James R. Balmforth: Mortgage Servicing Rules And Foreclosure

Sometimes a homeowner can make a defense to a foreclosure based on a mortgage servicer’s violation of rules governing this industry. They also may have rights that they can assert under the federal Fair Debt Collection Practices Act (FDCPA). These defenses may not defeat the foreclosure entirely, but they may delay it or give you some leverage in negotiations. They also provide requirements for communications between the lender and the homeowner. If the lender fails to give you proper notice of the foreclosure under the rules, you may be able to delay the foreclosure until you receive notice. Also, if you submit your loss mitigation application 38 days or more before the foreclosure sale, this will trigger additional steps that the lender must take before proceeding with the sale. If it proceeds with the sale anyway, you can ask a court to cancel the sale, which will delay the process and give you more time to move or explore alternatives. You can also report a mortgage servicer to the Consumer Financial Protection Bureau (CFPB) if it violates these rules. People usually think of the FDCPA as a debt collection law, but it can be relevant to foreclosures in some cases. The language of the law is ambiguous, but some courts have ruled that a person or entity that tries to collect a payment on a mortgage or pursue a foreclosure can be defined as a debt collector within the meaning of the law. (Often, this will be the attorney of the foreclosing party.) On the other hand, some courts believe that the FDCPA does not cover foreclosures because collecting a debt is a different activity from enforcing a security interest. The U.S. Supreme Court will decide a case in the 2018-19 terms that will address whether the FDCPA applies to a non-judicial foreclosure, so this area of the law may change dramatically. Even if the FDCPA does not cover foreclosures, debt collection laws in your state may cover foreclosures. You can consult an attorney to determine whether your state’s law may extend further than the federal law.

Asserting Your Rights Under the FDCPA

The impact of the FDCPA on foreclosures often relates to the notice requirements under the law. A foreclosing entity that meets the definition of a debt collector must provide written notice within five days of first communicating with the debtor. This notice will identify the creditor, state the amount of the debt, and tell the consumer that they have 30 days to verify the debt. As a result, if you are at risk of foreclosure, you can dispute the existence or amount of the debt within 30 days of getting the notice. Continuing collection efforts before the debt is verified violates the FDCPA. Inappropriate charges that form part of the debt also violate the FDCPA, as does a failure to provide the homeowner with a verification of the debt. Moreover, failing to provide the homeowner with the required notice violates federal law. While identifying an FDCPA violation may not necessarily save your home, you can recover any monetary damages resulting from the violation, in addition to statutory damages up to $1,000. The Consumer Financial Protection Bureau is seeking comments through November 22, 2013 on an Interim Final Rule to address a small number of issues raised by mortgage servicers and others regarding the mortgage servicing and Home Owners Equity Protection Act (HOEPA) rules set to take effect January 2014. An Interim Final Rule is one that has already been approved and in this case, is scheduled to take effect January 10, 2014. However, the Bureau is nonetheless seeking comments on how stakeholders think they will be affected by the changes and further changes could be adopted to the Interim Final Rule before January.

The Interim Final Rule would amend:
• The Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing Final Rule);
• The Mortgage Servicing Rules under the Truth in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule); and
• The High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X) (2013 HOEPA Final Rule).
The Interim Final Rule addresses these areas:
• How the certain issues regarding communications with borrowers under the servicing rules should be addressed in light of bankruptcy law and the Fair Debt Collections Practices Act (FDCPA); and
• Issues relating to communications with delinquent borrowers for early intervention.

Mortgage Servicing Rules for “Successors in Interest”

Effective as of April 19, 2018, successors in interest to property secured by mortgage loans that are covered by the Real Estate Settlement Procedures Act (“RESPA”) and Truth in Lending Act (“TILA”) now have certain rights under those acts. These amendments are part of the Consumer Financial Protection Bureau’s 2016 Mortgage Servicing Rule amendments to RESPA and TILA. The CFPB issued the new rules because “it had received reports of servicers either refusing to speak to a successor in interest or demanding documents to prove the successor in interest’s claim to the property that either did not exist or were not reasonably available.” The rules are therefore designed to make it easier for potential successors in interest to communicate with servicers and establish that they are successors in interest. At the outset, the new rules define a “successor in interest” as anyone who obtains an ownership interest in a property secured by a mortgage loan, provided that the transfer occurs under one of the scenarios listed in the new rule. The scenarios range from a transfer resulting from the death of the borrower to a transfer from the borrower to a spouse or child. The person does not have to assume the loan in order to be a successor in interest. The amendments create several potential pitfalls for servicers because certain obligations are triggered when a servicer receives actual or inquiry notices that someone might be a successor in interest. The amendments require servicers to “promptly” communicate with anyone who may be a successor in interest. Servicers must also only request documents “reasonably” required to confirm whether that person is in fact a successor in interest. And a “confirmed” successor in interest now has the same rights as the original borrower under RESPA and TILA mortgage servicing rules. Litigation is also inevitable because the amendments contain broad and imprecise language – such as “reasonably” and “promptly” that opens the door for lawsuits and cries for judicial interpretation.

A “successor in interest” is defined as “a person to whom an ownership interest in a property securing a mortgage loan subject to this subpart is transferred from a borrower, provided that the transfer is:
• A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
• A transfer to a relative resulting from the death of a borrower;
• A transfer where the spouse or children of the borrower become an owner of the property;
• A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or
• A transfer into an inter vivo trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”

What should a servicer do when it receives correspondence from a potential successor in interest?

• Promptly respond and request documents: An aspect of the amendments that is bound to create headaches (and litigation) for servicers is that they have an obligation to respond when they receive correspondence providing actual notice that someone might be a successor in interest and when they receive a written request that puts them on inquiry notice that someone might be a successor in interest.

• Actual notice: Servicers must have policies and procedures to ensure that they “promptly facilitate communication with any potential or confirmed successors in interest” upon receiving “notice of the death of a borrower or of any transfer of the property.” Upon receiving the foregoing notice, servicers must then “promptly” request documents, determine the status of the person, and notify the person “that the servicer has confirmed the person’s status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest.” While it is unclear what constitutes a “prompt” determination, a determination is not prompt “if it unreasonably interferes with a successor in interest’s ability to apply for loss mitigation options according to the procedures provided in § 1024.41.”
• Inquiry notice: If a servicer receives any written request “that indicates that the person may be a successor in interest” and “includes the name of the transferor borrower” and “information that enables the servicer to identify the mortgage loan account,” a servicer shall respond by requesting, in writing, the documents the servicer reasonably requires to confirm whether the person is a successor in interest. The types of request that “indicate” the person may be a successor in interest are broad. For example, a written loss mitigation application from a person other than a borrower is a written request that indicates the person may be a successor in interest.

If the written request from the potential successor in interest does not have the required information, the servicer “may” respond by requesting more information. Servicers should also be mindful of the deadlines for responding to written requests for information under 12 C.F.R. § 1024.36(c) and 1024.36(d), which require acknowledging receipt within five business days and a substantive response within thirty business days.

• Request documents “reasonably” required to confirm the person is a successor in interest.

A “potential” successor in interest becomes a “confirmed” successor in interest if the servicer confirms “the successor in interest’s identity and ownership interest in a property.” But a servicer may only request “documents the servicer reasonably requires to confirm that person’s identity and ownership interest in the property.” The requested documents “must be reasonable in light of the laws of the relevant jurisdiction, the specific situation of the potential successor in interest, and the documents already in the servicer’s possession.” The servicer can also require documents it believes are necessary to prevent fraud or other criminal activity, e.g. if the servicer believes that the documents are forged. Subject to the foregoing, requesting a death certificate, executed will or court order might be reasonable. But it would be unreasonable to request certain probate documents when “the applicable law of the relevant jurisdiction does not require a probate proceeding to establish that the potential successor in interest has sole interest in the property.” Because the reasonableness requirement depends heavily on the relevant jurisdiction, servicers must take into account local laws when requesting documents.

How Do These Changes Impact RESPA And TILA?

A “confirmed successor in interest” is now a “borrower” for purposes of RESPA’s mortgage servicing rules and 12 C.F.R. § 1024.17 and a “consumer” for TILA’s mortgage servicing rules. 12 C.F.R §§ 1024.30(d) and 1026.2(11). Thus, a confirmed successor in interest is entitled to the same rights as the original borrower or consumer. For reverse mortgages, the changes only impact the rules that apply to reverse mortgages. See 12 C.F.R. § 1024.30(b). For example, a confirmed successor in interest is still not subject to the loss mitigation procedures in 12 C.F.R. § 1024.41, but a confirmed successor in interest is now entitled to a payoff statement under 12 C.F.R. 1026.36(c). There is no private right of action for claims by potential successors. While confirmed successors in interest have the same private right of action to enforce the rules as borrowers and consumers, the rules do not “provide potential successors in interest a private right of action or a notice of error procedure for claims that a servicer made an inaccurate determination about successorship status or failed to comply with § 1024.36(i) or § 1024.38(b)(1)(vi).” This, however, will likely not deter potential successors in interest from trying to assert such claims. Moreover, a confirmed successor in interest who has allegedly been damaged by a servicer’s failure to request documents “reasonably” required for the determination or a determination that was not “promptly” made might be able to assert claims under the new rules.
Coordination of Certain Mortgage Servicing, Bankruptcy and FDCPA Requirements.

The Bureau is clarifying compliance requirements in relation to bankruptcy law and the Fair Debt Collection Practices Act (FDCPA) through this rule and through a compliance bulletin the Bureau has issued. According to the CFPB, it has received a large number of questions from servicers about how the servicing rules relate to bankruptcy law and the FDCPA for example on issues such as how to communicate effectively with borrowers in light of their status in bankruptcy. The Bureau believes further analysis is needed to resolve some issues and may be issuing further amendments. In the meantime, the CFPB has addressed several issues in its new bulletin and interested parties are encouraged to read the bulletin. More specifically the bulletin:

• Confirms that servicers must comply with certain requirements of the Dodd-Frank Act and respond to certain borrower communications in accordance with the Bureau’s servicing rules even after a borrower has sent a cease communication request under the FDCPA.

• Provides a safe harbor from liability under the FDCPA with regard to such communications.

• In conjunction with the issuance of the bulletin, the Bureau is providing exemptions for other servicing communications that are not specifically required by the Dodd-Frank Act or other statutes. The exemptions will provide some relief for servicers in connection with the FDCPA and when the borrower has filed for bankruptcy. The exemptions are from:
• The requirement in § 1026.20(c) for a notice of rate change for adjustable-rate mortgages (ARMs) and the early intervention requirements in § 1024.39(d)(II) when a borrower has properly invoked the FDCPA’s cease communication protections.
• The early intervention requirements in § 1024.39(d)(II) and from the periodic statement requirements under 12 CFR 1026.41(e)(5) for borrowers while they are in bankruptcy.

Who Regulates Mortgage Lenders?

Mortgage lenders have to follow certain rules set forth by the federal government. These rules make sure lenders do everything they can to employ service that’s both fair and legal, and that they don’t take advantage of the general public. So, put simply, the federal government regulates the mortgage industry. It does this through a variety of agencies and a host of Congressional acts. The federal Truth in Lending Act (TILA) was designed to help protect consumers in their relationships with lenders. Regulation Z is the Federal Reserve Board regulation that implemented TILA. The act requires lenders to disclose information about their products and services to consumers, and aims to protect consumers from misleading practices by lenders. Another key component to mortgage regulation is the Real Estate Settlement Procedures Act (RESPA).

This act was enacted by Congress so buyers and sellers are given disclosures about the full settlement costs related to home buying. Mortgage lending came under heavy scrutiny following the 2008 financial crisis. Prior to the housing market crash, demand for mortgage-backed securities (MBSs) rose as investors became hungry for higher returns from their investments. Hedge Banks began relaxing their lending requirements, advancing mortgages to people with low credit scores often without any down payments at high interest rates. When values peaked, rates began to increase, making payments more expensive. Many homeowners were unable to afford their homes, and ended up defaulting, causing the market to crash. Because of the problems after the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act piled on additional mortgage industry regulations to protect consumers, making regulations tougher against predatory lending and mortgage qualifying standards. Under changes signed into law in 2018, the act, escrow requirements for residential mortgages held by a depository institution or credit union are exempt under some conditions.

Mortgage Foreclosure Lawyer In Utah

When you need legal help with a mortgage or a foreclosure in Utah, call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.