Why Should I Care About PIFFA?

Title Insurance with Confidence Title & Escrow

            Piffa, actually PHIFA, is an acronym for the PROTECTION OF HOMEOWNERS IN FORECLOSURE (OR DEFAULT) ACT.

            I received a call today from a Realtor who asked why I do not negotiate payoffs on behalf of sellers and their listings.  The person told me that XYZ Company does it for $500 and ABC Company does it for $1,500.  They proceeded to tell me how lucrative this field could be.  I, in turn, asked them if they had heard of the new legislation known as PHIFA and they said they had not. So I proceeded to tell them what PHIFA meant to a title insurance producer and how someone involved in the negotiation of the payoff could actually find themselves in a heap of trouble.  Don't get me wrong, I will help in any transaction, but only to a certain point.

             The Maryland Commissioner of Financial Regulation has issued an Advisory Notice which forewarns both the homeowner and the "loss mitigation consultant" or the "foreclosure prevention specialist" that they need to be fully aware of the PHIFA requirements and to adhere to the established regulations.  The services in question are those that offer to help delinquent borrowers obtain payment plans, loan modifications, short sales and deeds in lieu of foreclosure.

Under PHIFA, a foreclosure consultant may not:

•1.      Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that the foreclosure consultant would perform; or

•2.      Recover any consideration from any third party in connection with foreclosure consulting services provided to a homeowner unless the consideration:

•a.       Is first fully disclosed in writing to the homeowner

•b.      Is clearly listed on any settlement documents; and

•c.       Is not in violation of any provision of this subtitle.

             The State defines a "Foreclosure Consultant" as person offers the services described below to a mortgage borrower who is at least sixty days in default. A homeowner need not be in foreclosure for PHIFA to apply.  PHIFA defines a "foreclosure consultant" as a person who:

•1.      Solicits or contacts a homeowner in writing, in person, or through any electronic or telecommunications medium and directly or indirectly makes a representation or offer to perform any service that the person represents will (among other things):

     •a.       Obtain forbearance from any servicer, beneficiary or mortgagee;

     •b.      Assist the homeowner in exercising a right of reinstatement provided in the loan documents;

     •c.       Obtain an extension of the period within which the homeowner may reinstate the homeowner's obligation or extend the deadline to object to the ratification; or

     •d.      Obtain a waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a residence in default or contained in the mortgage; or

•2.      Systematically contacts owners of residences in default to offer foreclosure consulting services

 A "residence in default" is defined as residential real property located in Maryland consisting of not more than four single family dwelling units . . . on which the mortgage is at least 60 days in default. 

 "Foreclosure consulting services" include:

1.  Contacting creditors on behalf of a homeowner;

2.   Arranging or attempting to arrange for an extension of the period within which a homeowner may cure the homeowner's default and reinstate the homeowner's obligation;

3.   Receiving money for the purpose of distributing it to creditors in payment or partial payment of any obligation secured by a lien on a residence in default;

4.   Arranging or attempting to arrange for any delay or postponement of the sale of a residence in default; or

5.   Arranging for or facilitating a homeowner remaining in the homeowner's residence after a sale or transfer as a tenant, renter, or lessee under terms provided in a written lease.

            If a service provider systematically contacts owners of Maryland residences whose mortgage loans are at least sixty days in default for the purpose of offering to contact creditors on their behalf, the service provider is acting as a foreclosure consultant under PHIFA.  This will cover most persons offering loss mitigation consulting, foreclosure prevention, and similar services.

            Likewise, if for a fee, a person refers an owner of a residence in default or foreclosure to a third party foreclosure consultant who ends up violating PHIFA, the referring party may also be found liable for the violation because of the referrer's involvement as an accomplice in the transaction giving rise to the violation.

            Remember that the owner of a residence in default has a 5-day right to rescind the agreement to sell or transfer title, and if a foreclosure consultant is involved in the transaction, the 5-day period does not begin to run until the seller receives all required disclosures and other documentation required under PHFA.

            Please remember that title insurance producers are not exempt from PHIFA. If you find that you are no longer merely obtaining payoff information from lenders and judgment creditors as you would for any closing, but are, instead, negotiating short sale payoffs for a seller, you may have crossed the line and become subject to PHIFA, particularly, if you are receiving payment for such services. Those activities may make you a "foreclosure consultant" under PHIFA. Failure to comply with PHIFA subjects the person acting as a foreclosure consultant to potential criminal penalties and civil damages.


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Keith & Shannon French
www.KeithandShannonFrench.com - Catonsville, MD
Baltimore's Best for Rent To Own Homes

Finally, I found your post!  I posted a question regarding this matter and will have to go back and edit it to reflect the correct acronymn.  I am surprised that with all the short sale listings going on that this law has not caused a lot of problems for folks...agents, buyers, sellers, everyone.

I'm needing clarification on the 5-day right to rescind the agreement, or at least get your interpretation.  Here's a specific, real life example of what happened to us.  I'll try to keep it short:

-Seller contacted us.  Said he had fallen behind, but that he recently caught the mortgage up to be less than 60 days behind.  Seller said he recently called his lender and they said his payoff was $106,000.  We said "well based on that information, with our offer of $140k, you should be able to take away $25-30k", assuming there's nothing else to be paid off at closing.

-We were busy tracking down his ex-wife who was still on title only to find out they never got divorced and she was remarried in Florida!  Somewhere in the midst of all that drama, we discover that he is approaching over TWELVE months behind on his mortgage and it's with a foreclosing attorney and the foreclosure date set to 1 week away!  Total surprise. 

-He had equity and didn't need a short sale.  BUT, we finally got the payoff 3 days before the foreclosure.  His payoff was $126,000!  Now our cash offer was only going to get him about $5k at closing.  He was pissed, but communicated to us that his anger was with the bank, not us.

-He went through with the closing.  The very next morning his attorney served a letter stating that the Seller is exercising his right to rescind the sale in accordance with the PHIFA law and the whole transaction got reversed!  What a nightmare.  Of course he cashed the $5k check (total fraud) and the property went to foreclosure and sold to a 3rd party for guess what? $140,000.  It's likely that the seller ended up with nothing after auction, foreclosure fees, etc.

-I am leaving out some details that further added to the complexity of this deal, but it was such a nightmare to the point where we don't want to deal with anyone even 15 days late on their mortgage...which is everyone these days.

So I guess my question is...our title company was thinking that he had the right to rescind for 5 days from day of CLOSING, not the signing of the contract (which was long ago).  Or maybe it was because we did change the contract and signed a new one at closing...originally Seller was paying all closing costs, but we changed the contract to have it where we would pay closing costs as we were trying to get the Seller as much money as possible.  The original contract along with all the required disclosures were signed by seller a couple weeks prior to closing, well beyond 5 days prior.

I'm wondering if the contract is changed at closing to accomodate whatever details have been discovered...does the Seller have the right to rescind the sale up to 5 days after closing.  If that is the case, we have no Lenders willing to fund a deal if the Seller has that right.

Hopefully I've written a coherent post.  I'm just so surprised to not see more blogs on this subject and am eager to get some conversations going.

May 16, 2009 06:36 PM #1
Keith & Shannon French
www.KeithandShannonFrench.com - Catonsville, MD
Baltimore's Best for Rent To Own Homes

Hi Victor, me again.  Do you know if anyone has yet to be prosecuted under PHIFA?

May 16, 2009 06:43 PM #2

Obviously the funds (5k) paid to the seller by you have to be refunded and are required to be refunded within 60 days at 8% interest under PHIFA. And it is 5 days after the contract is signed (not closing) and the seller is informed of their rights under PHIFA in writting.

The law is spelled out here:


Jan 15, 2011 02:32 AM #3
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