Unifund Targets Indebted Homeowners with Lien Product

Looking for an alternative to foreclosure? Unifund, Cincinnati, has designed the "Future Home Lien" product to help collect debt from defaulted debtors who own a home. This unique product allows for a faster and less work-intensive litigation process when compared to foreclosures.

Unifund maintains that FHL products derive from unsecured, charged-off, non-mortgage, consumer accounts (typically bank card paper) that benefit primarily foreclosure attorneys, mortgage servicers, buyers of secondary market portfolios, nonperforming buyers and REO firms, as well as "brokers who can purchase a portfolio of FHL accounts for litigation-ready liquidation."

FHLs may serve these firms to "unlock a new revenue source" and expand their business.

FHLs are "geared for immediate litigation," according to the Unifund website, so even though FHL is not a mortgage paper, it indirectly benefits mortgage lenders by allowing homeowners who are in default to pay off their debt, clear their credit and avoid going into foreclosure.

FHL portfolio holders can pool the accounts by state, region or county, as well as based on outstanding balance, issuer or product type to customize it to the firm's needs. According to Unifund, benefits to a FHL holder include a "greater than 85% result in default judgments." Unifund guarantees each defaulted account in a FHL portfolio belongs to a homeowner and provides the appropriate documentation to back that claim up.

In addition, if the average default balance of a FHL account is anywhere between $4,000 and $5,000, in a foreclosure scenario the average outstanding balance is over $100,000. Also, Unifund allows FHL accounts to be purchased in pools that are liquidated in a "mass production" litigation method, while foreclosed accounts are purchased on a property-by-property basis.

According to Unifund, if the owner contests foreclosure proceedings leading to a longer work-intensive legal process, with FHLs, 90% of these homeowners either do not contest the defaulted account, or choose to voluntarily settle with the firm. When the debtor chooses not to settle, the firm who bought the account would proceed with litigation to liquidate these accounts. For those that do contest the account in court, greater than 90% of the suits result in default judgments, at which point the debtor must settle with the firm, or accept a FHL being placed on their property.

Unifund also maintains that FHL liquidation takes up to 70 days on average, depending on jurisdiction and other factors. Once the portfolio is purchased, the firm sends a "demand letter" to the client instructing them to settle the account within 30 days. If the debtor chooses not to settle the account, the firm can file suit on day 31 and serve the defaulted homeowner via certified mail, personal service, sheriff's office or regular mail. Upon receipt of the lawsuit the defendant has several choices. He can either contact the firm to make settlement arrangements and sign an "agreed judgment" that outlines a detailed repayment plan, which is filed with the court. Other options include filing an answer with defense (for instance, a fraudulent account due to identity theft), filing an answer without defense (i.e., general denial of the debt), or ignoring the suit (i.e., not respond within the 30-day period). These three options would all cause the case to go to court.

Defendants may also negotiate a settlement directly with the firm's attorney or through their own attorney and who can contact the firm within 30 days. If the firm agrees with the proposed settlement, a "settlement in full" letter is filed. If not, the firm may suggest a counteroffer to the debtor. Once all parties are in agreement and funds have been received and cleared, the lawsuit is dismissed.

Post-judgment liquidation and remedies may include repayment plan, levies on property, and foreclosure and FHL liquidation if the debtor sells or refinances the home, or dies.

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