my wife is a Washington state trooper so there is a bit of uncertainty about her job security. The money I spoke of is what the navy gave me in return for the injuries I sustained and I would rather hold the cash incase anything else comes up then give it up so quickly if I have options. I feel my situation is totally ethical. the notice was a very vague collections notice that was meant for myself.

I am curious how using this program can negatively impact the ability to get financing in the future.

Patricia Steiner · Answer

If they receive a judgement, they can direct the tenants to remit payments to them directly.  Time to call your mortgage company and make sure that everyone understands that you've taken the Covid route - and are not in default.

Joe S. · Answer

Like @Joe Splitrock Said this is probably just an automated process. They have systems in place where certain things happen automatically and who can blame them.

Joe Splitrock · Answer

@Samuel Fletcher Hardy I am going to speculate that this is just an automated process for dealing with people late on their payments. Forbearance isn't a standard process prior to COVID, so most of these companies do not have good systems to deal with it. They are manually handling this and as a result, it would not surprise me that the "system" put a request for the collections notice. As far as why it was posted on your tenants door, probably because they post on all doors as a matter of best effort to reach the owner.

I have known people who's landlord was in default, but was still collecting rent, while not paying their mortgage. In a normal situation without forbearance, it is illegal or a mortgage contract violation to collect rents and keep the money instead of paying your mortgage. You should be good, unless there was something in the fine print on the forbearance agreement. Read your agreement.

Just explain it to the tenants. I wouldn't get too hung up on the privacy aspect. COVID is an unexpected natural disaster and just be thankful you have the option to defer.

According to rules around forbearance, you were required to notify all your tenants in writing you are in forbearance. Part of that notification is to make them aware of their rights. Specifically telling them you cannot evict them due to non-payment based on COVID hardship.

The rules around forbearance evolved. It is a good option given a bad financial situation, but there are strings attached to any program like this. You are now playing by their rules.

https://www.fhfa.gov/Media/Pub...

Adam Martin · Answer

First and foremost thank you for your service for both yourself as military and your spouse in law enforcement.  As mentioned I was not aware of your situation so the previous post was pure speculation however this has shed some new light and your situation is what the act was meant for and I am glad it was here to help you.   In my profession in finance I have seen a lot of people taking advantage of the situation as a free for all and am glad that does not appear to be the case for you.  As far as financing my only suggestion is to check with your lender for specifics however according to my father in law who is a loan officer for a bank this is an issue in the industry it is still treated as a negative mark.  If someone is in forbearance they are unwilling to refinance until you are current and are not going to be offering new loans due to the additional risk involved.  While this does not affect your credit score it still appears on the report and  underwriting will look at this in a negative light.  If you could not afford your current obligations they are unlikely to add additional for you.  Also you are supposed to have at least 6 months of reserves for investment property so if you did not use these reserves first it is a red flag.  On my most recent refi I had to certify I was not in forbearance and issue statements from my loans showing I was current or they would have rejected me.  I realize your situation is slightly different though based on owner occupied so you will want to check to see how this affects you personally.  For your situation there is also the real possibility that it was posted on the wrong door sine you are house hacking.  Good luck either way and I hope you are able to get your current tenant caught up as well as get some additional income from the 3rd unit.

Naomi Pinger · Answer

@Samuel Fletcher Hardy

You might consider speaking with a RE attorney just so you know exactly where you stand.  If you can get by with turning them in to the banking commission that would be great however it may take more than that.

PM me if you would like a name of an law firm that deals strictly with RE matters.  They are located in Seattle.

Good luck with what ever you decide to do.

Samuel Fletcher Hardy · Answer

@Patricia Steiner, We have been in constant contact and kept a log of all contact as well as all paperwork associated with the situation to include the forbearance approval papers. I spoke with them again after this notice and they reassured me to ignore the notice it is sent out by a computer program and we are ok. I wouldn't mind if it came to me but to falsely alarm my tenants with no remorse doesn't seem ok especially in Washington with all are privacy and protection laws.

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