Now that we’ve had additional time to review the CARES Act, we would like to share some clarifications and observations along with advice about how to deal with bills and other financial obligations that may be coming due on April 1.
Here are some things to consider about paying your bills:
1. Pay your bills if you can. You should take advantage of options that allow you to delay making payments if you need to, not just because they are available.
2. If you don’t have enough money to make your mortgage payment and pay your other bills, please consider the following factors before deciding how to allocate the funds you have:
3. First, consider the amount you owe on your home relative to its value. This is known as the loan to value ratio. If your home is worth more than your mortgage balance it is an asset that you should protect. If it is worth less than you owe it is a liability so your mortgage payment should be viewed as a housing cost and compared to alternatives like paying rent. You should also evaluate other factors including the state of the housing market in your neighborhood, the company that owns your loan, and whether you intend to sell your house sometime in the next few years.
As we noted in earlier updates, borrowers whose loans are “federally backed” can apply for up to 12 months of forbearance. But remember, forbearance is not forgiveness. At the end of the forbearance period you will owe the payments you did not make and you will most likely need to modify your loan. At this time, there is no way to determine what the terms of such modifications will be. In addition, if you pay taxes and insurance via your mortgage and the servicer has paid those costs on your behalf, your escrow payment may well rise substantially when the forbearance period ends. In either case, you could be looking at steep increases in costs when you begin making payments again.
4. If you are unable to pay your mortgage you are entitled to suspension/forbearance under these circumstances:
- Your mortgage is “Federally Backed” and covered under the CARES Act which provides a 60-day suspension and 12 months of forebearance;
- You live in New Jersey, California, New York. These states have issued blanket orders suspending mortgage payments.
5. If the investor and/or loan servicer that holds your mortgage is not legally obligated to offer suspension or forbearance you should contact them to determine if they are offering programs that will help you manage your payments. Consider taking advantage of them if they make sense for you.
6. Although the CARES Act prohibits negative credit reporting in the short term for borrowers who were not behind on their mortgage or student loans when the Covid-19 pandemic began, creditors are not prohibited from reporting negative information during and after the crisis. If you rely on credit you should take steps to prevent your hard-earned credit score from dropping.
7. Remember: NOTHING prohibits many creditors from pursuing debt collection during this crisis. Do not ignore legal notices you receive. If you do, a creditor could obtain a judgement that will enable them to garnish your wages and attach your bank accounts. Keep control of you finances by communicating with your creditors.
8. If you are married or cohabitate, it is important for you to talk to your spouse or partner about finances. Be open, honest and transparent about your debts and thoroughly discuss the options and choices available to you. Don’t add to the stress associated with the Covid-19 emergency by concealing financial problems from your loved ones until it is too late to deal with them. This is especially true if one person is primarily responsible for paying the bills. In our experience, being less than forthcoming about your financial situation can be a relationship killer. Don’t let it happen to you.
9. If you are not going to pay a bill, please inform your creditor or mortgage servicer in writing. You should also ask them if they are offering programs or plans that will help you manage your debt.
Communicating with your creditors in writing is important for three reasons:
Reason 1: Employees at most companies are now working at home which means it could take hours to a, reach them and b, discuss the situation which means you may miss a crucial scene on Tiger King.
Reason 2: The only records of a phone call will be the notes taken by the creditor, which you will not be surprised to learn, will not be written in your favor.
Reason 3: We can tell you hundreds of stories about creditors who broke promises because they know no record of the promise being made exists.
So, please, please, please, make sure there is a written record of what you promise the creditor and what they promise you. If you are unable to communicate in writing, record the phone calls if it is legal to do so in your state. Ohio and New Jersey are both one-party consent states which means you can tape away.
If you want help thinking through your choices, our lawyers are available for free initial video or phone consultations call 877-475-8100 or firstname.lastname@example.org
Clarification on Student Loan Issues
In the last update we incorrectly reported that all Federal Student Loans were covered by the payment holiday. Unfortunately, we were wrong. If you have a Perkins Loan or an FFEL Loan it is not subject to the relief provisions of the CARES Act. In a nutshell, if you have a Federal Student Loan that originated prior to 2005 and you did not consolidate it later, your loan is not protected by the CARES Act at all.
We are particularly concerned about the collection of Perkins Loans. In Ohio these loans are collected by the Ohio Attorney General and have become controversial because outside counsel and debt collectors have used aggressive collection tactics and added exorbitant fees to loan balances. DannLaw attorneys Emily White and Brian Flick recently wrote to Ohio Attorney General David Yost and asked him to protect Perkins Loans borrowers during the crisis:
Because our firm represents people who accrued significant debt while attending Ohio’s state colleges and universities, we are particularly concerned about the impact the ongoing emergency will have on student loan borrowers. Many are saddled with tens of thousands of dollars in debt that will take decades to pay off. Low income students who received Pell Grants and Perkins Loans are in a more dire position if they are forced to leave mid-semester due to financial, medical, or family difficulties: they must repay their loans and grants immediately.
To make matters worse, the tactics used by debt collectors and outside counsel hired by the Attorney General’s Office to pursue borrowers have become increasingly aggressive in recent years. Those tactics combined with the charges and fees added to balances, including the 30% surcharge outside firms have been authorized to charge since 2017, make dealing with student loan debt difficult during the best of times—and these are far from the best of times.
In the weeks and months ahead it will become increasingly difficult for Ohioans to pay meet their financial obligations. Governor DeWine, the federal government, and many companies are taking steps to help cushion the blow. I urge you to join them by suspending collection actions and waiving interest and fees for the foreseeable future. I also ask that you consider supporting the creation of a hardship waiver process that will enable Ohioans to deal with the long-term effects of the crisis. At this time in our history, state government should not be the creditor Ohioans fear most.
If you have a chance please join us in urging Attorney General Yost to stand down on collection of Perkins loans and Pell Grants during this crisis by visiting this website: OHLegSupport@ohioattorneygeneral.com.
Clarification on Mortgage issue
We incorrectly reported that credit reporting would continue on Federally Backed mortgage loans that are subject to suspension or forbearance under the CARES act. That is not correct. If you are current on the loan prior to taking advantage of the suspension or forbearance provision of the Act negative credit reporting is prohibited.
One of the most significant features of the CARES Act are the payments of $1200 or more the vast majority of American Families will receive. But the Act does not prevent existing judgment creditors from attaching bank accounts into which the payments will be deposited. Pay close attention to which account the IRS has on record and direct it to an account that is not subject to attachment if you can do so. In addition, as has been widely reported, payments to people who have unpaid child support will be directed to their children.
Anytime the government engages in significant action like the CARE Act charlatans and scam artists begin cooking up ways to cheat those who are eligible for help as well as those who are not. This happened repeatedly when the Federal HAMP program was created. Here are some bad actors you should avoid:
- Anyone who promises to help you access your stimulus money. There is no application for the stimulus money. Make sure the IRS has your accurate bank account and contact information and the checks will be sent directly to you.
- Anyone who promises to help you apply for mortgage or student loan assistance. If you are unsure or need help in deciding what to do about suspension or forbearance of mortgage or other debt only seek advice or help from an attorney licensed to practice law in your state.
- Anyone other than your lawyer or CPA who offers to help you access Small Business Assistance under the CARES Act.
If you sent money to someone engaged in a scam in order to profit from this crisis contact an attorney or law enforcement agency right away. Ohio and New Jersey have strong consumer protection laws that will enable you to seek and secure damages from cheaters and scam artists.