Debt Defense 101: The Must Know Rules Of Debt Defense

The basic rules of Deficiency Debt Defense 101 are an ever growing list of MUST DO and MUST IMPLEMENT RIGHT NOW basic strategies in order to achieve the goal of deficiency debt defense.

Deficiency debt also known as debt deficiency arises when collateral that is used to secure a loan cannot satisfy the total amount due on the loan. It happens most often with debt involving real estate. However, it can occur in other types of collateralized loans such as car, business, and equipment loans. When a loan goes unpaid, the lender has the right to auction off the property to pay off the debt. If the lender collects less than what is owed at the sale, the shortage is called debt deficiency. A lender can turn a debt deficiency into a deficiency judgment. Please read What Everyone Should Know About Debt Forgiveness, Obligations and Deficiencies to learn more about debt deficiency and the consequences of a deficiency judgment.

The primary goals of deficiency debt defenses are to:

1. Reduce the Risk and Amount of Deficiency Debt.
2. Strengthen Your Defenses Against Deficiency Debt.
3. Lengthen The Time To Pay Back The Deficiency Debt.

A proper defense requires that you plan and prepare now. So make sure to implement all of these rules. Make sure you come back and read these rules every month. We will be adding new rules along the way. Also, each rule will be further detailed and expanded in future blog posts. We will do our best to apply each rule to a real life scenario.

In the meantime start reading and start preparing.

1. Do not ignore any legal papers. Always prepare a defense to every legal action. Always respond to a legal action in writing. It LENGTHENS the time and STRENGTHENS your defense 100% of the time.

2. Try to save every debt collection message with a live voice on your answering machine. Save messages that appear to be aggressive, intimidating, or threatening.  It may be useful if you need to prove a creditors improper tactics. Make sure you keep track of calls about your debts to other people or businesses.  There are creditors who may contact family, friends, or business associates. This must be stopped. You can use a cease and desist letter to try and put a stop to phone call communications. 



3. Save every debt collection letter mailed. The best way to stay organized is to get a box and put the creditors name on it. Then simply put all communication, bills, letters, and legal paperwork in to the creditor box. It’s best to organize the documents in the box. At least make sure to keep all documents and place it in the box.   

4. Always send a RESPA request letter to determine if your mortgage servicer has the paperwork to prove who your note and mortgage, to prove it has the legal right to collect, and to prove that it has correctly accounted for all your payments and it has properly calculated all costs associated with your loan. You can find a sample RESPA letter at The 3 Must Send Letters. 

5. Send all letters to lender via certified mail (no return receipt is necessary) and regular mail. Always mail one letter to the lender’s designated address and to the lender's corporate office. If possible try to send letters by fax and/or email. Bottom line is to have proof it was mailed and proof the lender received it. 

6. Become familiar with your states anti-deficiency laws, if any. There are states that do not have anti-deficiency laws. In states that allow for deficiency judgments make sure you know the rules and, if necessary, speak with a qualified attorney.

7. Keep in mind once a deficiency judgment is properly obtained through a court order it can last as long as twenty years in some states.

8. Avoid fraudulent conveyances at all costs. A fraudulent conveyance is when a property or any other asset is transferred with the intent to put it of the reach of a creditor. Each state has specific laws regarding what is considered a fraudulent conveyance. Take the time to learn your state’s law.    

9. Learn legal strategies and techniques that can legally shield your assets from creditors and not expose you to a fraudulent conveyance. You should implement specific legal strategies and techniques tailored to your unique asset profile. 

10. Never ignore a foreclosure action or any other lawsuit to collect on a loan. Always respond in writing. You must use all available defenses. 

11. Make it a habit to send a complaint letter to the bank each and every time you are treated improperly, unreasonably and disrespectfully. Make sure to detail the particulars of your treatment.

12. Never accept any verbal agreement with a lender or creditor- always insist for evidence in writing.

13. Always demand that a lender put in writing that states that “the remaining balance of your debt will be you forgiven” when negotiating a settlement, principle reduction, deed in-lieu, legal judgment or short sale.

14. Always ask for a principle reduction as part of any debt negotiation, workout, or modification strategy. If the lender says “NO” ask for the reason in writing or ask for the lender's principle reduction policy in writing. If the lender does not have it in writing, then send a letter confirming the conversation rejecting the principle reduction. Make sure to put the time, date, and representatives’ identification number in the letter.

15. Always send a letter demanding a complete financial history of all payments and charges as it relates to your loan. You can find a sample Debt Validation letter at The 3 Must Send Letters. 

16. Use a “Do Not Call” letter as a means to stop harassing phone calls. This letter must be sent several times via certified mail and regular mail. You can find a sample "Do Not Call" letter at The 3 Must Send Letters. 

17. Keep a detailed diary of any negotiation discussions with the lender and mail a copy of your notes to the lender “once every other month”.

18. The same defenses that can be available in a foreclosure action may be available in a deficiency judgment action.

19. Remember to read any document that requires your signature. Keep a look out for any clause or sentence that says you "waive" or give up any of your rights or defenses against the loan or the debt. Make sure you have the clause or sentence removed.

20. Be aware that 3rd party debt collection agencies are purchasing deficiency debt for cents on the dollar. It is a very profitable business. Do not be “put to sleep” by a creditor who has not attempted to collect a debt in months or years. As long as a debt can be collected under the law then you should assume a creditor will attempt to collect the debt.

21. Be prepared to negotiate any deficiency and/or outstanding debt with a lender. You must always think ““I know I borrowed $10,000 but I also know I can negotiate a settlement for $5000 or less.” 

22. Become familiar with your states and federal government’s debt collection rules and regulations. A violation of the laws can be a strong defense to a deficiency debt legal action. A violation of any of the appropriate state and/or federal laws can potentially offset the amount you currently owe.

23. Speak to a qualified attorney or legal agency regarding the use of bankruptcy to eliminate deficiency debt. Seek the advice of a qualified attorney, legal aid organization and accountant regarding the risks involved with defending deficiency debt.

24. Just because you borrowed the money does not mean you can’t use legal means to pay less than what you owe or gain more time to pay.

25. Make it a habit to constantly challenge all fees, interest, costs and charges. Ask the lender to send written proof establishing its right to collect the debt.

26. Demand that any third-party debt collector provide proof of the ownership of any claimed debt.

27. Never send a lender more information than what the lender asks for.

28. Always assume that the collection of debt is improper or invalid, even if you borrowed the money. Remember, you have the right to challenge the collection tactics and the amount owed. 

29. If you are in court for a debt collection case, always request the ability to see documents and question the actual debt collector. This is a process that allows you to request documents proving the lawsuit and loan. It may allow you to question the debt collector, live in person, and on the stand. If, during the debt collection case, the debt collector does not produce the documents or an individual to testify, then ask for the case to be dismissed.

30. Make sure to write down the name of every individual you speak to regarding your debt.

31. Always research the names of any person or entity that signs documents in connection with your debt. Always start by searching with Google or any other search engine.  It is possible that individual’s name could come up as a known “robo-signer”.  The purpose of researching names is to find weaknesses in the creation of the debt and the collection of the debt. Enough weaknesses can help you obtain a settlement or defend a legal action.

32. It is possible to have good communications with the representative of your creditor. There will be times you and the creditor’s representative will see “eye to eye”. Both parties can reach a fair agreement. Remember to take some time to think from the perspective of a debt collection representative. Your job is to create an environment that gets you close to what you are willing to pay while helping the representative do their job. Of course never shy away from being firm with your position and offer. It is best to remain calm, cool, and collected with as little emotion as possible. Debt defense is strictly business and strictly business should always be your attitude.      

33. Your goal is to finally resolve the debt by paying as little as possible. The fact is we are living in difficult economic times. Individuals, businesses, cities, states, governments, and nations are all experiencing debt issues. There are bank failures every few months. There are countries crumbling while citizens are marching, occupying, and/or rioting. All of the bank and country bailouts are tax payer funded and all taxpayer funds are primarily directed to banks and corporations. Pensions and retirements tied to debt have been wiped out. We are living in a full blown worldwide debt crisis. One fact remains clear, there is no way governments, banks, corporations, and monetary authorities will pay back all of its accrued and outstanding debt. It is not politically possible. It is not mathematically possible. It is understandable why governments, corporations and banks will never pay all of their accrued debts since it is not in their best financial interest to do so. Ultimately governments, corporations and banks will seek and probably receive debt forgiveness. So you need to do what is in your best interest and seek the same.