KINDER FORECLOSURES?

Credit Union Management, Aug 2008 by Ochalla, Bryan

One credit union executive wants to make the process easier for members.

If there were such a thing as a kinder, gentler foreclosure, wouldn't credit unions be among the first financial institutions to provide them?

Elizabeth Lipke, CEO of Bourns Employees Federal Credit Union (www.bournscu.coop), with $38 million in assets andapproximately2,400members in and around Riverside, Calif., thinks so, and recently queried her colleagues on CUES Net(TM), CUES' members-only e-mail discussion forum, about it.

"Does anyone know of any resources ... that I could share with a member who is facing foreclosure from another lender?" she asked. "I'm not talking about foreclosure in lieu, short sale or any of the legal alternatives. I'm looking for information about what a borrower can expect from a full-blown foreclosure and resulting eviction."

If other CU executives have heard about or developed a "kinder, gentler approach for their members," Lipke wrote, "I'd love to hear about it."

HELP MEMBERS AVOID

One of the few folks who responded to Lipke's question was Trish Shermot, CME, manager of marketing and planning at Reading, Pa.-based CTCE Federal Credit Union (www.ctce.org), with $76 million in assets and about 15,000 members.

Shermot said that CTCE FCU recently partnered with the Consumer Credit Counseling Service of New Jersey (www.cccsnj.org). "They have a program that will give members a $5,000 grant to stop foreclosure. Members must be six months behind on their mortgage and be willing to take a class with CCCS to get them back on track," she shared. "Fm not sure what kind of programs they have [in your area], but I bet they could help you out."

Eric Jones, VP/business services at Mazuma Credit Union (www.mazuma.org), with $333 million in assets and more than 51,000 members in Kansas City, Mo., also offered Lipke a few words of wisdom.

"Missouri is a judicial foreclosure state," Jones wrote. "Once the judge approves the foreclosure, usually within 30 days the borrower will receive an eviction notice from the sheriff. If the borrowers are not out of the house by the eviction date, the sheriff will physically place all belongings on the street. Kansas is a homestead state where it takes a little longer (up to a year) to get the borrower out of the house.

"You control the process," he reminded. "Hopefully, before the foreclosure process begins, you would have modified payments-if they can afford them-to keep them in the home. Another alternative would be if a relative could buy the mortgage and rent it back to the borrower.

"As long as you have been flexible and communicative in the foreclosure process," Jones added, "that's the best thing to ask for."

WHAT THE LAWYER SAYS

Larry Rothenberg, a nationally renowned expert on foreclosures and partner at the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A. (www.weltman.com), was contacted for this article. He had the following advice: "All mortgage lenders should make every effort to communicate with their delinquent borrowers at the earliest possible time, in order to assess the borrower's problems and to inform the borrower what options are available.

"Many courts have implemented mediation programs to attempt to facilitate such communications. However, by the time the foreclosure is filed and a mediation conference is scheduled, the delinquency, including the fees and costs incurred in the foreclosure, will likely have grown to become a much greater obstacle to a resolution."

FINDING A KINDER, GENTLER APPROACH

Although Lipke appreciated the advice, she admitted in a follow-up interview that none of it answered the question she originally posed to her CU cohorts.

"Everything I read seems to focus on avoiding foreclosure, workouts, etc.," Lipke added. "But if that's not possible, how do we hold our members' hands? What information can we provide? What business risks are we taking on when we try to help them understand the process? What information does the state provide?

"I'm at a real loss and it just seems that the 'credit union way' stops when it shouldn't," she wrote. "It's a real opportunity missed."

Bryan Ochalla, a former Credit Union Management editor, is a free-lance writer based in Seattle.