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New Mexico sets rules to launch pandemic debt collection

SANTA FE, N.M. – New Mexico’s court system is taking steps to ease financial upheaval as the state braces for a wave of foreclosures on delinquent mortgage loans and the state phases out a moratorium on commercial debt collection orders often tied to credit cards or health care.

The Administrative Office of the Courts on Monday announced staggered deadlines for a return to debt collection orders that can be used to garnish wages or seize property to pay off commercial debts. Common forms of overdue credit are linked to credit card spending and medical expenses.

Lindsay Cutler, an attorney on economic equity issues for the New Mexico Center on Law and Poverty, said Tuesday that thousands of debt collection cases are likely on hold under the state moratorium – protecting crucial federal pandemic relief efforts aimed at shoring household income and spending.

Cutler said that money from standard and supplemental unemployment benefit payments should remain exempt from commercial debt collections – though it’s up to unemployment recipients to identify those funds as exempt in an isolated bank account. However, loopholes in state law make exemptions unlikely.

At the same time, the state judiciary said mortgage lenders won’t be allowed to foreclose on properties without first providing homeowners with information about various ways to avoid foreclosure – including forbearance agreements that reduce or suspend loan payments temporarily.

Supreme Court Chief Justice Michael E. Vigil acknowledged that an increase is expected in foreclosure and consumer debt cases as pandemic protections begin to expire – but he noted that the situation is unlikely to be overwhelming.

“We have reached a point in the COVID-19 pandemic where courts can normally process consumer debt cases and foreclosures in a fair and orderly manner,” Vigil said in a statement.

A statewide moratorium remains in effect on evictions indefinitely for people unable to pay their rent and a new nationwide moratorium on most evictions was issued on Tuesday by the Centers for Disease Control and Prevention. It is scheduled to last until Oct. 3.

Over the weekend, the U.S. government lifted an order that prevented banks across the country from foreclosing on homes, potentially putting thousands of families at risk.

An estimated 1.75 million homeowners – about 3.5% of all homes – have some sort of forbearance plan with their banks, according to the Mortgage Bankers Association. It is unclear how many New Mexico homeowners are in forbearance.

The scale of the potential problem is much less than it was during the Great Recession, when about 10 million homeowners lost their homes to foreclosure after the housing bubble burst in 2008.

A limited number of U.S. single-family property owners still fall under a moratorium on evictions that has been extended through Sept. 30 by the Federal Housing Administration.

Federal agencies will continue requiring mortgage servicers to give borrowers who can resume payments the option of moving missed payments to the end of their mortgages at no additional cost.

For delinquent consumer debts, commercial lenders can begin filing in New Mexico's courts for collection orders gradually, starting on Sept. 1 for judgements that date back to 2016 or earlier. The moratorium fully expires on Feb. 1, 2022.

Cutler said people with looming consumer debts should open court documents when they arrive in the mail to check for inaccurate claims to guard against predatory debt collections.