Handling Mortgage Servicing
Cases under the New
CFPB Regulations
June 23, 2014
Dallas, TX
Speakers:
Richard Alembik
John Rao
Tara Twomey
Jennifer Wagner
Online Materials:
http://www.nclc.org/conferences-training/2014-mortgage-training-conference.html
No Username or Password needed
ABOUT THE NATIONAL CONSUMER LAW CENTER
Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer
justice and economic security for low-income and other disadvantaged people, including older
adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation,
expert witness services, and training.
Acknowledgements
We would like to thank the Consumer Protection and Education Fund of the Attorneys General
for its grant in support of this conference. Thanks to our speakers for volunteering their time and
expertise; and Jessica Hiemenz for coordinating the conference, CLEs, and the materials; to
Debbie Parziale, Eleanna Cruz, Beverlie Sopiep, and Marina Levy for handling registrations and
finalizing the materials; and to Svetlana Ladan for coordinating the website materials.
© 2014 National Consumer Law Center® - Materials included in this book cannot be copied or reproduced in any way
without the express written permission of NCLC®.
Handling Mortgage Servicing Cases under the New CFPB Regulations
Sponsored by NATIONAL CONSUMER LAW CENTER® & National Association of Consumer Advocates
June 23, 2014
Speakers Include
Richard S. Alembik, Richard S. Alembik, PC
John Rao, National Consumer Law Center, Inc.®
Tara Twomey, National Consumer Law Center, Inc.®
Jennifer S. Wagner, Mountain State Justice, Inc.
Agenda
Review of the new CFPB servicing regulations by participants before the workshop is encouraged. This is an advanced intensive.
7:30am – 8:30am
Registration & Coffee
8:30am
8:30am – 10:
10:00am
00am
Notices of Error and Requests for Information
Scope and limitations
Servicer response obligations
Requests for identity of mortgage owner
Requests for payoff statements
10:00am – 10:30am
10:30am
Force-Placed Insurance
Duty to advance premiums
Notice requirements
10:30am – 10:45am
10:45am
Break
10:45am – 11:15
11:15
Early Intervention and Continuity of Contact
Pre-foreclosure review period
11:15am – 12:30
Loss Mitigation Procedures
What is complete loss mitigation application?
Duty to evaluate for all loss mitigation options
Loan modification denials
Appeal rights
12:30
2:30pm
30pm – 1:30
1:30pm
30pm
Lunch
1:30pm – 2:30pm
2:30pm
Loss Mitigation Procedures (continued)
Dual tracking protections
Transfer of servicing requirements
Using notices of error and requests for information
2:30pm
2:30pm – 3:00pm
Periodic Mortgage Statements
Required disclosures
Default information
Coupon book and small servicer exemptions
3:00pm – 3:15pm
3:15pm
Break
3:15pm – 4:00pm
TILA Servicing Rules
Mortgage payment application
Request for payoff statement
Payment change notices
Transfer of ownership notices
4:00pm – 5:30pm
Private Remedies under RESPA and TILA
Strategies for identifying and proving damages
Handling Mortgage Servicing Cases under the
New CFPB Regulations
A.
Notices of Error and Requests for Information
1. New RESPA Rules Change Qualified Written Request Procedure: Notices of Error……………8
2. New RESPA Rules Change Qualified Written Request Procedure: Requests for Information…18
3. Sample Request for Information to Obtain Identity of Mortgage Owner………………………28
4. Sample Response to Request for Information…………………………………………………30
5. Notices of Error and Requests for Information PowerPoint……………………………………31
B.
Force-Placed Insurance
1. RESPA Force-Placed Insurance Restrictions……………………………………………………40
2.
C.
Force-Placed Insurance PowerPoint……………………………………………………………48
Early Intervention and Continuity of Contact
1. RESPA Early Intervention Requirements for Borrowers in Default……………………………53
2. RESPA “Continuity of Contact” Requirements for Borrowers in Default………………………58
3. Early Intervention and Continuity of Contact PPT………………………………………………61
D.
Loss Mitigation Procedures
1. RESPA Loss Mitigation Procedures……………………………………………………………67
2. Sample RESPA Request for Information about a Loss Mitigation Application…………………92
3. Sample RESPA Notice of Error for Dual Tracking Violations…………………………………98
4. Checklist for Reviewing RESPA Loss Mitigation Notices……………………………………102
5. Sample Servicer 5-Day Acknowledgment Letter………………………………………………105
6. Loss Mitigation Procedures PowerPoint………………………………………………………111
E.
Periodic Mortgage Statements
1. TILA Rule on Periodic Mortgage Statements…………………………………………………124
2. Periodic Statements PowerPoint………………………………………………………………133
F.
Other TILA Servicing Rules
1. RESPA Rule on Prompt Crediting of Payments………………………………………………137
2. Duty to Provide Timely Mortgage Payoff Statements…………………………………………140
3. Interest Rate and Payment Change Notices……………………………………………………144
4. Mortgage Transfer of Ownership Notices……………………………………………………145
5. Other TILA Servicing Rules PowerPoint………………………………………………………153
G.
Private Remedies under RESPA and TILA
1. Private Remedies for RESPA Servicing Violations……………………………………………159
2. Attorney Fee Petition Checklist…………………………………………………………………174
3. Mortgage Servicing Claims Chart………………………………………………………………174
Speakers Bio
Richard S. “Rick” Alembik is the principal attorney at Richard S. Alembik, PC, in Decatur,
Georgia. A Phi Beta Kappa graduate of Drew University, in Madison, New Jersey, Alembik then
earned his J.D. from the University Of Georgia School Of Law in 1991. Alembik has since
focused his practice on real-estate related and commercial litigation. However, the majority of
Alembik's practice now consists of commercial and residential foreclosure defense. Alembik has
first-chaired more than 60 jury trials and arbitration proceedings in state and federal courts, and
arbitration forums. (One of Alembik’s two seven-figure jury verdicts involved a complex
commercial wrongful foreclosure case tried in the Superior Court of DeKalb County, Georgia in
2001.) Alembik has had an “AV Preeminent” rating from Martindale-Hubbell since 2003. From
2012 through 2014 he has been recognized as a Thomson Reuters “Super Lawyer.” Alembik
regularly lectures on various legal topics (generally involving real-estate litigation) at continuing
legal education seminars, is regularly consulted and quoted by local and national press on
foreclosure-related matters, and has made TV appearances as a legal commentator on
foreclosure-related matters.
John Rao is an attorney with the National Consumer Law Center, Inc. Mr. Rao focuses on
consumer credit, mortgage servicing, and bankruptcy issues and has served as a panelist and
instructor at numerous bankruptcy and consumer law trainings and conferences. He has served as
an expert witness in court cases and has testified in Congress on consumer matters. Mr. Rao is a
contributing author and editor of NCLC's Consumer Bankruptcy Law and Practice; and a
coauthor of NCLC’s Foreclosures and Bankruptcy Basics. He is also a contributing author to
Collier on Bankruptcy and the Collier Bankruptcy Practice Guide. Mr. Rao served as a member
of the federal Judicial Conference Advisory Committee on Bankruptcy Rules from 2006 to 2012,
appointed by Chief Justice John Roberts. He is a conferee of the National Bankruptcy
Conference, fellow of the American College of Bankruptcy, vice-president of the National
Association of Consumer Bankruptcy Attorneys, member of the editorial board of Collier on
Bankruptcy, and former board member for the American Bankruptcy Institute.
Tara Twomey is currently Of Counsel to the National Consumer Law Center and the Project
Director for the National Consumer Bankruptcy Rights Center. She has been a Lecturer in Law
at Stanford Law School, Harvard Law School and Boston College Law School. Ms. Twomey is
a former Clinical Instructor at the Hale and Dorr Legal Services Center of Harvard Law School
where her practice focused, in part, on sustainable homeownership for low- and moderateincome homeowners. This practice area included foreclosure prevention and chapter 13
bankruptcy. Ms. Twomey is a contributing author of several books published by the National
Consumer Law Center, including Foreclosures: Defenses, Workouts and Mortgage Servicing.
Jennifer Wagner is Managing Attorney at Mountain State Justice, a non-profit, public interest
law firm in West Virginia. Jennifer litigates on behalf of low-income consumers, focusing on
combatting predatory mortgage lending and abusive mortgage servicing. Jennifer also engages
in other consumer and civil rights litigation, including access to appropriate medical care,
worker's health and safety, and the humane treatment of prisoners. She has given numerous
trainings on consumer litigation. Prior to joining Mountain State Justice, Jennifer clerked on the
U.S. Fourth Circuit Court of Appeals and worked at Partnership for the Homeless in New York
City. She graduated with honors from New York University School of Law and Harvard College.
New RESPA Rules Change Qualified Written Request Procedure:
Notices of Error
RESPA provides mortgage borrowers with the right to dispute servicer errors and to
obtain account information by sending a “qualified written request.”1 The Consumer Financial
Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure.
New regulations that take effect on January 10, 2014 create two separate processes: one for
resolving errors on a borrower’s account and the other for requesting information regarding the
account. The final 2013 RESPA Servicing Rule expands the scope of these borrower inquiries,
effectively overruling several court decisions that had limited the application of qualified written
requests.
Is It a QWR, NOE or RFI (or All Three)?
The Regulation X provisions that implement RESPA section 2605(e) no longer refer to a
qualified written request.2 Rather, the Regulation X amendments establish separate
qualifications and procedures depending upon whether a written inquiry is a “notice of error”
sent under Regulation X § 1024.35 or a “request for information” sent under Regulation X §
1024.36. As under the prior regulation, the same written inquiry from the borrower can both
dispute a servicer action and seek information, and therefore a request for information and a
notice of error can be combined in the same writing or sent as separate writings.3
Despite the new changes and in recognition that RESPA itself still refers to a qualified
written request, the CFPB has indicated that a qualified written request that properly asserts an
error under § 1024.35 or seeks information under § 1024.36 is a notice of error or request for
information for purposes of these respective regulations. However, the CFPB’s Official
Interpretations to Regulation X makes clear that a qualified written request is “just one form that
a written notice of error or information request may take.”4
Thus, the requirements for compliance with a notice of error or request for information
apply irrespective of whether a servicer receives a qualified written request. In other words, a
written inquiry can be a notice of error or request for information even if it is not a qualified
written request. What is less clear under the CFPB regime is whether a written correspondence
can be a qualified written request requiring compliance under RESPA section 2605(e) if it does
1
12 U.S.C. § 2605(e)(1)(B). A borrower inquiry made under section 2605(e) is referred to as a “qualified written
request,” which “includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the
account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.”
2
Reg. X, 12 C.F.R. §§ 1024.35(a) and 36(a) (effective Jan. 10, 2014).
3
See Amini v. Bank of Am. Corp., 2012 WL 398636 (W.D. Wash. Feb. 7, 2012); Luciw v. Bank of Am., 2010 WL
3958715 (N.D. Cal. Oct. 7, 2010) (statute is drafted in the disjunctive so that request for account information alone,
without statement that account is in error, is a valid qualified written request); Goldman v. Aurora Loan Servs.,
L.L.C., 2010 WL 3842308 (N.D. Ga. Sept. 24, 2010) (same); Rodeback v. Utah Fin., 2010 WL 2757243 (D. Utah
July 13, 2010) (same).
4
Official Interpretation, Supplement 1 to Part 1024, ¶ 30(b)-(Qualified written request)-1, effective Jan. 10, 2014).
8
not satisfy the requirements for being either a notice of error under section 1024.35 or a request
for information under section 1024.36.
Requirements for Notice of Error
A servicer is required to respond to any written notice it receives from a borrower that
asserts an error covered by section 1024.35.5 A covered error must fall within one of the
following categories:
•
•
•
•
•
•
•
•
•
•
•
Failing to accept a payment that conforms to the servicer’s written requirements
for making payments;
Failing to apply an accepted payment under the terms of the mortgage loan and
applicable law;
Failing to credit a borrower’s payment as of the date of receipt in violation of 12
C.F.R. § 1026.36(c)(1);6
Failing to pay taxes, insurance, and other escrow items in a timely manner as
required by 12 C.F.R. § 1024.34(a),7 or to refund an escrow account balance upon
loan payoff as required by 12 C.F.R. § 1024.34(b);8
Imposing a fee or charge that the servicer lacks a reasonable basis to impose upon
the borrower;
Failing to provide an accurate payoff balance amount upon a borrower’s request in
violation of 12 C.F.R. § 1026.36(c)(3);9
Failing to provide accurate information to a borrower regarding loss mitigation
options and foreclosure, as required by 12 C.F.R. § 1024.39;10
Failing to transfer accurately and timely information relating to the servicing of a
borrower’s mortgage loan account to a transferee servicer;
Making the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process in violation of 12 C.F.R. § 1024.41(f) or (j);11
Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale
in violation of 12 C.F.R. § 1024.41(g) or (j);12 or
Any other error relating to the servicing of a borrower’s mortgage loan.13
Many of the covered errors relate to duties imposed on servicers by other RESPA or
Regulation X provisions. Thus, a determination of whether a notice of error is appropriate or
whether a servicer has adequately responded to a notice will be guided by these other provisions.
5
Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014).
See NCLC Foreclosures, § 9.6.3 (4th ed. and 2013 Supp.).
7
Id. at § 9.2.4.
8
Id. at § 9.2.4.2.
9
Id. at § 9.6.5.
10
Id. at § 9.2.6.
11
Id. at § 9.2.8.7.
12
Id.
13
Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014).
6
9
One error category that is not addressed directly by other regulations is a servicer’s
imposition of unreasonable fees on the borrower. The CFPB’s Official Interpretations for this
rule provides some examples of unreasonable fees. A servicer lacks a reasonable basis to impose
fees that are not bona fide, such as (1) a late fee for a payment that was not late; (2) a charge
imposed by a service provider for a service that was not actually rendered; (3) a default property
management fee for borrowers that are not in a delinquency status that would justify the charge;
or (4) a charge for force-placed insurance in a circumstance not permitted by Regulation X
section 1024.37.14
In the analysis provided when issuing the final rule, the CFPB discussed the borrowers’
right to assert a notice of error based on a servicer’s failure to provide accurate information about
available loss mitigation options. The CFPB stated that “it is critical for borrowers to have
information regarding available loss mitigation options,” and that that this access should include
“accurate information about the loss mitigation options available to the borrower, the
requirements for receiving an evaluation for any such loss mitigation option, and the applicable
timelines relating to both the evaluation of the borrower for the loss mitigation options and any
potential foreclosure process.”15 The CFPB also noted that servicers are typically required to
provide borrowers with information about loss mitigation options and foreclosure under the
National Mortgage Settlement and servicer participation agreements with the Department of the
Treasury, HUD, Fannie Mae, and Freddie Mac, and that “providing such information to
borrowers is a standard servicer duty.”16
Importantly, the new notice of error rule permits the borrower to dispute errors related to
the transfer of servicing. The final 2013 RESPA Servicing Rule imposes a general obligation on
transferor and transferee servicers to have the capacity to accurately transfer information and
download data for transferred mortgage loans from and onto their servicing platforms.17 The
CFPB describes the accurate and timely transfer of information on a borrower’s mortgage
account as a “standard servicer duty.”18 This general requirement is found in Regulation X §
1024.38, which is one of the few new regulations that is not privately enforceable. However, it
is enforceable under the error resolution procedure. If the borrower believes that information has
not been accurately transferred, a servicer’s failure to correct the error can lead to liability under
RESPA. The CFPB’s analysis of this provision notes that “by defining an error in this way, a
borrower will have a remedy to ensure that a transferor servicer provides information to a
transferee servicer that accurately reflects the borrower’s account consistent with the obligations
applicable to a servicer’s general servicing policies and procedures.”19
Non-Covered Errors
The CFPB’s Official Bureau Interpretation provides examples of “noncovered errors”
that are consistent with matters generally not considered to be related to the servicing of a
14
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-2 (effective Jan. 10, 2014).
See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10742 (Feb. 14, 2013).
16
Id.
17
Reg. X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014); § 9.4, infra.
18
See Section-by-Section Analysis, § 1024.35(b)(8), 78 Fed. Reg. 10,743 (Feb. 14, 2013).
19
Id.
15
10
mortgage loan. A servicer is not compelled to respond to a written notice sent by the borrower
that asserts an error relating to the origination, underwriting, and subsequent sale or
securitization of a mortgage loan.20 Additionally, an asserted error relating to the determination
to sell, assign, or transfer the servicing of a mortgage loan is not a covered error. In contrast, the
failure to transfer accurately and timely information relating to the servicing of a borrower’s
mortgage loan account to a transferee servicer as discussed above is a covered error.21
General “Catchall” for Errors Relating to Servicing of Loan
When the CFPB initially proposed the error resolution rule, it contained an exclusive list
of nine covered errors.22 The list of specific covered errors did not include a general category for
errors related to the servicing of the borrower’s loan. NCLC and other consumer organizations
submitted comments noting that RESPA section 2605(e) is drafted broadly and does not contain
a finite list of potential errors, and that the Dodd-Frank Act amendment adding subsection
2605(k)(1)(C) requires servicers to correct errors relating to “standard servicer duties.” It was
also pointed out that the proposed rule would fail to address future servicing problems as
standard servicer’s duties change over time.
In response to these comments, the CFPB added to the final rule a catch-all category for
“any other error relating to the servicing of a borrower’s mortgage loan.”23 The CFPB agreed
with “consumer advocacy commenters that the mortgage market is fluid and constantly changing
and that it is impossible to anticipate with certainty the precise nature of the issues that borrowers
will encounter.”24
Servicers will likely argue that a notice of error asserting an error under the catch-all
provision is ineffective unless it pertains to a servicing duty set out in the definition of
“servicing” provided in RESPA section 2605(i)(3),25 relying on court opinions from cases
concerning qualified written requests decided before the 2013 amendments to Regulation X
became effective.26 These pre-January 10, 2014 court opinions no longer have precedential
value based on the substantial changes made to Regulation X by the 2013 amendments.
Although the CFPB retained the statutory definition of servicing in Regulation X section
1024.2, amendments to regulations under both Regulation X and Regulation Z recognize that
standard servicer duties have greatly expanded since the 1990 Servicer Act amendments to
20
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-1 (effective Jan. 10, 2014).
Id.
22
See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,743/-/44 (Feb. 14, 2013).
23
Reg. X, 12 C.F.R. § 1024.35(b)(11) (effective Jan. 10, 2014).
24
See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013).
25
The term “servicing” is defined in section 2605(i)(3) to mean “receiving any scheduled periodic payments from a
borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . and making the payments of
principal and interest and such other payments with respect to the amounts received from the borrower as may be
required pursuant to the terms of the loan.”
26
See, e.g., Bilek v. Bank of Am., 2011 WL 830948 (N.D. Ill. Mar. 3, 2011) (letter sent when borrower was in
foreclosure is not a qualified written request because servicer is no longer “receiving any scheduled periodic
payments)”); Moore v. Fed. Deposit Ins. Corp., 2009 WL 4405538 (N.D. Ill. Nov. 30, 2009) (borrower inquiry
seeking information about amounts claimed as due on a mortgage account is not related to servicing). See also
NCLC Foreclosures, § 9.2.2.2.3.1 (4th ed. and 2013 Supp.).
21
11
RESPA. For example, Subpart C of Regulation X now includes regulations dealing with
servicing operations not contemplated by the definition of “servicing” in RESPA section
2605(i)(3), such as force-placed insurance, disclosure of mortgage owners, foreclosure
avoidance, and loss mitigation. Regulation X also now includes a separate section that describes
general servicing policies, procedures, and requirements, based on the CFPB’s analysis of
servicing industry practices.27 These significant regulatory changes and developing industry
practices must be considered when determining whether an error asserted under the catch-all
provision in section 1024.35(b)(11) is related to the servicing of a borrower’s mortgage loan.
Notice of Error for Failure to Correctly Evaluate Loss Mitigation Options
This leads to the question of whether a borrower can assert as an error under the catch-all
provision in section 1024.35(b)(11) a servicer’s failure to correctly evaluate a borrower for a loss
mitigation option? Although the final 2013 RESPA Servicing Rule focuses only on a servicer’s
duty to follow standard loss mitigation procedures and does not compel a servicer to offer loan
modifications or any particular loss mitigation option, it does establish loss mitigation activities
as a standard servicer duty.28 In addition, Congress has specifically stated that the loan
modification analysis required by the HAMP program is the standard of the residential mortgage
servicing industry under both federal and state law.29 As the CFPB correctly noted, “any error
related to the servicing of a borrower’s mortgage loan also relates to standard servicer duties.”30
It would thus seem appropriate for a notice of error to be used by a borrower to seek correction
of a servicer’s improper denial of a loan modification application by asserting, for example, that
the servicer failed to follow HAMP or GSE guidelines, or erroneously applied the net present
value test.
In discussing its reasoning for not including a servicer’s failure to correctly evaluate a
borrower for a loss mitigation option as a specific covered error in section 1024.35(b), the CFPB
stated that the “appeals process set forth in § 1024.41(h) provides an effective procedural means
for borrowers to address issues relating to a servicer’s evaluation of a borrower for a loan
modification program.”31 Significantly, though, the CFPB went on to state in this same
discussion that it was adding the catch-all provision to the error resolution procedure under
section 1024.35(b) so as “to encompass the myriad and diverse types of errors that borrowers
may encounter with respect to their mortgage loans.”32 In doing so, the CFPB did not foreclose
arguments that a notice of error for a servicer’s failure to correctly evaluate a borrower for a loss
mitigation option may be proper. Such a notice of error may be particularly appropriate when
27
Reg. X, 12 C.F.R. § 1024.38 (effective Jan. 10, 2014).
See Reg. X, 12 C.F.R. § 1024.41 (effective Jan. 10, 2014) (loss mitigation procedures); NCLC Foreclosures, §
9.2.8 (4th ed. and 2013 Supp.). See also CWCapital Asset Mgmt., L.L.C. v. Chicago Properties, L.L.C., 610 F.3d
497, 500 (7th Cir. 2010) (describing common duties of a servicer of loans in a securitized trust, including
“modifying the mortgage to make its terms less onerous to the borrower”).
29
See Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632 (2009) (“The qualified
loss mitigation plan guidelines issued by the Secretary of the Treasury under the Emergency Economic Stabilization
Act of 2008 shall constitute standard industry practice for purposes of all Federal and State laws”).
30
See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013).
31
See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013).
32
Id.
28
12
the “procedural means” for seeking redress under the appeal process are ineffective or
inapplicable.
It is also significant that while the CFPB did not include loss mitigation evaluation as a
covered error, it also did not exclude it or indicate that it was a “noncovered error.” Although
section 1024.35 includes express exclusions and limitations on the use of error notices as
discussed above, nothing in section 1024.35 or its commentary prohibits a borrower from
asserting an error under the catch-all provision in section 1024.35(b)(11) based on a servicer’s
failure to correctly evaluate a loss mitigation application. In fact, RESPA itself requires
servicers, through amendments made by the Dodd-Frank Act, to take timely action to correct
errors relating to “avoiding foreclosure,” suggesting that borrowers should be able to assert under
RESPA errors related to loss mitigation.33
Duplicative and Overbroad Notice of Error
The pre-January 10, 2014 version of Regulation X did not include an exclusion from
compliance for a dispute notice sent as a qualified written request that was duplicative or
overbroad. The 2013 amendments to Regulation X change this by permitting a servicer to reject
certain error notices. A servicer is not required to comply with the response requirements if the
servicer reasonably determines that the asserted error is substantially the same as an error
previously asserted by the borrower for which the servicer has previously complied, unless the
borrower provides new and material information to support the asserted error.34 New and
material information means information the servicer did not previously review in connection
with investigating a prior notice and is reasonably likely to change the servicer’s prior
determination about the error. A dispute over whether information was previously reviewed by a
servicer or whether a servicer properly determined that information reviewed was not material to
its prior determination does not itself constitute new and material information.35
A servicer may also refuse to comply with an overbroad notice of error. A notice of error
is overbroad if the servicer cannot reasonably determine from the notice the specific error that
the borrower asserts has occurred on the account.36 A servicer is nevertheless required to comply
with an otherwise overbroad notice of error to the extent that the servicer reasonably identifies
some valid assertion of an error within the notice.37 The Official Interpretations provide the
following examples of an overbroad notice of error:
•
Assertions of errors regarding substantially all aspects of a mortgage loan, including
errors relating to all aspects of mortgage origination, mortgage servicing, and
foreclosure, as well as errors relating to the crediting of substantially every
borrower payment and escrow account transaction;
33
12 U.S.C. § 2605(k)(1)(C).
Reg. X, 12 C.F.R. § 1024.35(g)(1)(i) (effective Jan. 10, 2014).
35
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(i)-1 (effective Jan. 10, 2014).
36
Reg. X, 12 C.F.R. § 1024.35(g)(1)(ii) (effective Jan. 10, 2014).
37
Id.
34
13
•
Assertions of errors in the form of a judicial action complaint, subpoena, or
discovery request that purports to require servicers to respond to each numbered
paragraph; and
•
Assertions of errors in a form that is not reasonably understandable or is included
with voluminous tangential discussion or requests for information, such that a
servicer cannot reasonably identify from the notice of error any error for which §
1024.35 requires a response.38
The exclusion for duplicative or overbroad error notices appears intended by the CFPB as
a response to servicer complaints about boilerplate qualified written requests available on the
internet that have been used by pro se homeowners and some attorneys in foreclosure
litigation.39 These forms often contain numbered paragraphs that resemble discovery requests
and have numerous assertions that may not be relevant to the homeowner’s dispute. To avoid
any potential servicer defense in litigation over violations of RESPA section 2605(e) and
Regulation X section 1024.35, an attorney who drafts a notice of error should ensure that it is
concise and tailored to the facts of the particular case.
If the servicer determines that a notice of error is duplicative or overbroad, the servicer
must notify the borrower in writing within five business days after making its determination.40
The notice must set forth the basis for the servicer’s determination. The failure to provide such
notice to the borrower should preclude a servicer from having a defense to liability for
noncompliance in subsequent litigation based on an argument that the requirements were not
applicable.
Compliance with Notices of Error
The final 2013 RESPA Servicing Rule makes the dispute rights under RESPA more
effective by shortening the response periods. The servicer must acknowledge receipt of a notice
of error within five days (excluding holidays, Saturdays, and Sundays) after receiving the notice,
rather than the twenty business day period under the former law.41 Alternatively, the servicer
need not provide this acknowledgment or otherwise satisfy the compliance requirements if it
corrects the error or errors asserted by the borrower, and notifies the borrower in writing of the
correction, within the five business day period.42
Except for certain notices of error that have different response periods as discussed
below, a servicer must respond to a notice of error from the borrower within thirty days
(excluding holidays, Saturdays, and Sundays) after receiving the notice.43 This is significantly
38
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(ii)-1 (effective Jan. 10, 2014).
See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,760 (Feb. 14, 2013) (“During the Small
Business Review Panel outreach, small entity representatives expressed that typically qualified written requests
received from borrowers were vague forms found online or forms used by advocates as a form of pre-litigation
discovery.”).
40
Reg. X, 12 C.F.R. § 1024.35(g)(2) (effective Jan. 10, 2014).
41
Reg. X, 12 C.F.R. §§ 1024.35(d) (effective Jan. 10, 2014).
42
Reg. X, 12 C.F.R. §§ 1024.35(f) (effective Jan. 10, 2014).
43
Reg. X, 12 C.F.R. §§ 1024.35(e)(3) (effective Jan. 10, 2014).
39
14
shorter than the prior sixty business day response period. A servicer adequately responds by
taking action to either:
•
Correct the error or errors asserted by the borrower and provide the borrower with
a written notification of the correction, the effective date of the correction, and
contact information, including a telephone number, for further assistance; or
•
Conduct a reasonable investigation and provide the borrower with a written
notification that includes a statement that the servicer has determined that no error
occurred, a statement of the reason or reasons for this determination, a statement
of the borrower’s right to request documents relied upon by the servicer in
reaching its determination, information regarding how the borrower can request
such documents, and contact information, including a telephone number, for
further assistance.44
Additionally, if during a reasonable investigation of a notice of error, a servicer
determines that there were errors other than or in addition to the error asserted by the borrower,
the servicer must correct these additional errors and provide the borrower with a written
notification that describes the errors, the action taken to correct the errors, the effective date of
the correction, and contact information, including a telephone number, for further assistance.45
A servicer may provide the response for different or additional errors it identifies in the same
notice that responds to errors asserted by the borrower or in a separate response that addresses
these different or additional errors.46
Shorter Time Deadlines for Certain Notices of Error
Different time limitations apply to certain notices of error. If the borrower sends a notice
of error under section 1024.35(b)(6) asserting that the servicer has failed to provide an accurate
loan payoff balance following a request made under Regulation Z section 1026.36(c)(3),47 the
servicer must respond within seven days (excluding holidays, Saturdays, and Sundays) after
receiving the notice.48
For a notice of error asserting certain violations of the Regulation X loss mitigation
procedures, either under section 1024.35(b)(9) that the servicer initiated a foreclosure before the
120th day of delinquency in violation of section 1024.41 (f) or (j), or under section 1024.35
(b)(10) that the servicer moved for foreclosure judgment or conducted a foreclosure sale in
violation of section 1024.41(g) or (j),49 the servicer must respond prior to the date of a
foreclosure sale or within thirty days (excluding holidays, Saturdays, and Sundays), whichever is
earlier, after the servicer receives the notice of error.50 However, a servicer is not required to
44
Reg. X, 12 C.F.R. §§ 1024.35(e)(1) (effective Jan. 10, 2014).
Reg. X, 12 C.F.R. § 1024.36(e)(1)(ii) (effective Jan. 10, 2014).
46
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(1)(ii)-1 (effective Jan. 10, 2014).
47
See NCLC Foreclosures, § 9.6.5 (4th ed. and 2013 Supp.) and NCLC eReports, Nov. 2013, No. 4.
48
Reg. X, 12 C.F.R. §§ 1024.35(e)(3)(i)(A) (effective Jan. 10, 2014).
49
See NCLC Foreclosures, § 9.2.8.7 (4th ed. and 2013 Supp.) . The loss mitigation rule will be covered in a future
eReports article.
50
Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) (effective Jan. 10, 2014).
45
15
comply with such an error notice if the servicer receives it seven or less days before a scheduled
foreclosure sale.51 In this situation a servicer shall make a good faith attempt to respond to the
borrower, orally or in writing, and either correct the error or state the reason it believes no error
has occurred.52
Extension of Response Period
A servicer may extend the thirty-day time period for responding to an notice of error by
an additional fifteen days (excluding legal public holidays, Saturdays, and Sundays) if, before the
end of the thirty-day period, the servicer notifies the borrower in writing of the extension and the
reasons for the extension.53 Although the borrower notification must state the reasons for the
extension, RESPA and Regulation X do not require that the servicer have a valid or justifiable
reason for extending the time period.
However, a servicer’s right to a fifteen-day extension does not apply to all notices of
error. A servicer may not extend the seven-day time period for responding to a notice of error
under section 1024.35(b)(6) asserting that the servicer failed to provide an accurate loan payoff
balance.54 Similarly, no extension of time for compliance is permitted for a notice of error under
either section 1024.35(b)(9) or (b)(10) asserting violations of the applicable loss mitigation
procedures.55 If a servicer cannot comply by the earlier of the foreclosure sale or thirty days
after receipt of the notice of error, it may cancel or postpone a foreclosure sale.56 A servicer in
this situation would comply with the time limit by responding before the earlier of the date of the
rescheduled foreclosure sale or thirty business days after receipt of the notice of error.
If the borrower sends a notice of error that asserts multiple errors, the CFPB’s Official
Bureau Interpretation advises that the servicer may respond through either a single response or
separate responses that address each error.57 It may also treat such a notice of error as separate
notices of error and may extend the time period for responding to each asserted error for which
an extension is permissible.58
Borrower Right to Request Documentation Supporting Response
Regulation X imposes several additional requirements upon servicers in responding to a
notice of error. If the borrower requests copies of documents and information relied upon by the
servicer in making a determination that no error occurred, a servicer shall provide to the
borrower, at no charge, the documents and information within fifteen business days of receiving
the borrower’s request for such documents.59 Only those documents actually relied upon by the
servicer in finding that no error occurred are required to be produced. This may include
51
Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014).
Id.
53
12 U.S.C. 12 C.F.R. § 2605(e)(4); Reg. X, § 1024.35(e)(3)(ii) (effective Jan. 10, 2014).
54
Id.
55
Id.
56
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(3)(i)(B)-1 (effective Jan. 10, 2014).
57
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(1)(i)-1 (effective Jan. 10, 2014).
58
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(3)(ii)-1 (effective Jan. 10, 2014).
59
Reg. X, 12 C.F.R. § 1024.36(e)(4) (effective Jan. 10, 2014).
52
16
documents reflecting information entered in a servicer’s collection system, such as a copy of a
screen shot of the servicer’s system showing amounts credited to the borrower’s loan if the
asserted error involves payment allocation.60
A servicer is not required to provide documents relied upon that it determines contain
confidential, proprietary, or privileged information. If a servicer withholds documents on this
basis, the servicer must notify the borrower of its determination in writing within fifteen business
days of receipt of the borrower’s request for such documents.61
Regulation X permits a servicer to request that the borrower provide supporting
documentation in connection with the investigation of an asserted error. However, a servicer
may not (1) require a borrower to provide such information as a condition of investigating an
error; or (2) determine that no error occurred because the borrower failed to provide any
requested information without conducting a reasonable investigation.62
Ban on Charging Response Fees
The Dodd-Frank Act clarifies that a servicer shall not charge a fee for responding to a
“valid qualified written request.”63 This provision is implemented by Regulation X section
1024.35(h) for notices of error and section 1024.36(g) for requests for information.64 A servicer
is prohibited from charging a fee as a condition of responding to a notice of error or request for
information.
The final 2013 RESPA Servicing Rule also clarifies that a servicer shall not require a
borrower to make any payment that may be owed on a borrower’s account as a condition of
responding to a notice of error.65 The Official Interpretations instruct that this borrower
protection does not alter the borrower’s obligation to make payments owed under the terms of
the mortgage loan.66 For example, if a borrower sends a notice of error asserting that the servicer
failed to accept the borrower’s monthly payment made in February, the borrower is still
obligated to make the March monthly payment. However, the servicer may not require that a
borrower make the March payment as a condition for complying with its obligations under
section 1024.35 with respect to the notice of error on the February payment.
60
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(4)-1 (effective Jan. 10, 2014).
Id.
62
Reg. X, 12 C.F.R. § 1024.36(e)(2) (effective Jan. 10, 2014).
63
Pub. L. No. 111-203, 124 Stat. 1376, tit. XIV, § 1463(a) (July 21, 2010).
64
Reg. X, 12 C.F.R. § 1024.35(h) and § 1024.36(g) (effective Jan. 10, 2014).
65
Reg. X, 12 C.F.R. § 1024.35(h) (effective Jan. 10, 2014).
66
See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(h)-1 (effective Jan. 10, 2014).
61
17
New RESPA Rules Change Qualified Written Request Procedure:
Requests for Information
RESPA provides mortgage borrowers with the right to dispute servicer errors and to
obtain account information by sending a "qualified written request." The Consumer Financial
Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure.
New regulations that take effect on January 10, 2014 create two separate processes: one for
resolving errors on a borrower's account (discussed in Part 1) and the other for requesting
information about the account. The final 2013 RESPA Servicing Rule expands the scope of
information requests by no longer limiting them to the “servicing of the loan.” As under the
current law, a borrower may recover actual damages, statutory damages, costs, and reasonable
attorney fees for violations of the new request for information and notice of error procedures.1
Requirements for a Request for Information
A servicer is required to respond to any written request for information from a borrower
that “states the information the borrower is requesting with respect to the borrower’s mortgage
loan.”2 Unlike the earlier version of this regulation that applied to qualified written requests, the
scope of an information request under Regulation X § 1024.36 is no longer tied solely to the
concept of information that is “related to the servicing of the loan.”3 Rather, requests are
effective if they seek any information concerning the borrower’s mortgage loan, which would
include, but would not be limited to, the servicing of the loan. Thus, the question as to whether
the borrower has sent a valid information request no longer turns on the narrow definition of
“servicing” found in RESPA.4 Prior court decisions that had found certain requests to be
ineffective because of this definition, as discussed below, are effectively abrogated by
Regulation X § 1024.36.
To accommodate the new regime in which qualified written requests continue to coexist
with requests for information, Regulation X provides that a qualified written request that requests
information relating to the servicing of the mortgage loan is a request for information for
purposes of § 1024.36, and a servicer must comply with all requirements applicable to a request
for information with respect to such qualified written request.5 However, a written inquiry can
1
12 U.S.C. § 2605(f). Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
Reg. X, 12 C.F.R. § 1024.36(a) (effective Jan. 10, 2014). The request for information must also comply with the
general requirements for borrower inquiries, such as by including the name of the borrower and information that
enables the servicer to identify the borrower’s mortgage loan account. See Foreclosures, § 9.2.2.2.1 (4th ed. and
2013 Supp.).
3
Reg. X, 12 C.F.R. § 1024.21(e)(2)(i)(effective until Jan. 10, 2014).
4
See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,761 (Feb. 14, 2013) (“the final rule . . . does
not limit information requests to those related to servicing”).
The term “servicing” is defined in RESPA § 2605(i)(3) to mean “receiving any scheduled periodic
payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . and making
the payments of principal and interest and such other payments with respect to the amounts received from the
borrower as may be required pursuant to the terms of the loan.”
5
Reg. X, 12 C.F.R. § 1024.36(a) (effective Jan. 10, 2014).
2
18
be a request for information even if it is not a qualified written request, and so may seek
information beyond that of a qualified written request.
The one express limitation in Regulation X on requests for information is that they may
not seek the payoff balance of a mortgage loan.6 If the borrower sends such a request for a
payoff balance statement, the servicer need not treat it as a request for information under
Regulation X, but instead should treat it as a request under Regulation Z.7 However, a borrower
may use a notice of error under Regulation X to seek correction of an inaccurate statement of a
mortgage payoff balance.8 A more detailed discussion of requests for a payoff balance statement
was provided in an earlier article in this series, NCLC eReports, Nov. 2013, No. 4.9
Request for Information About a Loan Modification Application
Several courts in cases decided before the 2013 RESPA Servicing Rule held that a
request for information about a loan modification application was not related to the servicing of a
loan and therefore could not be a valid qualified written request.10 Such requests are now
permissible under Regulation X § 1024.36.
In discussing the borrowers’ right to assert a notice of error for a servicer’s failure to
provide accurate information to a borrower with respect to available loss mitigation options, the
CFPB stated that “it is critical for borrowers to have information regarding available loss
mitigation options,” and that this access should include “accurate information about the loss
mitigation options available to the borrower, the requirements for receiving an evaluation for any
such loss mitigation option, and the applicable timelines relating to both the evaluation of the
borrower for the loss mitigation options and any potential foreclosure process.”11 The CFPB
also noted that servicers are typically required to provide borrowers with information about loss
mitigation options and foreclosure under the National Mortgage Settlement and servicer
participation agreements with the Department of the Treasury, HUD, Fannie Mae and Freddie
Mac, and that “providing such information to borrowers is a standard servicer duty.”12
Request for Loan Servicing File
In response to the expanded scope of information requests as proposed by the CFPB,
mortgage industry commenters raised the concern that a borrower could request the entire
servicing file for the borrower’s mortgage loan.13 In promulgating the final 2013 RESPA
Servicing Rule, the CFPB refused to adopt a per se rule that such requests would be invalid.
6
Id.
Reg. X, 12 C.F.R. § 1026.36(c)(3) (effective Jan. 10, 2014).
8
See Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.).
9
See also Foreclosures, § 9.6.5 (4th ed. and 2013 Supp.).
10
See, e.g., Mitchell v. Reg’l Trust Serv. Corp., 2013 WL 556395 (N.D. Cal. Feb. 12, 2013); Van Egmond v. Wells
Fargo Home Mortg., 2012 WL 1033281 (C.D. Cal. Mar. 21, 2012); Saucedo v. Bank of Am., 2011 WL 6014008,
(D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011). See also Foreclosures, §
9.2.2.2.3.1 (4th ed. and 2013 Supp.).
11
See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10,742 (Feb. 14, 2013).
12
Id.
13
See Section-by-Section Analysis, § 1024.36(a), 78 Fed. Reg. 10,754 (Feb. 14, 2013).
7
19
Rather, the CFPB concluded that, if a borrower requests a servicing file, the servicer shall
provide the borrower with a copy of the information contained in the file subject only to the
limitations set forth in Regulation X § 1024.36(f) that deal with duplicative, overbroad, or
unduly burdensome requests, which are discussed below.14
The CFPB provided additional explanation on this issue in discussing its refusal to adopt
the National Mortgage Settlement’s standards15 in another section of Regulation X, § 1024.38,
which deals with general servicing requirements.16 Consumer organizations submitted
comments suggesting that servicers who are initiating a foreclosure should be required to provide
borrowers with documentation of their authority to foreclose, and that strict standards to ensure
the accuracy and validity of foreclosure documentation should be adopted as included in the
National Mortgage Settlement. The CFPB concluded that such requirements were unnecessary
because the information request process set out in § 1024.36 provides borrowers in foreclosure
with access to foreclosure-related documentation. The CFPB stated specifically that § 1024.36
“requires servicers to provide to borrowers upon their request information about their mortgage
loan accounts, including their servicing files, which includes a complete payment history, a copy
of their security instrument, collection notes, and other valuable information about their
accounts.”17
Consistent with this analysis of § 1024.36, the CFPB noted in the Official Staff
Interpretation for the servicing file provision that § 1024.38(c)(2) does not provide the borrower
with an “independent right” to access information contained in the servicing file.18 In other
words, a borrower’s right to the servicing file information derives only under § 1024.36. Upon
receipt of a borrower request for information asking for a servicing file, a servicer shall provide a
copy of the information contained in the servicing file, subject only to the limitations set forth in
§ 1024.36.19
What constitutes the “servicing file” that the borrower may obtain through a request for
information is addressed in the general servicing requirements of Regulation X, at § 1024.38.20
Although the general servicing requirements found in § 1024.38 are not privately enforceable,
they help to define the scope of a permissible request for information under § 1024.36 (which is
enforceable by the borrower). Section 1024.38(c)(2) provides that a servicer is required to
maintain the following documents and data on each mortgage loan account it services in a
manner that facilitates compiling such documents and data into a servicing file within five days:
(1) a schedule of all transactions credited or debited to the mortgage loan account, including any
escrow account and any suspense account; (2) a copy of the security instrument that establishes
the lien securing the mortgage loan; (3) any notes created by servicer personnel reflecting
communications with the borrower about the mortgage loan account; (4) a report of the data
fields relating to the borrower’s mortgage loan account, to the extent applicable, created by the
servicer’s electronic servicing systems; and (5) copies of any information or documents provided
14
Id. See also Foreclosures, § 9.2.2.2.3.3 (4th ed. and 2013 Supp.).
See Foreclosures, § 2.9 (4th ed. and 2013 Supp.).
16
See Section-by-Section Analysis, § 1024.38(b)(1)(v), 78 Fed. Reg. 10,781 (Feb. 14, 2013).
17
Id.
18
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 38(c)(2)-2 (effective Jan. 10, 2014).
19
Id.
20
See Foreclosures, § 9.4 (4th ed. and 2013 Supp.).
15
20
by the borrower to the servicer in accordance with the notices of error procedures under §
1024.35 or the loss mitigation procedures under § 1024.41.21
Thus, the servicing file appears to be a subset of the entire loan file for a borrower.
Significantly, a servicing file includes a “schedule of all transactions credited or debited” to the
account. Since this provision refers to “all” transactions and no time limitation is placed on the
reporting period, a borrower may request a life-of-loan payment history.
While § 1024.38(c)(2) requires a servicer to produce the servicing file within five days,
this timeline is established in the general servicing requirements for compliance reviews by the
CFPB rather than for responses to borrower requests for information under § 1024.36. Thus, the
customary timeline for compliance with requests for information as discussed below would apply
to a request for the servicing file.
Requests for Loan Origination Documents
A number of court decisions under the former law had held that a qualified written
request could not be used to obtain loan origination documents because such documents are not
related to the servicing of the loan.22 By expanding the scope of borrower inquiries to include
information concerning the borrower’s mortgage loan, Regulation X now permits a borrower to
obtain loan origination documents by sending a request for information under § 1024.36.
However, as discussed below, the servicer may claim that such documents are not available, or
that the request is overbroad or unduly burdensome. A request for the entire loan origination file
will likely generate such a response from the servicer. To avoid this response, the request should
ask for the particular documents that may be needed, such as a copy of the loan note, mortgage
or deed of trust, HUD-1 settlement statement, or TILA disclosure and rescission notice.
Exclusions from Compliance
Similar to the treatment of notices of error,23 a servicer may reject certain information
requests it deems to be duplicative or overbroad. Regulation X expands the list of exclusions
from compliance for requests for information to include requests that are unduly burdensome, or
that seek information that is irrelevant, confidential, proprietary, or privileged. However, a
servicer’s decision to ignore a borrower’s request comes with certain risks. If the servicer makes
an unreasonable determination that any of the listed exclusions apply, it would be liable to the
borrower for its failure to comply with § 1024.36.24
If a servicer determines that it is not required to comply with a request for information
because one of the exclusions applies, it must notify the borrower in writing within five business
days after making its determination.25 The notice must set forth the basis for the servicer’s
21
Reg. X, 12 C.F.R. § 1024.38(c)(2) (effective Jan. 10, 2014).
E.g., Liebelt v. Quality Loan Serv. Corp., 2011 WL 741056 (N.D. Cal. Feb. 24, 2011); Aniel v. Litton Loan
Servicing, L.P., 2011 WL 635258 (N.D. Cal. Feb. 11, 2011); Taggart v. Wells Fargo Home Mortg., Inc., 2010 WL
3769091 (E.D. Pa. Sept. 27, 2010).
23
See Foreclosures, § 9.2.2.2.2.2 (4th ed. and 2013 Supp.).
24
See Section-by-Section Analysis, § 1024.36(f)(1), 78 Fed. Reg. 10,759 (Feb. 14, 2013).
25
Reg. X, 12 C.F.R. § 1024.36(f)(2) (effective Jan. 10, 2014).
22
21
determination. The failure to provide such notice to the borrower should preclude a servicer
from having a defense to liability for noncompliance in subsequent litigation based on an
argument that the requirements were not applicable.
Duplicative Request for Information
A servicer is not required to comply with a request for information if the servicer
reasonably determines that it is duplicative in that the information requested is substantially the
same as information the borrower previously requested and for which the servicer has previously
complied.26 A borrower’s request for a type of information that can change over time is not
substantially the same as a previous information request for the same type of information if the
subsequent request covers a different time period than the prior request.27
Request Asking for Confidential, Proprietary, or Privileged Information
Compliance with a request for information is not required if the servicer reasonably
determines that the information requested is confidential, proprietary, or privileged.28 The
Official Bureau Interpretation to Regulation X provides the following examples of confidential,
proprietary, or privileged information: (1) information regarding management or profitability of
a servicer, including information provided to investors in the servicer; (2) compensation,
bonuses, or personnel actions relating to servicer personnel, including personnel responsible for
servicing a borrower’s mortgage loan account; (3) records of examination reports, compliance
audits, borrower complaints, and internal investigations or external investigations; or (4)
information protected by the attorney-client privilege.29
The CFPB’s initial proposed rule included a reference to “general corporation
information of a servicer” as part of the confidential, proprietary or privileged exclusion.30
Industry commenters supported the CFPB’s listing in the proposed Official Bureau Interpretation
of a pooling and servicing agreement (PSA) between the servicer and the owner of the mortgage
as an example of this general corporate information exclusion. Consumer organizations
commented that PSAs are not typically confidential or proprietary, and are important as a subject
for information requests because servicers rely on such agreements to make erroneous claims
that they are not authorized to offer loan modifications or other loss mitigation options. In
issuing the final rule, the CFPB removed the reference to general corporate information. The
CFPB also agreed that PSAs are not typically kept confidential, and therefore deleted from the
final Official Bureau Interpretation a PSA as an example of a confidential, proprietary or
privileged request item.
Although the final rule does not have an explicit exclusion for a borrowers’ request for a
PSA, the CFPB noted that a servicer may not be required to comply with such a request if it
26
12 C.F.R. § 1026.36(f)(1)(i) (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(f)(1)(i)-1 (effective Jan. 10, 2014).
28
12 C.F.R. § 1026.36(f)(1)(ii) (effective Jan. 10, 2014).
29
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(f)(1)(ii)-1 (effective Jan. 10, 2014).
30
See Section-by-Section Analysis, § 1024.36(f)(1)(ii), 78 Fed. Reg. 10,759/-/60 (Feb. 14, 2013).
27
22
reasonably determines that any of the exclusions set forth in § 1024.36(f) apply.31 To avoid the
possibility of these other exclusions being applicable, such as requests that are irrelevant,
overbroad, or unduly burdensome, the borrower should avoid a general request for the entire
PSA.32 Rather, the borrower’s request should be limited to the portions of the PSA that are
relevant to the borrowers’ specific inquiry or dispute with the servicer. For example, if a servicer
denies a loan modification request by claiming that a modification is prohibited by the terms of
the PSA for a particular securitization transaction, a request for the relevant sections or
provisions of the agreement that address any restrictions on the servicer in negotiating, offering,
processing, or approving loss mitigation options should be treated as a valid request for
information. As another example, if an attorney is attempting to determine if a client’s mortgage
loan was included in the pool of loans covered by a particular PSA, a request for the exhibit to
the PSA (e.g., Exhibit A - Mortgage Loan Schedule) that lists the covered loans for the pool
should be a valid request.
Request Asking for Irrelevant Information
No response is required by a servicer to a request that seeks irrelevant information.33 In
adopting this exclusion for information that it is not directly related to a borrower’s mortgage
loan account, the CFPB noted that it does not intend to impose an obligation on borrowers to
“identify with specificity the precise document or data point the borrower is seeking.”34 Rather,
the purpose of this exclusion is to ensure that servicers are not expending resources on irrelevant
requests, so that they may focus on providing relevant information to borrowers.
The Official Bureau Interpretation to Regulation X provides the following examples of
irrelevant information: (1) information that relates to the servicing of mortgage loans other than a
borrower’s mortgage loan, including information reported to the owner of a mortgage loan
regarding individual or aggregate collections for mortgage loans owned by that entity; (2) the
servicer’s training program for servicing personnel; (3) the servicer’s servicing program guide;
or (4) investor instructions or requirements for servicers regarding criteria for negotiating or
approving any program with a borrower, including any loss mitigation option.35
The fourth example of irrelevant information given in the Official Bureau Interpretation
raises concerns by referring to “investor instructions or requirements for servicers regarding
criteria for negotiating or approving any program with a borrower.”36 This appears to be
inconsistent with the CFPB’s general position that borrowers should have full access to
information about loss mitigation options.37 However, this example is apparently referring to
general investor requirements and not those pertaining to an individual borrower’s evaluation for
loss mitigation options. This is made clear by the treatment of denial notices for loan
31
Id.
See In re Ginn, 465 B.R. 84 (Bankr. D.S.C. 2012) (in pre- Jan. 10, 2014, case, general request for copy of pooling
and service agreement did not fall within the meaning of “servicing” for purposes of qualified written request); In re
Griffin, 2010 WL 3928610 (Bankr. S.D.N.Y. Aug. 31, 2010) (same).
33
12 C.F.R. § 1026.36(f)(1)(iii) (effective Jan. 10, 2014).
34
See Section-by-Section Analysis, § 1024.36(f)(1)(iii), 78 Fed. Reg. 10,760 (Feb. 14, 2013).
35
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(f)(1)(iii)-1 (effective Jan. 10, 2014).
36
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(f)(1)(iii)-1 (effective Jan. 10, 2014).
37
See Foreclosures, § 9.2.2.2.3.2 (4th ed. and 2013 Supp.).
32
23
modifications under Regulation X’s loss mitigation rule.38 If the reason for denial of a loan
modification option was a requirement set by an owner or assignee of the loan, the rule requires
that the denial notice must identify the owner or assignee and the specific requirement that was
the basis for the denial.39 A mere statement that a loan modification option is denied based on an
investor requirement, without additional information specifically identifying the relevant investor
or guarantor and the specific applicable requirement, is insufficient.40 Thus, a borrower should
be permitted to obtain this information through a request for information if it is not provided in
the denial notice.
Overbroad or Unduly Burdensome Request for Information
Finally, a servicer may reject a request for information request it deems to be overbroad
or unduly burdensome.41 An information request is overbroad if a borrower requests that the
servicer provide an “unreasonable volume of documents or information.”42 Regulation X
elaborates on this point by stating that an information request is unduly burdensome if a diligent
servicer could not respond to the request without either exceeding the maximum time limits
under § 1024.36(d)(2) for responding to the request or incurring costs or dedicating resources
that would be unreasonable in light of the circumstances.43 If a servicer can reasonably identify
a valid information request in a writing that is otherwise overbroad or unduly burdensome, the
servicer is required to comply with respect to the validly requested information.44 The Official
Bureau Interpretation to Regulation X provides the following examples of an overbroad or
unduly burdensome request for information:
•
Requests that seek documents regarding substantially all aspects of mortgage
origination, mortgage servicing, mortgage sale or securitization, and
foreclosure, including, for example, requests for all mortgage loan file
documents, recorded mortgage instruments, servicing information and
documents, and sale or securitization information and documents;
•
Requests in a form that is not reasonably understandable or are included with
voluminous tangential discussion or assertions of errors;
•
Requests that purport to require servicers to provide information in specific
formats, such as in a transcript, letter form in a columnar format, or spreadsheet,
when such information is not ordinarily stored in such format; and
•
Requests that are not reasonably likely to assist a borrower with the borrower’s
account, including, for example, a request for copies of the front and back of all
physical payment instruments (such as checks, drafts, or wire transfer
38
See Foreclosures, § 9.2.8.2.4 (4th ed. and 2013 Supp.).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)(1)-1 (effective Jan. 10, 2014).
40
Id.
41
12 C.F.R. § 1026.36(f)(1)(iv) (effective Jan. 10, 2014).
42
Id.
43
Id.
44
Id.
39
24
confirmations) that show payments made by the borrower to the servicer and
payments made by a servicer to an owner or assignee of a mortgage loan.45
The exclusion for overbroad or unduly burdensome information requests appears
intended by the CFPB as a response to servicer complaints about boilerplate qualified written
requests available on the internet that have been used by pro se homeowners and some attorneys
in foreclosure litigation.46 These forms often contain numbered paragraphs that resemble
litigation discovery requests and have numerous assertions that may not be relevant to the
homeowner’s dispute. To avoid any potential servicer defense in litigation over violations of
RESPA § 2605(e) and Regulation X § 1024.36, an attorney who drafts a request for information
should ensure that it is concise and tailored to the facts of the particular case.
Compliance with Requests for Information
A servicer must acknowledge receipt of a request for information within five days
(excluding holidays, Saturdays, and Sundays) after receiving the request.47 Alternatively, the
servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements
if it provides the borrower with the information requested, and notifies the borrower in writing of
contact information (including a telephone number) for further assistance, within the five
business day period.48
Within thirty days (excluding holidays, Saturdays, and Sundays) of receipt of a request
for information from the borrower, the servicer must either:
•
provide the borrower with the requested information and contact
information, including a telephone number, for further assistance in writing;
or
•
conduct a reasonable search for the requested information and provide the
borrower with a written notification that states that the servicer has
determined that the requested information is not available to the servicer,
states the basis for the servicer’s determination, and contains contact
information, including a telephone number, for further assistance.49
A shorter timeframe for response is set for a request for the identity of, and address or
other relevant contact information for, the owner or assignee of a mortgage loan.50 A servicer is
required to respond to such a request within ten days (excluding holidays, Saturdays, and
45
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 35(f)(1)(iv)-1 (effective Jan. 10, 2014).
See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,760 (Feb. 14, 2013) (“During the Small
Business Review Panel outreach, small entity representatives expressed that typically qualified written requests
received from borrowers were vague forms found online or forms used by advocates as a form of pre-litigation
discovery. Servicers and servicing industry representatives indicated that these types of qualified written requests are
unreasonable and unduly burdensome.”).
47
Reg. X, 12 C.F.R. § 1024.36(c) (effective Jan. 10, 2014).
48
Reg. X, 12 C.F.R. § 1024.36(e) (effective Jan. 10, 2014).
49
Reg. X, 12 C.F.R. § 1024.36(d) (effective Jan. 10, 2014).
50
See Foreclosures, § 9.2.2.5.5 (4th ed. and 2013 Supp.).
46
25
Sundays) of receipt.51 Requests for the identity of a mortgage owner were previously discussed
in another article is this series, NCLC eReports, Sept. 2013, No. 1.
Extension of Response Period
A servicer may extend the time period for responding by an additional fifteen days
(excluding legal public holidays, Saturdays, and Sundays) if, before the end of the thirty-day
period, the servicer notifies the borrower in writing of the extension and the reasons for the
extension.52 Although the borrower notification must state the reasons for the extension, RESPA
and Regulation X do not require that the servicer have a valid or justifiable reason for extending
the time period. A servicer may not extend the ten-day time period for responding to requests for
identity of the owner or assignee of a mortgage loan.53
Information Not Available
A servicer must conduct a reasonable investigation before concluding that information
requested is not available. The Official Bureau Interpretation to Regulation X provides that
information is not available if the information is (1) not in the servicer’s control or possession, or
(2) cannot be retrieved in the ordinary course of business through reasonable efforts.54 The
Official Bureau Interpretation provides the following examples to illustrate when information is
or is not available:
•
A borrower requests a copy of a telephonic communication with a servicer.
Audio files with recordings or transcripts of borrower telephone calls are
accessible to the servicer in the ordinary course of business, and the requested
communication can be identified through reasonable business efforts. The
information requested is available to the servicer.
•
A borrower requests information stored on electronic back-up media.
Information on electronic back-up media is not accessible by the servicer’s
personnel in the ordinary course of business without undertaking extraordinary
efforts to identify and restore the information from the electronic back-up
media. The information requested is not available to the servicer.
•
A borrower requests information stored at an offsite document storage facility.
The servicer has a right to access documents at the offsite document storage
facility and servicer personnel can access those documents through reasonable
efforts in the ordinary course of business. The information requested is
available to the servicer assuming that the information can be found within the
offsite documents with reasonable efforts.55
51
Reg. X, 12 C.F.R. § 1024.36(d)(2)(i)(A) (effective Jan. 10, 2014).
12 U.S.C. § 2605(e)(4); Reg. X, 12 C.F.R. § 1024.36(d)(2)(ii) (effective Jan. 10, 2014).
53
Id.
54
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(d)-1 (effective Jan. 10, 2014).
55
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(d)-2 (effective Jan. 10, 2014).
52
26
Ban on Charging Response Fees
As discussed in Part 1 of this article, the Dodd-Frank Act clarifies that a servicer shall not
charge a fee for responding to a “valid qualified written request.”56 This provision is
implemented by Regulation X section 1024.35(h) for notices of error and section 1024.36(g) for
requests for information.57 A servicer is prohibited from charging a fee, or requiring the
borrower to make any payment owed on the account, as a condition of responding to a notice of
error or request for information.
56
57
Pub. L. No. 111-203, 124 Stat. 1376, tit. XIV, § 1463(a) (July 21, 2010).
Reg. X, 12 C.F.R. § 1024.35(h) and § 1024.36(g) (effective Jan. 10, 2014).
27
Sample Request for Information under RESPA to Obtain Identity of
Mortgage Owner
The form written request copied below can be used to obtain from the servicer of the
debtor’s mortgage information about the owner of the mortgage. This information is particularly
useful in determining the proper party in foreclosure proceedings, for exercising rescission
rights, for naming the proper party in bankruptcy lien strip off and claim objection proceedings,
and for effectuating service of process on the mortgage owner in litigation matters.
For a detailed discussion of the RESPA requirements for requests for information, see §
9.2.2 of NCLC’s Foreclosures (4th ed. and 2013 Supp.).
Advocates should check that the address they use in preparing the sample form is one
given by the servicer for requests for information, and not assume that the address used by the
client to send monthly payments is the proper designated address.1 If the request is sent by an
attorney on behalf of a client, it should include a written authorization from the client similar to
that provided below.2 Appropriate alterations based on the clients’ situation must be made before
sending the following sample request:
[date]
[Mortgage servicer]
[Address]
Attn: Borrower Inquiry Department
Re:
[Borrowers’ name, address, account number]
To Whom it May Concern:
Please be advised that I represent [borrowers] with respect to the mortgage loan you are
servicing on the property located at [address]. My clients have authorized me to send this request
on their behalf (see Authorization below). As servicer of my client’s mortgage loan, please treat
this as a “request for information” pursuant to the Real Estate Settlement Procedures Act, subject
to the response period set out in Regulation X, 12 C.F.R.§ 1024.36(d)(2)((i)(A), and a request
under § 1641(f)(2) of the Truth in Lending Act.3
1
Borrower written inquiries (including notices of error) under the RESPA must be sent to the “designated” address
for receipt and processing of such inquiries, if the servicer has properly designated such an address. See Reg. X, 12
C.F.R. § 1024.35(c); § 9.2.2.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.). The servicer’s website should be
checked for the designated address.
2
A servicer is required to respond to a request for information that is sent by the borrower or the borrower’s agent.
12 U.S.C. § 2605(e)(1)(A). However, a servicer may require that the borrower or agent provide documentation, such
as an authorization, that the agent has authority to act on the borrower’s behalf. See Official Bureau Interpretation,
Supplement 1 to Part 1024, ¶ 36(a)-1 (effective Jan. 10, 2014); § 9.2.2.4 of NCLC’s Foreclosures (4th ed. and 2013
Supp.).
3
A similar right exists under TILA. See 15 U.S.C. § 1641(f)(2); National Consumer Law Center, Truth in Lending
§ 5.15.11 (8th ed. 2012 and Supp.). The primary advantage to sending a RESPA information request over a TILA
request is the fixed ten business day response period, whereas no specific deadline is provided under TILA or
28
Please provide the following information:
1. The name of the owner or assignee of my clients’ mortgage loan;
2. The address and telephone number for the owner or assignee of my clients’
mortgage loan;
3. The name, position and address of an officer of the entity that is the owner or
assignee of my clients’ mortgage loan;4 and
4. Any other relevant contact information for the owner or assignee of my clients’
mortgage loan.
Thank you for taking the time to respond to this request.
Very truly yours,
___________________
[attorney]
Authorization to Release Information
To:
Re:
[servicer]
Borrowers: [name of borrowers]
Account No: [account no.]
Property Address: [address]
We are represented by the law office of [name of firm] and attorney [name of attorney]
concerning the mortgage on our home located at [address]. We hereby authorize you to release
any and all information concerning our mortgage loan account to the law office of [name of firm]
and attorney [name of attorney] at their request. We also authorize you to discuss our case with
the law office of [name of firm] and attorney [name of attorney].
Thank you for your cooperation.
Very truly yours,
_____________________
[debtor 1]
_______________________
[debtor 2]
Regulation Z. Both provisions are privately enforceable, though the availability of statutory damages is subject to
different requirements under the RESPA and TILA remedy provisions. For statutory damages under TILA, the
borrower does not need to prove a pattern and practice of noncompliance by the servicer. See NCLC, Truth in
Lending § 5.15.11.4 (8th ed. 2012 and Supp.).
4
For bankruptcy purposes, this information is useful for complying with Bankruptcy Rule 7004(h).
29
30
Notices of Error and
Requests for Information
©National Consumer Law Center 2014
Notices of Error and Requests
for Information
• New regime January 10, 2014: separate
qualifications and procedures for:
– “notice of error” under Reg. X § 1024.35
– “request for information” under Reg. X
§ 1024.36
• Written inquiry can be a NOE or RFI even if
not a QWR
• No fees for either a NOE or RFI
– § 1024.35(h) – error resolution
– § 1024.36(g) – information requests
31
Notice of Error
12 C.F.R. § 1024.35
Failure to accept a
conforming payment
Failure to apply a
payment correctly
Failure to timely
credit a payment
Failure to make
timely escrow
disbursements
Imposing an
unreasonable fee
Failure to provide a
payoff statement
Failure to provide
accurate loss
mitigation
information
Failure to do a
servicing transfer
correctly
Filing a foreclosure
without giving the
correct notices re.
loss mitigation
Moving for
foreclosure judgment
or sale without
following the loss
mitigation protocols
Any other error
relating to the
servicing of a
borrower's mortgage
loan
What Isn’t Subject to a
Notice of Error
12 C.F.R. § 1024.35(g) & Official Bureau Interpretation § 1024.35(b)-1
Origination of loan
Underwriting of loan
Securitization or transfer of ownership of loan
Duplicative requests
Overbroad requests
NOEs more than one year after loan discharged or no longer servicer
Servicer must notify borrower in writing within 5 business days after making determination not
to comply
32
What If Servicer Says No Error?
• Within 15 business days of receiving
borrower’s request, servicer must provide at
no charge the documents and information it
relied upon in making a determination that no
error occurred.
• May include documents showing information
entered in servicer’s collection system (such
as a copy of screen shot of servicer’s system).
• Servicer is not required to provide documents
that contain confidential, proprietary, or
privileged information, but must still provide
notice within 15 days
Notice of Error & Loss Mitigation
• Loss mitigation is related to servicing of loan
• Provisions for Notices of Error on
– Initiating foreclosure improperly
– Proceeding to sale improperly
– Failing to provide accurate loss mitigation
• But no explicit Notice of Error for failure to
adequately evaluate for loss mitigation
– Appeal process in § 1024.41(h) should provide
effective review
– Catch-all was added “to encompass the myriad and
diverse types of errors that borrowers may
encounter….”
– Loss mitigation evaluation not excluded
33
Servicer Limited Safe Harbor
• No liability, if:
– Servicer corrects error within 60 days of discovery,
but before
• action filed under 12 U.S.C. § 2605(f)
• receipt of written notice of error from borrower
• Unintentional mistakes are actionable
• No bankruptcy or litigation “exemption”
Request for Information
• Servicer is required to respond to any
written request for information “with respect
to the borrower’s mortgage loan”
• Unlike QWR, a RFI is not limited to
information “related to the servicing” of the
loan
34
Request for Information
• RFI may seek:
– information about a loan modification
application
– “servicing file,” which includes:
• schedule of all account transactions
• copy of security instrument that establishes lien
• any notes created by servicer personnel reflecting
communications with the borrower
– no per se rule against seeking loan origination
docs
Limitations on RFI
12 C.F.R. § 1024.36(f)
• Duplicative
– Not duplicative if for different time period, if information
could change
• Confidential or proprietary
– Servicer employee compensation or personnel actions
– Examination reports or audits
• Irrelevant
– Info on other borrowers
– Servicer training manuals
– Investor instructions (!)
• Overbroad or unduly burdensome
• Untimely (more than one year after loan discharged or
servicer no longer servicing loan)
• Servicer must notify borrower in writing within 5
business days after deciding not to comply
35
Who Can Send a NOE or RFI?
• Borrower
• Borrower’s Attorney
• Borrower’s “Agent”
– CFPB Commentary: Servicer may require proof
of authority from agent and may not treat letter as
notice of error or information request until
documentation received
Where to Send a NOE or RFI?
• If servicer has an “exclusive address,” it must:
– provide written notice designating the exclusive address
– use same address for notices of error and requests for
information
– provide the exclusive address on: any website servicer
maintains for servicing of the loan; any required periodic
statement or coupon book; any notices required by early
intervention or loss mitigation rules
Reg. X, 12 C.F.R. § 1024.35(c) and 1024.36(b)
• Do not send to lock box address
• Do not send (solely) to servicer’s attorney
36
Time for Servicer Response
5 business days
30 business days
• Acknowledge QWR, NOE,
or RFI, or
• Take requested action
• Correct borrower’s
account, or
• After conducting a
reasonable investigation,
provide borrower written
explanation as to why
servicer believes account
is correct, or
• Provide borrower with
requested information or
explanation why
information is unavailable
Exceptions to 30-Day Response
Period
7 business days
• for NOE asserting failure to provide accurate payoff
statement
Prior to foreclosure sale
• for NOE based on 120-day pre-foreclosure waiting period
or dual-track requirements, if NOE received more than 7
days before a scheduled foreclosure sale
10 business days
• for RFI seeking identity of owner of mortgage
37
Extension of 30-Day Response
Period
15 day extension
• if servicer notifies borrower of extension and reason
for delay before end of initial 30-day period.
No extension for
• timely notice of error based on 120-day preforeclosure waiting period or dual-track
requirements or
• request for information seeking identity of mortgage
owner
During the Response Period
• No adverse credit reporting of payment that is
subject of notice of error, for 60 days after
receipt of notice. 12 U.S.C. § 2605(e)(3)
• No foreclosure if notice of error received on
120-day pre-foreclosure waiting period or dual
track provisions more than 7 days before
foreclosure sale. 12 C.F.R. § 1024.35(i)
• Otherwise, servicer may pursue collection
remedies, including foreclosure
38
Asking the Servicer to Identify the
Mortgage Loan Owner
TILA (1641(f)(2))
RESPA (Reg. X
§1024.36(d)(2)
Time
Presumptively “reasonable”
10 business days
Fees
Not discussed
Banned
Remedy
$4K plus actuals, but
servicer liability?
Actual, unless pattern
and practice and then
$2K
Statute of limitations
1 year
3 years
Useful commentary in the RESPA Official Interpretations,
§ 1024.36(a)-2
39
RESPA Force-Placed Insurance Restrictions
In response to numerous problems with insurance obtained by a servicer when a
borrower’s policy lapses or is canceled, Congress included in the Dodd-Frank Act new
restrictions on “force-placed insurance.”1 New regulations implementing the Dodd-Frank Act
amendments to RESPA2 dealing with force-placed insurance go into effect on January 10, 2014.
The purpose of these amendments, as noted by the CFPB, is to “protect borrowers from the
unwarranted force-placement of insurance when a servicer does not have a reasonable basis to
impose the charge on a borrower.”3
Most of the RESPA amendments on force-placed insurance deal with notices that must
be provided to borrowers before insurance may be force placed. In addition to implementing
these notice requirements, a significant consumer protection was added by the CFPB in the final
rule. Servicers are prohibited from purchasing force-placed insurance, and instead must pay the
borrower’s existing insurance policy, if there is an escrow account on the mortgage.4 The CFPB
soundly concluded that a servicer should not purchase force-placed insurance when a servicer is
able to make disbursements from an escrow account to maintain the borrower’s hazard
insurance. As discussed more fully below, this requirement implements the statutory duty under
RESPA for servicers to timely disburse funds out of escrow accounts.
Definition of “force-placed insurance”
A definition of “force-placed insurance” is provided in RESPA and Regulation X.5 The
implementing regulation contains a broader definition in that it does not include the limiting
language contained in the statutory definition, the phrase “when the borrower has failed to
maintain or renew hazard insurance.” As explained by the CFPB, the requirements in Regulation
X apply even if the borrower has maintained insurance but the servicer has, in fact, erroneously
force-placed insurance.6 The term “force-placed insurance” is thus defined in Regulation X to
mean “hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage
loan that insures the property securing such loan.”7
The statutory definition also suggests that the term “force-placed insurance” is a type of
“hazard insurance.” However, RESPA does not include a definition of “hazard insurance.”
Thus, the CFPB determined in the final rule that it was necessary to define “hazard insurance” in
order to implement the statute. The final rule defines “hazard insurance” to mean “insurance on
the property securing a mortgage loan that protects the property against loss caused by fire, wind,
1
12 U.S.C. § 2605(l) and (m).
12 U.S.C. § 2605(k), (l) and (m), added by Pub. L. No. 111-203, 124 Stat. 1376 § 1463(a) (July 21, 2010).
3
See 78 Fed. Reg. 10,712 (February 14, 2013).
4
12 C.F.R. § 1024.17(k)(5) (effective Jan. 10. 2014); § 9.2.5.3.3, infra.
5
12 U.S.C. § 2605(k)(2) (“‘force-placed insurance’ means hazard insurance coverage obtained by a servicer of a
federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as
required of the borrower under the terms of the mortgage”). See also 12 C.F.R. § 1024.37(a) (effective Jan. 10,
2014).
6
See 78 Fed. Reg. 10,722 (Feb. 14, 2013).
7
12 C.F.R. § 1024.37(a)(1) (effective Jan. 10, 2014).
2
40
flood, earthquake, theft, falling objects, freezing, and other similar hazards for which the owner
or assignee of such loan requires insurance.”8
Although the Reg. X definition of hazard insurance includes flood insurance, and sections
2605(k), (l) and (m) of RESPA do not contain an exclusion for flood insurance, the CFPB
concluded that the force-placed insurance requirements should not apply to flood insurance.
Regulation X provides that hazard insurance required by the Flood Disaster Protection Act of
1973 (FDPA) does not constitute force-placed insurance.9 The CFPB noted that because flood
insurance is extensively regulated by the FDPA, the CFPB was concerned that “overlapping
regulatory restrictions would be unduly burdensome and produce little consumer benefit.”10
Duty to Timely Disburse Out of Escrow Rather than Force-Place Insurance
Servicers have a duty under section 2605(g) of RESPA to timely disburse funds out of
escrow accounts.11 A significant limitation on this requirement in Regulation X (adopted by the
CFPB’s predecessor, HUD) provides that the obligation does not apply if the borrower’s
payment is more than thirty days overdue.12 The CFPB has partially overridden this exemption
in the 2013 RESPA Servicing Rule with respect to force-placed insurance.
Servicers are prohibited from purchasing force-placed insurance, and instead must
disburse funds from the borrower’s escrow account to pay the borrower’s existing insurance
policy, if there is an escrow account on the mortgage.13 This duty to disburse funds in a timely
manner to pay the borrower’s hazard insurance premium charges exists unless the servicer is
“unable to disburse funds” from the borrower’s escrow account.14 The regulation specifies that a
servicer is considered unable to disburse funds only in two limited situations: (1) the servicer has
a reasonable basis to believe that the borrower’s insurance is being canceled for reasons other
than nonpayment or (2) the property is vacant.15 Thus, the duty to disburse under this regulation
applies even if the borrower’s mortgage payment is more than thirty days overdue or there are
not sufficient funds in the escrow account.16
It is important to note, however, that the rule is structured as a prohibition against
purchasing force-placed insurance. Thus, a servicer is not required to disburse funds from an
escrow account to maintain a borrower’s insurance policy, so long as the servicer does not
purchase force-placed insurance. In practice, though, it is likely that the duty will arise in most
cases unless the servicer meets one of the two basis for inability to disburse funds, since investor
contracts and guidelines typically compel the servicer to purchase force-placed insurance or
otherwise keep the property insured. The CFPB’s Commentary provides examples of when a
8
12 C.F.R. § 1024.31 (effective Jan. 10, 2014).
12 C.F.R. § 1024.37(a)(2) (effective Jan. 10, 2014).
10
See 78 Fed. Reg. 10,723 (Feb. 14, 2013).
11
See NCLC Foreclosures, § 9.2.4 (4th ed. and 2013 Supp.).
12
Reg. X, 12 C.F.R. § 1024.17(k)(1), (2).
13
Reg. X. 12 C.F.R. § 1024.17(k)(5)(i) (effective Jan. 10, 2014).
14
Id.
15
Reg. X. 12 C.F.R. § 1024.17(k)(5)(ii)(A) (effective Jan. 10, 2014).
16
Reg. X. 12 C.F.R. § 1024.17(k)(5)(i) and (k)(5)(ii)(B) (effective Jan. 10, 2014).
9
41
servicer has a reasonable basis to believe that a borrower’s hazard insurance policy is being
canceled or not renewed for reasons other than nonpayment of premium charges:
•
A borrower notifies a servicer that the borrower has cancelled the hazard
insurance coverage, and the servicer has not received notification of other hazard
insurance coverage;
•
A servicer receives a notification of cancellation or non-renewal from the
borrower’s insurance company before payment is due on the borrower’s hazard
insurance;
•
A servicer does not receive a payment notice by the expiration date of the
borrower’s hazard insurance policy.17
The effect of the regulation in the situation in which there are not sufficient funds in the
escrow account is that the servicer must advance funds to timely pay the borrower’s hazard
insurance premium charges. A servicer that advances the premium payment to be disbursed
from an escrow account may advance the payment on a month-to-month basis, if permitted by
state or other applicable law and this payment method is accepted by the borrower’s hazard
insurance company.18 Regulation X states that a servicer that advances funds in this situation
“may seek repayment from the borrower for the funds the servicer advanced, unless otherwise
prohibited by applicable law.”19 It is unclear whether the CFPB is suggesting that the servicer
can seek immediate payment from the borrower. Such an interpretation would be inconsistent
with the escrow account procedures used to recover escrow deficiencies through an adjustment
to future escrow payments following an escrow account analysis.20 The uncertainty stems from
the omission in this new repayment provision of language found in existing Regulation X section
1024.17(k)(2), which provides that when funds are advanced by a servicer, it may seek
repayment “for the deficiency pursuant to paragraph (f) of this section.” Paragraph (f) deals with
the recovery of shortages and deficiencies at the time of an escrow account analysis. If the new
repayment provision is construed as establishing a process separate from paragraph (f), a servicer
may be able to seek collection outside of the escrow account process.
Although this requirement imposed on servicers under Regulation X applies only if the
mortgage has an escrow account, it should significantly limit the instances in which borrowers
are charged for force-placed insurance.21 Because the regulation implements the timely escrow
disbursement duty under section 2605(g) of RESPA, it is enforceable with a private right of
action under section 2605(f).22
17
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 17(k)(5)(ii)(A)-1 (effective Jan. 10, 2014).
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 17(k)(5)(ii)(C)-1 (effective Jan. 10, 2014).
19
Reg. X. 12 C.F.R. § 1024.17(k)(5)(ii)(C) (effective Jan. 10, 2014).
20
See NCLC Foreclosures, § 9.3.4 (4th ed. and 2013 Supp.).
21
For mortgage accounts without an escrow account, the National Mortgage Settlement requires that the five
covered servicers send the borrower a notice offering to advance the premium if the borrower agrees to set up an
escrow account and repay the advanced premium. See § 2.9, supra. No similar requirement was added to Reg. X by
the CFPB.
22
See NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
18
42
Limitations of Fees
The Dodd-Frank Act also provides that all charges related to force-placed insurance that
are assessed to the borrower, other than charges subject to state regulation as the business of
insurance, must be bona fide and reasonable.23 Regulation X implements this statutory language
by defining a “bona fide and reasonable charge” as a charge for a “service actually performed
that bears a reasonable relationship to the servicer’s cost of providing the service, and is not
otherwise prohibited by applicable law.”24
Exemptions from Coverage
In addition to the exclusion for flood insurance discussed above, a partial exemption has
been provided to small servicers from the duty to disburse funds from escrow to pay premiums
on existing borrower insurance policies.25 Small servicers are exempted from the requirements
in sections 1024.17(k)(5)(i) and 1024.17(k)(5)(ii)(B) of Reg. X, but only if any force-placed
insurance that is purchased by the small servicer and charged to the borrower is less than the
amount the small servicer would need to disburse out of the borrower’s escrow account to ensure
that the borrower’s hazard insurance premium charges were paid in a timely manner. In other
words, if repayment by the borrower of the charges for force-placed insurance obtained by the
small servicer would be less costly than repayment by the borrower of the funds needed to be
advanced by the servicer to maintain the borrower’s insurance, the small servicer can force place
insurance. Small servicers are required to comply with all other force-placed insurance
provisions in section 1024.37, including the notice requirements discussed in Part 2 of this
article.
The CFPB was asked during the rulemaking comment period to exempt from coverage
certain borrowers who might be “unresponsive” to the force-placed insurance notices, such as
borrowers in bankruptcy, borrowers whom the servicer has referred to foreclosure, or a
borrowers who have made no payment for more than six months and the servicer has determined
to have vacated the property.26 The CFPB concluded that this would be inconsistent with the
intent of Congress, and no bankruptcy, default, or foreclosure exemptions were included in the
final force-placed insurance rule.
CFPB Construes the Statutory Language
An amendment to RESPA made by the Dodd-Frank Act prohibits a servicer from
“obtaining” force-placed insurance unless the servicer has a reasonable basis to believe that the
borrower has failed to comply with the mortgage loan contract’s requirements to maintain
23
12 U.S.C. § 2605(m).
12 C.F.R. § 1024.37(h)(2) (effective Jan. 10, 2014).
25
This provision uses the definition of small servicer provided in Regulation Z. A small servicer is a servicer that
either (1) services less than 5000 mortgage loans and these mortgage loans are all owned or originated by the
servicer or an affiliate or (2) is a Housing Finance Agency, as defined in 24 C.F.R. 266.5. See 12 C.F.R. §
1026.41(e)(4). See also § 9.1.4.2, supra.
26
See 78 Fed. Reg. 10,767 (Feb. 14, 2013).
24
43
property insurance.27 The statute goes on to state that a servicer cannot have a reasonable basis
for “obtaining” force-placed insurance if it has failed to comply with the notice requirements set
out in RESPA section 2605(l).28 Section 2605(l) provides that a servicer may not “impose any
charge” on the borrower for force-placed insurance before sending the required notices. The
different statutory language caused the CFPB to establish in the final rule an important
distinction between “obtaining” force-placed insurance and “charging” the borrower a fee for
force-placed insurance. The CFPB concluded that “when a servicer purchases force-placed
insurance but does not charge a borrower for such insurance, the servicer does not ‘obtain’ forceplaced insurance within the meaning of section 6(k)(1)(A) of RESPA.”29 Thus, a servicer does
not violate RESPA if it obtains force-placed insurance but never charges the borrower a fee for
that insurance.
Reasonable Basis to Believe Borrower Does Not Have Insurance Coverage
The CFPB’s Commentary interpreting the notice requirements states that information
about the borrower’s hazard insurance that is received from the borrower, or the borrower’s
insurance agent or provider, may provide the servicer with a reasonable basis to believe that the
borrower has either complied with or failed to comply with the insurance requirement in the
mortgage loan contract.30 In the absence of this information, the servicer may satisfy the
reasonable belief standard if the servicer acts with reasonable diligence to determine the status of
coverage and does not otherwise receive evidence of coverage. A servicer that complies with the
notice requirements described below is deemed to have acted with reasonable diligence.31
Two Initial Notices
Before charging the borrower any fee for force-placed insurance, the servicer must send
two notices to the borrower indicating that the servicer does not have evidence of hazard
insurance coverage, specifying the procedures by which the borrower may demonstrate
coverage, and advising the borrower that insurance may be force-placed if proof of coverage is
not provided.32 More specifically, section 1024.37(c)(1) of Reg. X provides that a servicer may
not charge a borrower for force-placed insurance unless the following sequential steps have been
followed by the servicer:
Step 1. The servicer must deliver to the borrower or place in the mail a written notice
with the disclosures set forth in section 1024.37(c)(2) at least forty-five days before the premium
charge or any fee is assessed.33 This first notice must inform the borrower that the hazard
insurance is expiring or has expired and that the servicer does not have evidence that the
borrower has hazard insurance; that hazard insurance is required and that the servicer has
purchased or will purchase such insurance at the borrower’s expense; that the borrower must
promptly provide the servicer with insurance information and a description of the requested
27
12 U.S.C. § 2605(k)(l)(A); 12 C.F.R. § 1024.37(b) (effective Jan. 10, 2014).
12 U.S.C. § 2605(l).
29
See 78 Fed. Reg. 10,765 (Feb. 14, 2013).
30
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(b).
31
Id.
32
12 U.S.C. § 2605(l)(1); 12 C.F.R. § 1024.37(c) (effective Jan. 10, 2014).
33
12 C.F.R. § 1024.37(c)(1)(i) (effective Jan. 10, 2014).
28
44
insurance information and how the borrower may provide such information; and that any
insurance the servicer has purchased or purchases may cost significantly more than the
borrower’s insurance and may not provide as much coverage.34
Step 2. The servicer must deliver to the borrower or place in the mail a written notice in
accordance with section 1024.37(d)(1) at least fifteen days before the premium charge or any fee
is assessed.35 This second notice may not be delivered or placed in the mail until at least thirty
days after the first notice is delivered or placed in the mail. This second notice must inform the
borrower that the notice is the second and final notice, and it must include much of the same
information as in the first notice.36 In addition, it must set forth the cost of the force-placed
insurance, stated as an annual premium, or a reasonable estimate if the servicer does not know
the cost of force-placed insurance.37 If the servicer has received hazard information after
sending the first notice, but has not received evidence of continuous coverage, the second notice
must request that the borrower provide the information that is missing and advise that the
borrower will be charged for insurance the servicer purchases for the period during which the
servicer is unable to verify coverage.38
Step 3. If by the end of the fifteen-day period beginning on the date the second notice
was delivered or placed in the mail, the servicer has not received, from the borrower or
otherwise, evidence demonstrating that the borrower has had hazard insurance coverage
continuously in place, the servicer may charge the borrower for force-place insurance.39 If the
borrower’s insurance policy or state law permit the borrower to pay the premium after the due
date and maintain the policy with no lapse in coverage, the borrower is considered to have
maintained the coverage “continuously” for purposes of this provision.40
The CFPB’s Commentary addresses the situation in which a servicer has received
updated information from the borrower after the first notice is sent but while the servicer is in the
process of preparing the second notice. If the second notice has already been put into
production, the servicer is not required to update the notice with new insurance information
received about the borrower, so long as the written notice was put into production within a
reasonable time before the second notice was delivered or placed in the mail.41 A reasonable
time for this rule is considered to be five days.
For purposes of the Subpart C servicing regulations, the term “day” is defined to mean a
calendar day.42 If a time period expressed in days does not include the language “excluding legal
34
12 C.F.R. § 1024.37(c)(2) (effective Jan. 10, 2014).
12 C.F.R. § 1024.37(c)(1)(ii) (effective Jan. 10, 2014).
36
12 C.F.R. § 1024.37(d)(2)(i) (effective Jan. 10, 2014).
37
12 C.F.R. § 1024.37(d)(2)(i)(D) (effective Jan. 10, 2014). An estimate must be based on the information
reasonably available to the servicer at the time the disclosure is provided, such as investor requirements for the
amount of coverage depending upon the borrower’s delinquency status or number of days past due. See Official
Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(d)(2)(i)(D)-1.
38
12 C.F.R. § 1024.37(d)(2)(ii) (effective Jan. 10, 2014).
39
12 C.F.R. § 1024.37(c)(1)(iii) (effective Jan. 10, 2014).
40
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(iii)-1.
41
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(d)(4).
42
12 C.F.R. § 1024.31 (effective January 10, 2014).
35
45
public holidays, Saturdays, and Sundays,” it is referring to calendar days. Thus, all the of the
time periods in the force-placed insurance rule, section 1024.37(c) of Reg. X, are stated as
calendar days, not business days.
Subsequent Notice of Renewal or Replacement of Force-Placed Insurance
A similar multi-step process must occur before a servicer assesses on a borrower a
premium charge or fee for the renewal or replacement of force-placed insurance the servicer has
previously obtained. However, the servicer need only provide one notice to the borrower,
delivered to the borrower or placed in the mail at least forty-five days before charging the
borrower.43 The content of the renewal notice combines much of the information provided in the
first and second notices given before force-placed insurance is obtained, including a statement
setting forth the cost of the force-placed insurance, stated as an annual premium, or a reasonable
estimate if the servicer does not know the cost of force-placed insurance.44 A renewal notice
must be sent before each anniversary of a servicer purchasing force-placed insurance, but need
not be sent more than once a year.45
Format of Notices
Regulation X contains several specific requirements for the format of the notices. For
example, some of the information on each notice must be set out in bold text.46 A servicer must
not include information on the notices other than what is required by the regulation, but may
provide additional information on separate pieces of paper sent in the same transmittal.47 The
CFPB has made available Model Forms that may be used by servicers for the four notices.48 The
first notice is designated as Form MS-3(A), the second notice when no information has been
provided by the borrower is Form MS-3(B), the second notice when incomplete information has
been provided by the borrower is MS-3(C), and the renewal or replacement notice is MS-3(D).
If a servicer mails the required notices, it must use a class of mail not less than first-class mail.49
Proof of Coverage and Cancellation of Force-Placed Insurance
Section 2605(l)(2) of RESPA states that the servicer shall accept any reasonable form of
written confirmation from a borrower of existing insurance coverage, which shall include the
existing policy number along with the identity of, and contact information for, the insurance
company or agent, or as otherwise required by the CFPB.50 The CFPB did not include in Reg. X
43
12 C.F.R. § 1024.37(e)(1)(i) (effective Jan. 10, 2014).
12 C.F.R. § 1024.37(e)(2) (effective Jan. 10, 2014).
45
12 C.F.R. § 1024.37(e)(5) (effective Jan. 10, 2014).
46
See 12 C.F.R. §§ 1024.37(c)(3), (d)(3), and (e)(3) (effective Jan. 10, 2014).
47
See 12 C.F.R. §§ 1024.37(c)(4), (d)(4), and (e)(4) (effective Jan. 10, 2014).
48
See Appendix MS-3 to Part 1024--Model Force-Placed Insurance Notice Forms, reprinted in NCLC Foreclosures,
Appx. C.3.2 (4th ed. and 2013 Supp.).
49
12 C.F.R. § 1024.37(f) (effective Jan. 10, 2014).
50
12 U.S.C. § 2605(l)(2).
44
46
any specific requirements for evidence demonstrating insurance coverage. However, the CFPB’s
Commentary provides that a servicer may require as evidence of continuous insurance coverage
a copy of the borrower’s policy declaration page, the borrower’s insurance certificate, the
borrower’s insurance policy, or other similar forms of written confirmation.51 A servicer may
reject evidence of coverage if neither the borrower’s insurance provider nor agent provides
confirmation of the insurance information submitted by the borrower, or if the terms of the
borrower’s hazard insurance policy do not comply with the mortgage loan contract requirements.
Servicers must cancel force-placed insurance coverage within fifteen days of receiving
evidence that the borrower has had in place hazard insurance coverage that complies with the
mortgage loan contract.52 Any force-placed insurance premium charges or related fees paid by
the borrower for overlapping insurance coverage, when both the force-placed insurance and
borrower’s policies were in effect, must be refunded in full.53 Similarly, any force-placed
insurance premium charges or related fees assessed to the borrower in this situation in which
overlapping coverage existed must be removed from the borrower’s account.54
Only if proof of coverage is not provided within fifteen days after the second notice, can
the servicer charge the borrower for force-placed insurance coverage. The CFPB’s Commentary
notes that a servicer may charge a borrower for force-placed insurance it has purchased,
retroactive to the first day of any period when the borrower did not have hazard insurance in
place, if charging the borrower in this manner is not prohibited by state or other applicable law.55
The Commentary illustrates this with an example involving the renewal or replacement of forceplaced insurance. Assume that on January 2, the servicer sends the renewal notice required by
section 1024.37(e)(1)(i) and at 12:01a.m. on January 12, the existing force-placed insurance the
servicer had purchased (and charged to the borrower) expires and the servicer replaces it with a
new policy. On February 5, the servicer then receives evidence that the borrower has hazard
insurance effective since 12:01 a.m. on January 31. The servicer may charge the borrower for
forced-place insurance for the period from 12:01 a.m., January 12 to 12:01a.m., January 31, as
early as February 5.56
All of the requirements discussed in this article are enforceable with a private right of
action under RESPA section 2605(f).57
51
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(iii)-2.
12 U.S.C. § 2605(l)(3)(A); 12 C.F.R. § 1024.37(g)(1) (effective Jan. 10, 2014).
53
12 U.S.C. § 2605(l)(3)(B); 12 C.F.R. § 1024.37(g)(2) (effective Jan. 10, 2014).
54
Id.
55
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(i).
56
Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(e)(1)(iii)-1.
57
See NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
52
47
Force-placed Insurance
AN D T H E N E W C F P B R U L E S
FORCE-PLACED INSURANCE
5. Property Insurance. Borrower shall keep the improvements now existing or
hereafter erected on he Property insured against loss by fire, hazards, included within
the term “extended coverage,” and any other hazards including, but not limited to,
earthquakes and floods, for which Lender requires insurance….If Borrower fails to
maintain any of the coverages described above, Lender may obtain insurance coverage,
at Lender’s options and Borrower’s expense. Lender is under no obligation to purchase
any particular type or amount of coverage. Therefore such coverage shall cover Lender
but might or might not protect Borrower, Borrower’s equity in the Property, or the
contents of the Property, against any risk, hazard or liability and might provide greater
or lesser coverage than was previously in effect. Borrower acknowledges that the cost
of the insurance coverage so obtained might significantly exceed the cost of insurance
that Borrower could have obtained. Any amounts disbursed by Lender under this
Section 5 shall become additional debtor of Borrower secured by this Security
Instrument. These amounts shall bear interest and shall be payable, with such interest,
upon notice from Lender to Borrower requesting payment.
48
HOW IT WORKS
• Master policy
• Individual properties can be added, deleted, or modified
• Creditor pays the premium (less kickback)and then seeks
reimbursement from the consumer or investors
• Cost is always much higher than standard homeowner’s
insurance policy
• Primary insurers
• Assurant Specialty Property; QBE Insurance Group;
American Modern Insurance (Litton and Saxon)
• All insurance related activity is outsourced to the insurance
companies
FOLLOWING THE MONEY
• Commissions paid to subsidiaries that serve as
placing agent
• Portions of premiums received through reinsurance
agreement.
Reinsurance
Company 1
Places policy
Servicer
Subsidiary
Commission $$
Insurance
Company
$$ Premiums
collected from
borrowers
$$ Premiums
Reinsurance
Company 2
Claim liability
Servicer
Subsidiary
49
DODD-FRANK
• Section 1463, codified as 12 U.S.C.
§ 2605(k), (l)
• Prohibits force-placed insurance unless servicer has a
reasonable basis to believe borrower has failed to
comply to loan agreement
• Notice requirements
• Termination requirements
• Charges must be bona fide and reasonable
• Private right of action
FORCE-PLACED INSURANCE
• Borrower’s insurance has been cancelled or not
renewed
• Borrower has insurance but the amount or terms of
coverage are inadequate
• Borrower has insurance but doesn’t provide proof of
insurance to the servicer???
• Servicer improperly force-places insurance
50
CFPB REGULATIONS
• 12 C.F.R.
§ 2605(k)(2); 12 C.F.R. § 1024.37(a).
• Definition of “force-placed insurance”
• Procedural provisions – notice requirements
• Substantive provisions
• Upon proof of coverage, terminate and refund for overlapping
coverage
• For escrowed loans must pay existing insurance policy (with limited
exceptions)
• Charges must be for services actually performed and have
reasonable relationship to cost of providing service.
CFPB REGULATIONS
• Reasonable relationship to cost
• Average loss-ratio for voluntary homeowner’s
insurance is 61%.
• Average loss-ratio for FPI coverage is only 24%.
• Losses are not high enough to justify exorbitant cost.
• Recent settlements: BofA - $228m; JPMorgan $300m;
CitiGroup - $110m; and HSBC - $32m
• Actually performed
• Backdating policies?
51
PAY EXISTING POLICY
• Applies only to loans with escrow accounts
• Exceptions
• Borrower’s insurance is being canceled for reasons other than
nonpayment
• Property is vacant
• Small servicer exemption – only if FPI purchased and charged
to borrower is less than the amount small servicer would need
to disburse out of escrow
• No bankruptcy, default or foreclosure exception
• No exception for insufficient funds in escrow account
FORCE-PLACED INSURANCE
Other Claims
Damages
52
RESPA Early Intervention Requirements for Borrowers in Default
The 2013 RESPA Servicing Rule amendments to CFPB Regulation X, effective January
10, 2014, include provisions dealing with foreclosure avoidance and loss mitigation. The early
intervention requirements found in Regulation X § 1024.39 focus on the period soon after a
borrower becomes delinquent. The regulation requires a servicer to attempt to establish contact
with the borrower at this early stage in order inform the borrower about available options to
avoid foreclosure--a live contact within thirty-six days and a written notice within forty-five days
of delinquency.
Another Regulation X provision, § 1024.40, requires the servicer to maintain a continuity
of contact with the borrower if the borrower requests loss mitigation assistance, and § 1024.41
establishes procedures for handling loss mitigation applications. This article focuses on the early
intervention requirements, and future eReports articles will cover the continuity of contact and
loss mitigation requirements.
Live Contact with Borrower
A servicer is required to make good faith efforts to establish “live contact” with a
delinquent borrower not later than the thirty-sixth day of the borrower’s delinquency.1 The
purpose of the live contact requirement is to provide servicers an opportunity to discuss with a
borrower the circumstances of a borrower’s delinquency.2 Live contact includes telephoning or
conducting an in-person meeting with the borrower, but not leaving a recorded phone message.
Good faith efforts to establish live contact consist of “reasonable steps under the circumstances
to reach a borrower and may include telephoning the borrower on more than one occasion or
sending written or electronic communication encouraging the borrower to establish live contact
with the servicer.”3
Promptly after establishing live contact, the servicer is to inform the borrower, or the
borrower’s authorized agent, about the availability of loss mitigation options, if appropriate.4 If
the borrower makes a payment in full before the end of the thirty-six day period, the servicer
need not establish live contact with the borrower.5
A servicer is given discretion to determine whether informing the borrower about the
availability of loss mitigation options is appropriate under the circumstances.6 If the servicer
determines it is appropriate and establishes live contact with the borrower, it must promptly
provide information about the availability of applicable loss mitigation options.7 The
information can be provided orally, in writing, or through an electronic communication. A
1
12 C.F.R. § 1024.39(a) (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-2 (effective Jan. 10, 2014).
3
Id.
4
Id.
5
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a) - 1.iv (effective Jan. 10, 2014).
6
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-3.i (effective Jan. 10, 2014).
7
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-3.ii (effective Jan. 10, 2014).
2
53
servicer need not notify a borrower about any particular loss mitigation options – it may simply
state that loss mitigation options may be available.
The CFPB’s Official Bureau Interpretation to Regulation X defines “delinquency” as
beginning “on the day a payment sufficient to cover principal, interest, and, if applicable, escrow
for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due
date to pay before the servicer assesses a late fee.”8 For example, if a borrower’s monthly
payment for January is due on January 1 and the payment is not fully paid during the 36-day
period after January 1, the servicer must make good faith efforts to establish live contact not later
than February 6 (which is 36 days after January 1). A borrower who is performing as agreed
under a loss mitigation option intended to cure a default is not delinquent for purposes of §
1024.39.9
Pre-Foreclosure Written Notice Regarding Loss Mitigation
Section 1024.39(b) mandates that servicers give borrowers who are in default a specific
form of notice informing them how to contact servicer staff for loss mitigation reviews.10 The
regulation designates this as an “early intervention” notice, and its purpose is to encourage
communication between the borrower and the servicer as soon as possible after a default has
occurred.
The servicer must give this written notice no later than the forty-fifth day of the
borrower’s delinquency.11 The same definition for delinquency as used for the live contact
requirement applies here.12 Servicers are not required to give this notice to a borrower more than
once during any 180-day period.13 The written notice must be provided even if the servicer
provided information about loss mitigation and foreclosure previously during a live contact with
the borrower under § 1024.39(a).14
The notice must include the following information:
•
•
•
a statement encouraging the borrower to contact the servicer;15
the telephone number to access the servicer’s loss mitigation personnel
assigned to the borrower under the continuity of contact rule (§ 1024.40(a)),
and the servicer’s mailing address;16
if applicable, a statement providing a brief description of examples of loss
mitigation options that may be available from the servicer;17
8
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-1 and 39(b)-1 (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-1.ii (effective Jan. 10, 2014).
10
12 C.F.R. § 1024.39(b) (effective Jan. 10, 2014).
11
12 C.F.R. § 1024.39(b)(1) (effective Jan. 10, 2014).
12
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-1 (effective Jan. 10, 2014).
13
Id.
14
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(1)-4 (effective Jan. 10, 2014).
15
12 C.F.R. § 1024.39(b)(2)(i)(effective Jan. 10, 2014)
16
12 C.F.R. § 1024.39(b)(2)(ii) (effective Jan. 10, 2014).
17
12 C.F.R. § 1024.39(b)(2)(iii) (effective Jan. 10, 2014).
9
54
•
•
either application instructions or information on how the borrower may
obtain more information about the application process;18 and
the website address the borrower may use to access either the CFPB’s list or
HUD’s list of homeownership counselors or organizations, and the HUD tollfree phone number.19
The rule does not require that the notice list extensive details about loss mitigation
options. The “if applicable” limitation with regard to available loss mitigation options would
apply in the unlikely instance where a servicer was prohibited from offering any type of loss
mitigation. In the overwhelming majority of cases, the servicer will be able to, and therefore
must, describe some examples of loss mitigation options available for the borrower.
The Official Bureau Interpretation to Regulation X indicates that the rule does not
mandate that the servicer list a specific number of loss mitigation options.20 The explanation of
options may be a generic list of options that the servicer offers to borrowers.21 An example of an
option “may be described in one or more sentences.”22 However, the notice must contain some
accurate content that meets this requirement, otherwise the notice is ineffective.
Additional information that the servicer determines would be helpful can be included in
the notice.23 A servicer may provide the written notice by combining it with other notices in a
single mailing, but only if each of the statements required by § 1024.39(b)(2) meets the clear and
conspicuous standard in § 1024.32(a)(1).24
The CFPB has made available to servicers model clauses MS-4(A), MS-4(B), and MS4(C) that may be used to comply with the requirements of § 1024.39(a).25 But the servicer may
use any format for the written notice, including any size and type of print, number of pages, size
and quality of paper, provided again that each of the required statements in the notice satisfies
the clear and conspicuous standard in § 1024.32(a)(1).26 Servicers can supplement the notice
with a loss mitigation application form.27
Once the type of loan is identified, the borrower’s advocate should be able to determine
whether the description of available loss mitigation options is accurate. The failure to provide
accurate information to a borrower regarding loss mitigation options and foreclosure, as required
18
12 C.F.R. § 1024.39(b)(2)(iv) (effective Jan. 10, 2014). The servicer can provide detailed application instructions
or can simply include a general statement such as, “contact us for instructions on how to apply.” See Official Bureau
Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)(iv)-1 (effective Jan. 10, 2014).
19
12 C.F.R. § 1024.39(b)(2)(v) (effective Jan. 10, 2014).
20
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)(iii)-1 (effective Jan. 10, 2014) (“Section
1024.39(b)(iii) does not require that a specific number of examples be disclosed, but borrowers are likely to benefit
from examples of options that would permit them to retain ownership of their home and examples of options that
may require borrowers to end their ownership to avoid foreclosure.”).
21
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)(iii)-2 (effective Jan. 10, 2014).
22
Id.
23
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)-1 (effective Jan. 10, 2014).
24
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)-3 (effective Jan. 10, 2014).
25
See Appendix MS-4 to Subpart C of Regulation X, reprinted in Appx. C.3, infra.
26
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)-2 (effective Jan. 10, 2014).
27
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)(iv)-1 (effective Jan. 10, 2014).
55
by the early intervention notice under § 1024.39, is expressly covered by the error resolution
procedures.28 In addition, violations of the early intervention requirements are actionable under
the RESPA’s remedy provision.29
Scope of the Rule
The early intervention requirements, as well as the continuity of contact and loss
mitigation requirements, apply only to a mortgage loan that is secured by a property that is the
debtor’s principal residence.30 In addition, these requirements do not apply to: 1) a servicer that
qualifies as a small servicer;31 2) a servicer with respect to a reverse mortgage transaction;32 and
3) a servicer with respect to a mortgage loan for which the servicer is a “qualified lender.”33
Borrowers in Bankruptcy
Extensive comments were submitted by mortgage industry representatives during the
rulemaking process seeking bankruptcy exemptions to the loss mitigation requirements,
including the early intervention requirement. The CFPB initially declined requests to create
blanket exemptions, noting that a borrower could have filed for bankruptcy but still be eligible
for loss mitigation assistance.34 Instead, the CFPB added a provision to the early intervention
rule and commentary intended to demonstrate that compliance with both RESPA and the
Bankruptcy Code is feasible. However, after the final rule was published and without using the
advance notice and comment procedure, the CFPB issued an “Interim Final Rule” that granted a
bankruptcy exemption that applies to the early intervention requirements.35 Fortunately,
bankruptcy exemptions were not adopted for the continuity of contact and loss mitigation
requirements.
Section 1024.39(d)(1) provides that a servicer is exempt from the early intervention
requirements for a mortgage loan while the borrower is a debtor in a bankruptcy case.36 The
Official Bureau Interpretation for this section provides that the exemption applies for any portion
of the mortgage debt that is discharged in bankruptcy.37 This fails to recognize that many
consumers file chapter 7 for non-mortgage related reasons, continue to maintain payments after
receiving a discharge, and do not reaffirm discharged mortgage debts because of the discharge
28
12 C.F.R. § 1024.35(b)(7). See NCLC Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.).
12 U.S.C.§ 2605(f); NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
30
Reg. X, 12 C.F.R. § 1024.30(c)(2) (effective Jan. 10, 2014).
31
Reg. X, 12 C.F.R. § 1024.30(b)(1). A small servicer, as defined by Regulation Z section 1026.41(e)(4), is a
servicer that “services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or
assignee.” Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also
includes “Housing Finance Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage
loans serviced by such agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014).
32
Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014).. A reverse mortgage transaction is defined at 12
C.F.R. § 1026.33(a).
33
Reg. X, 12 C.F.R. § 1024.30(b)(3) (effective Jan. 10, 2014). A “qualified lender” is defined at 12 C.F.R.§
617.7000, which covers mortgage loans made under the Farm Credit System.
34
See Section-by-Section Analysis, § 1024.39(b), 78 Fed. Reg. 10,807 (Feb. 14, 2013).
35
See 78 Fed. Reg. 62,993 (Oct. 23, 2013).
36
12 C.F.R. § 1024.39(d)(1) (effective Jan. 10, 2014).
37
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(d)(1) - 2(ii) (effective Jan. 10, 2014).
29
56
injunction exception provided in § 524(j) of the Bankruptcy Code. In addition, all of the
government sponsored loan modification programs require that a borrower who has received a
chapter 7 discharge and not reaffirmed the mortgage debt must still be considered for loss
mitigation options. Thus, the CFPB’s Interpretation is inconsistent with the policies of these loss
mitigation programs and the Bankruptcy Code, and hopefully will be reconsidered by the CFPB.
In addition, the Official Bureau Interpretation provides that if there are joint obligors on a
mortgage, the exemption applies if any of the borrowers is in bankruptcy. An example is given
of a husband and wife who jointly own a home, stating that “if the husband files for bankruptcy,
the servicer is exempt from complying with § 1024.39 as to both the husband and the wife.”38 If
the husband in this example filed a chapter 7 bankruptcy case, the automatic stay in his case does
not apply to his spouse or any other joint obligors as there is no co-obligor stay in chapter 7. The
Interpretation would appear to prevent the wife in the example provided by the Bureau from
receiving information about loss mitigation options even if the husband filed a chapter 7 case
years after the couple were separated or divorced and the husband’s participation is not required
to complete the loss mitigation application.
Borrowers Who Have Sent an FDCPA Cease Communication Letter
Another exemption from the early intervention requirements was added to Regulation X
by the Interim Final Rule for a servicer subject to the FDCPA with respect to a mortgage loan for
which the borrower has sent a cease communication notice to the servicer pursuant to the Fair
Debt Collection Practices Act , 15 U.S.C.§ 1692c(c).39
38
39
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(d)(1) - 3 (effective Jan. 10, 2014).
12 C.F.R. § 1024.39(d)(2) (effective Jan. 10, 2014).
57
RESPA “Continuity of Contact” Requirements for Borrowers in Default
Regulation X contains three sections that became effective January 10, 2014, and that
address how a servicer should attempt to assist a borrower in default. In addition to the early
intervention notification requirements in § 1024.391 that were discussed in an earlier eReports
article and the loss mitigation procedures in § 1024.412 that will be covered in a future article, §
1024.40 is intended to maintain for a borrower who seeks assistance after falling into default a
“continuity of contact” with the servicer.3 The requirement is similar to the “single point of
contact” that is a feature of many government sponsored loan modification programs. In general,
it is intended to avoid the frustration many borrowers face when they are forced to repeatedly
contact a servicer and speak with personnel who are unfamiliar with their situation, requiring
borrowers to have the same conversations over and over again.
Although the requirement had been generally referred to before the CFPB rule as a
“single point of contact,” the practice of servicers had not been to assign a single person to assist
the borrower. The CFPB regulation is consistent with this practice by providing that a servicer is
given discretion to determine whether to assign a single person or a team of personnel to respond
to a delinquent borrower.4
Duty to Assign Personnel to Borrower
The regulation requires that a servicer maintain policies and procedures that are
reasonably designed to achieve the following:
•
Assign personnel to a delinquent borrower by the time the servicer provides
the borrower with the early intervention notice required by § 1024.39(b), but
in any event, not later than the forty-fifth day of the borrower’s delinquency;
•
Make available to a delinquent borrower, via telephone, the assigned
personnel to respond to the borrower’s inquiries, and as applicable, assist the
borrower with available loss mitigation options until the borrower has made,
without incurring a late charge, two consecutive mortgage payments under a
permanent loss mitigation agreement;
•
If a borrower contacts the assigned personnel and does not immediately
receive a live response from such personnel, ensure that the servicer can
provide a live response in a timely manner.5
The servicer is also required to maintain policies and procedures reasonably designed to
ensure that the servicer personnel assigned to a delinquent borrower provide the borrower with
1
See NCLC eReports, Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6 (4th ed. and 2013 Supp.).
See NCLC Foreclosures, § 9.2.8 (4th ed. and 2013 Supp.).
3
Reg. X, 12 C.F.R. § 1024.40 (effective Jan. 10, 2014).
4
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 40(a)–2 (effective Jan. 10, 2014).
5
Reg. X, 12 C.F.R. § 1024.40(a) (effective Jan. 10, 2014).
2
58
accurate information about available loss mitigation options.6 This includes actions the borrower
must take to be evaluated for these loss mitigation options, to submit a complete loss mitigation
application,7 and, if applicable, to appeal8 the servicer’s denial of the borrower’s loss mitigation
application.9 The assigned personnel are also required to provide the borrower with accurate
information about the status of the borrower’s loss mitigation application, the circumstances
under which the servicer may make a referral to foreclosure, and any applicable loss mitigation
deadlines established by an owner or assignee of the borrower’s mortgage loan or under section
1024.41.10
Assistance in Completing the Loss Mitigation Application
The continuity of contact regulation also requires that the personnel assigned to the
borrower obtain the information needed to properly evaluate the borrower for loss mitigation
options. The assigned personnel are required to retrieve, in a timely manner, a complete record
of the borrower’s payment history, and all written information the borrower has provided to the
servicer, and prior servicers if applicable, in connection with a loss mitigation application.11
This information is to be provided by the assigned personnel to the other servicer personnel who
are required to evaluate a borrower for loss mitigation options.12 The assigned personnel are also
required to provide a delinquent borrower with information about the procedures for submitting a
notice of error under § 1024.35 or an information request under § 1024.36.13
For purposes of responding to a borrower’s inquiries and assisting a borrower with loss
mitigation options, the term “borrower” includes a person authorized by the borrower to act on
the borrower’s behalf, such as a housing counselor or the borrower’s attorney.14 A servicer may
adopt reasonable procedures to determine if the person that claims to be the borrower’s agent has
authority to act on behalf of the borrower, such as by requiring an authorization from the
borrower or other documentation.
Scope of the Rule
The continuity of contact requirements, as well as the early intervention and loss
mitigation requirements, apply only to a mortgage loan that is secured by a property that is the
debtor’s principal residence.15 In addition, these requirements do not apply to: 1) a servicer that
qualifies as a small servicer;16 2) a servicer with respect to a reverse mortgage transaction;17 and
3) a servicer with respect to a mortgage loan for which the servicer is a “qualified lender.”18
6
Reg. X, 12 C.F.R. § 1024.40(b)(1)(i) (effective Jan. 10, 2014).
See NCLC Foreclosures, § 9.2.8.2.2 (4th ed. and 2013 Supp.) (discussing loss mitigation applications).
8
See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.) (discussing appeal rights).
9
Reg. X, 12 C.F.R. § 1024.40(b)(1)(ii) (effective Jan. 10, 2014).
10
Reg. X, 12 C.F.R. § 1024.40(b)(1)(iii), (iv), and (v) (effective Jan. 10, 2014).
11
Reg. X, 12 C.F.R. § 1024.40(b)(2)(i) and (ii) (effective Jan. 10, 2014).
12
Reg. X, 12 C.F.R. § 1024.40(b)(3) (effective Jan. 10, 2014).
13
Reg. X, 12 C.F.R. § 1024.40(b)(4) (effective Jan. 10, 2014).
14
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 40(a)–1 (effective Jan. 10, 2014).
15
Reg. X, 12 C.F.R. § 1024.30(c)(2) (effective Jan. 10, 2014).
16
Reg. X, 12 C.F.R. § 1024.30(b)(1). A small servicer, as defined by Regulation Z section 1026.41(e)(4), is a
servicer that “services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or
assignee.” Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also
7
59
Borrowers in Bankruptcy
The CFPB’s Official Bureau Interpretation to Regulation X explains that if the continuity
of contact requirement would otherwise apply to a borrower who has filed bankruptcy, a servicer
may assign personnel with specialized knowledge in bankruptcy law to assist the borrower.19 A
servicer is given discretion to assign a single person or a team of personnel, and they may be
“single-purpose or multi-purpose personnel.”20 Thus, the rule may be complied with even if a
servicer transfers the borrower’s file to a separate bankruptcy unit with personnel who are not
part of the servicer’s loss mitigation unit or to outside bankruptcy counsel.21
No Private Remedy for Violations
In contrast with the early intervention requirements under § 1024.39 and the loss
mitigation procedures under § 1024.41, violations of the continuity of contact requirements are
not enforceable by the borrower under RESPA’s private remedies. Although the CFPB had
initially proposed that the rule would have a private right of action, it concluded when
promulgating the final rule that the continuity of contact requirements should be an “objectivesbased policies and procedures requirement” and that “private liability is not compatible” with
such requirements.22 Consistent with this approach, § 1024.40 merely requires servicers to
“maintain policies and procedures” that are “reasonably designed” to achieve the “objectives” or
“functions” imposed on servicers by the section.23 Asserting a failure to comply with the
regulation, however, could help to bolster claims for violations of § 1024.39 and § 1024.41, or
possibly could be pursued together with other servicing abuses as a state UDAP statute
violation.24
includes “Housing Finance Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage
loans serviced by such agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014).
17
Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014). A reverse mortgage transaction is defined at 12
C.F.R. § 1026.33(a).
18
Reg. X, 12 C.F.R. § 1024.30(b)(3) (effective Jan. 10, 2014). A “qualified lender” is defined at 12 C.F.R.§
617.7000, which covers mortgage loans made under the Farm Credit System.
19
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 40(a)–2 (effective Jan. 10, 2014).
20
Id. (“Single-purpose personnel are personnel whose primary responsibility is to respond to a delinquent
borrower’s inquiries, and as applicable, assist the borrower with available loss mitigation options. Multi-purpose
personnel can be personnel that do not have a primary responsibility at all, or personnel for whom responding to a
delinquent borrower’s inquiries, and as applicable, assisting the borrower with available loss mitigation options is
not the personnel’s primary responsibility.”).
21
See Section-by-Section Analysis, § 1024.39(b), 78 Fed. Reg. 10,811 (Feb. 14, 2013).
22
See Section-by-Section Analysis, § 1024.40, 78 Fed. Reg. 10,808 (Feb. 14, 2013).
23
Reg. X, 12 C.F.R. § 1024.40(a) and (b) (effective Jan. 10, 2014).
24
See NCLC Foreclosures, § 8.2 (4th ed. and 2013 Supp.).
60
Early Intervention and
Continuity of Contact
©National Consumer Law Center 2014
Loss Mitigation Rules
Rules effective Jan. 10, 2014 dealing with
foreclosure avoidance:
• Early Intervention - Reg. X § 1024.39
• Continuity of Contact - Reg. X § 1024.40
• Loss Mitigation - Reg. X § 1024.41
61
Early Intervention
By 36th day of
delinquency, servicer must
make good faith effort to
establish “live contact” with
the borrower
By 45th day of delinquency,
servicer must provide
notice of loss mitigation
options
Early Intervention
• No later than 36th day of delinquency, servicer
must make good faith effort to establish “live
contact” with the borrower
– includes telephoning or conducting in-person
meeting with the borrower, but not leaving a
recorded phone message
– purpose is to provide opportunity to discuss the
circumstances of a borrower’s delinquency
– servicer should inform the borrower about
availability of loss mitigation options, if appropriate
62
Early Intervention
• No later than 45th day of delinquency, servicer
must provide borrower with written notice
containing information about available loss
mitigation options
– servicer is not required to give this notice more
than once during any 180-day period
– rule does not require communication prohibited by
applicable law (FDCPA; bankruptcy)
– CFPB has provided model clauses for the notice
that may be used by servicers
Written Notice Must Include:
Statement encouraging the borrower to contact
the servicer
Telephone number for “continuity of contact”
personnel and servicer’s mailing address
Brief description of examples of available loss
mitigation options
Application instructions or general statement such
as “contact us for instructions on how to apply”
63
Continuity of Contact (Not SPOC)
Policies and procedures reasonably
designed to ensure that:
• A single person or a team of
personnel is assigned to borrower
no later than 45th day of
delinquency
• Assigned personnel are available
by telephone
What Do They Do?
• Provide borrower with accurate information about available
loss mitigation options, including actions needed to complete
an application, time deadlines, status of borrower’s
application, and foreclosure referrals
• Obtain information needed to properly evaluate borrower for
loss mitigation options
• Timely retrieve complete record of borrower’s payment
history and all written information borrower has provided for a
loss mitigation application
• Provide this information to other personnel who are required
to evaluate the borrower for loss mitigation options
• Provide borrower with information about procedures for
submitting a notice of error or an information request
64
Day of Delinquency
• Delinquency begins on day a full payment (to
cover PITI) for a given billing cycle is due and
unpaid, even if there is grace period before
assessment of a late fee
• Example - if payment is due January 1 and
amount due is not fully paid during the 36-day
period after January 1, servicer must attempt
live contact not later than by February 6 (36
days after January 1)
• This definition of delinquency applies to
§ 1024.39 and § 1024.40, but not § 1024.41
Pre-Foreclosure Review Period
By 36th day of delinquency
Attempt live
contact with
borrower
By 45th day
Send written
notice and assign
personnel to
borrower
65
After 120th Day
If complete
application not
received, may
initiate foreclosure
by making first
notice or filing
Bankruptcy Exemptions
Bankruptcy Exemption?
Early
intervention
Continuity of
contact
Loss
Mitigation
Yes; for any portion of debt discharged in
bankruptcy; applies to joint borrowers if one
has filed for bankruptcy
No; Comment 40(a)–2 explains that
servicer may assign personnel with
specialized knowledge in bankruptcy law to
assist the borrower
No
66
RESPA Loss Mitigation Procedures
Important RESPA regulations concerning loss mitigation procedures went into effect on
January 10. The new rules specify procedures a servicer must follow if a mortgage loan
borrower requests loss mitigation assistance.
New Rules Specify Procedures and Not the Substance of Offered Loss Mitigation
Assistance
In drafting the loss mitigation requirements in Regulation X § 1024.41, the CFPB drew a
distinction between “substantive” and “procedural” regulation of servicers’ loss mitigation
activities.1 The regulation expressly states that nothing in § 1024.41 imposes a duty on a servicer
to provide any borrower with a specific loss mitigation option.2 The CFPB leaves to the servicer
the discretion to approve or disapprove an option.3 Instead, the CFPB has mandated a procedural
framework within which the evaluation of loss mitigation options must take place.4
Borrowers have a private right of action to seek remedies for violations of the procedural
requirements in § 1024.41, such as the failure to give required notices, failure to evaluate
applications in accordance with required time frames, and the failure to refrain from foreclosure
during certain periods of the review process.5 However, borrowers do not have a private right of
action under the CFPB’s rules to enforce the terms of an agreement between a servicer and an
owner or assignee of a mortgage concerning the evaluation of borrowers for loss mitigation
options.6
If the servicer fails to comply with the substantive standards of an applicable loss
mitigation program, the CFPB regulatory scheme does not preclude borrowers from enforcing
substantive rights under other state or federal laws.7 It may also be possible for borrowers to use
the error correction procedures under § 1024.35 to address a servicer’s failure to correctly
evaluate a borrower for a loss mitigation option.8
1
See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,816/-/18 (Feb. 14, 2013).
Reg. X, 12 C.F.R. § 1024.41(a) (effective Jan. 10, 2014).
3
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(1)-1 (effective Jan. 10, 2014; “The conduct
of a servicer’s evaluation with respect to any loss mitigation option is in the sole discretion of a servicer.”).
4
12 C.F.R. § 1024.41(a). See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,818 (Feb. 14, 2013) (“The
Bureau believes that this framework provides an appropriate mortgage servicing standard; servicers must implement
the loss mitigation programs established by owners or assignees of mortgage loans and borrowers are entitled to
receive certain protections regarding the process (but not the substance) of those evaluations.”).
5
The CFPB relied on its authority under sections 6(j)(3), 6(k)(1)(C), 6(k)(1)(E), and 19(a) of RESPA to establish the
loss mitigation procedures in § 1024.41. The CFPB also relied upon the general rulemaking authority under §
1022(b) of the Dodd-Frank Act to carry out the consumer protection purposes of RESPA. See Section-by-Section
Analysis, § 1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013).
6
See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,818 (Feb. 14, 2013).
7
Reg. X, 12 C.F.R. § 1024.41(a) (effective Jan. 10, 2014; “Nothing in § 1024.41 should be construed to ...
eliminate any such right that may exist pursuant to applicable law.”). See also Section-by-Section Analysis, §
1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013). The CFPB’s analysis specifically notes the consistency between
appeal remedies under CFPB rules and remedies available under the California Homeowner Bill of Rights. Id. at
10,835.
8
See NCLC eReports, Dec. 2013, No. 4; NCLC Foreclosures, § 9.2.2.2.2.3 (4th ed. and 2013 Supp.).
2
67
Any Loss Mitigation “Application” Triggers Homeowner Rights
Certain specific obligations, discussed below, are imposed upon the servicer the moment
the borrower acts in a manner that can reasonably be construed as the submission of an
“application.” Section 1024.41 imposes overlapping duties on a servicer once it receives a
borrower’s application for loss mitigation review.
The term “application” is to be construed “expansively.”9 An application must be
distinguished from a “complete” application. A complete application triggers additional
requirements on the servicer, but any application, even if incomplete, triggers certain
requirements.
The CFPB’s commentary emphasizes that an application need not be in any particular
form and includes any “prequalification” for a loss mitigation option.10 The application may be
verbal.11
The borrower’s actions need only meet two broad criteria in order to be construed as an
“application” under the rules. First, the borrower must express an interest in seeking any form of
foreclosure avoidance. Second, the borrower must provide at least some information that a
servicer would normally use in determining whether a borrower qualified for a loss mitigation
option.12
It should not be difficult to find these two elements present in many communications
between a borrower and servicer personnel. For example, the existence of a “hardship” related
to a default is a requirement for virtually all loss mitigation options under servicing guidelines in
general use. The borrower who mentions a loss of income or an increased expenditure in the
course of a phone conversation with a servicer’s representative and expresses an interest in
avoiding foreclosure has made an “application” under the CFPB rule.
The regulation does not prohibit a servicer from offering loss mitigation options to a
borrower who has not submitted a loss mitigation application.13 In addition, a servicer is
permitted to offer a loss mitigation option to a borrower who has submitted an incomplete loss
9
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014). See also
Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013) (“Because a servicer must exercise
reasonable diligence in making a loss mitigation application complete, the Bureau believes appropriate
communication with a borrower that expresses an interest in a loss mitigation option is to clarify the borrower’s
intention regarding the submission and to obtain information from the borrower to make a loss mitigation
application complete.”).
10
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014) (“For
example, if a borrower requests that a servicer determine if the borrower is “prequalified” for a loss mitigation
program by evaluating the borrower against preliminary criteria to determine eligibility for a loss mitigation option,
the request constitutes a loss mitigation application.”).
11
See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013).
12
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-3 (effective Jan. 10, 2014). This
commentary makes clear that both prongs of this standard must be satisfied before a communication must be
deemed an “application.”
13
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(i)-1 (effective Jan. 10, 2014).
68
mitigation application where the offer is not based on any evaluation of information submitted by
the borrower in connection with the application.14
As an example, the CFPB’s Official Bureau Interpretation provides that if a servicer has a
program that offers trial loan modifications to all borrowers who become 150 days delinquent
without an application or consideration of any information provided by a borrower in a loss
mitigation application, the servicer's offer under the program does not violate the duty to
evaluate the borrower for all loss mitigation options, and a servicer is not required to comply
with §1024.41 with respect to the program.15 The offer of the loss mitigation option in that
situation is treated as not being based on an evaluation of a loss mitigation application.
A “Complete” Loss Mitigation Application
The most significant protections under the rule are afforded to the borrower upon
submission of a complete application. A “complete loss mitigation application” is defined as “an
application in connection with which a servicer has received all the information that the servicer
requires from a borrower in evaluating applications for the loss mitigation options available to
the borrower.”16 An application is complete when the borrower provides all the required
information even though additional information may be required that is not in the control of the
borrower.17 For example, if the servicer requires a credit report and the borrower authorizes
release of the report or has requested the report, the application is complete even though the
credit reporting agency has not yet provided the report.
Considered in isolation, this definition appears to leave much to the servicer’s discretion.
However, substantial non-RESPA sources define the parameters of the loss mitigation
application process that applies to a particular loan. Most servicers are required to adhere to
application guidelines set by owners of loans, investors, or government insurers.18 For example,
the FHFA servicing alignment guidelines mandate use of a simple and concise loss mitigation
application form that must be accepted and reviewed by all servicers for GSE-related loans.19 A
servicer should not be able to assert that a set of documents fully complying with FHFA
guidelines defining a complete application for a GSE loan was somehow “incomplete.”
14
Id.
Id.
16
Reg. X, 12 C.F.R. § 1024.41(b)(1) (effective Jan. 10, 2014).
17
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-5 (effective Jan. 10, 2014).
18
In response to RESPA’s loss mitigation rule, the Dept. of Treasury issued Supplemental Directive 13-09 (Oct. 18,
2013), which provides: “This Supplemental Directive introduces the concept of a “Loss Mitigation Application”
which consists of (i) the “Initial Package” described in Section 2.2.2 of Chapter II of the Handbook and, (ii) to the
extent a servicer is required under the CFPB Regulations to consider a borrower for HAMP contemporaneously with
all other loss mitigation options available to the borrower, those other documents and information the servicer
requires in order to evaluate the borrower for such options. However, servicers are reminded that the first loss
mitigation option considered by servicers for each borrower shall continue to be HAMP, in accordance with existing
guidance.”
19
See NCLC Foreclosures, § 2.10 (4th ed. and 2013 Supp.).
15
69
Servicer’s Duties upon Receipt of an “Incomplete” Application
Borrowers seeking loss mitigation often have to deal with multiple requests by servicers
for information and documents (including documents previously submitted) over extended
periods of time without ever getting confirmation that their applications are complete. The CFPB
attempted to address this problem by adopting § 1024.41(b)(2), which imposes distinct
obligations upon a servicer to respond to an application, whether or not it is complete.20 These
obligations extend over the post-default period up to forty-five days before a scheduled
foreclosure sale date.21
When initially made aware of a communication that can reasonably be deemed to be an
application for loss mitigation, the servicer must promptly conduct a review to determine
whether the communication represents a complete or an incomplete application.22 If the servicer
determines that the application is complete, it must send the borrower a notice acknowledging
that the application is complete within five business days of receipt of the application.23
If the servicer deems the application to be “incomplete” for any reason, the regulation
requires two actions by the servicer. First, the servicer must act affirmatively to complete the
application. The servicer must exercise “reasonable diligence” to obtain any documents and
information it claims to require to complete the application.24 Second, the regulation mandates
that the servicer provide a written notice to the borrower describing the documents and
information needed to complete the application.25 This notice must include a “reasonable date”
by which the borrower should submit the missing documents and information.26 The servicer
must send the notice within five business days of receipt of an application it deems incomplete.27
Reasonable Deadline for Completing an Incomplete Application
In setting a “reasonable date” for completing the application, the CFPB Official Bureau
Interpretation states that the deadline should preserve the “maximum borrower rights,” except
when the selection of a particular deadline would be “impracticable” for the borrower to
comply.28 The CFPB suggests that generally, it would be impracticable for a borrower to obtain
and submit documents in less than seven days. The CFPB Interpretation also states that a
servicer should consider the following “milestones” in setting a reasonable date:
•
•
•
the date when any documents or information previously submitted by the
borrower will be considered stale;
the date that is the 120th day of the borrower’s delinquency;
the date that is 90 days before a foreclosure sale;
20
Reg. X, 12 C.F.R. § 1024.41(b)(2) (effective Jan. 10, 2014).
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i) (effective Jan. 10, 2014).
22
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(A) (effective Jan. 10, 2014).
23
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
24
Reg. X, 12 C.F.R. § 1024.41(b)(1) (effective Jan. 10, 2014).
25
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
26
Reg. X, 12 C.F.R. § 1024.41(b)(2)(ii) (effective Jan. 10, 2014).
27
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
28
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(2)(ii)-1 (effective Jan. 10, 2014).
21
70
•
the date that is 38 days before a foreclosure sale.29
As discussed below, several of these “milestones” are based on the timeline for the
availability of appeal rights and dual tracking protections for borrowers under the rule. For
example, if a servicer sets a deadline to complete the application that is 89 days before a sale,
generally this would not be a reasonable date if setting a deadline 90 days or more before the sale
would be practicable. This is because the borrower would lose the right to appeal a loan
modification denial if the application is completed less than 90 days before a scheduled
foreclosure sale, as discussed in part II of this article. If the date of a foreclosure is not known,
the servicer may use a reasonable estimate of the date when the foreclosure may be scheduled.30
The setting of a reasonable date to complete the application under this provision is not
intended to create an absolute deadline that would preclude evaluation of the application if the
borrower fails to complete the application by that date. The CFPB has noted that §
1024.41(b)(2)(ii) requires servicers to inform borrowers of the reasonable date by which the
“borrower should make the loss mitigation complete, as opposed to the date by which the
borrower must make the loss mitigation application complete.”31
What Happens If the Servicer Decides Later That a Complete Application Is Incomplete?
If the borrower submits all the missing documents and information as stated in the fiveday notice of application status, or no additional information is requested in the notice because
the servicer considers the application to be complete, the application is considered “facially
complete.”32 If a servicer later discovers that it incorrectly concluded that the application was
complete, that more information is needed, or that corrections are required to be made to
previously submitted documents, the servicer must promptly request the missing information or
corrected documents. However, the servicer must treat the application as complete for purposes
of the dual tracking protections in §§ 1024.41(f)(2) and 1024.41(g) until the borrower is given a
reasonable opportunity to complete the application.33
If the borrower completes the application within this period, the application is considered
complete as of the date it was facially complete for the timelines contained in the following
provisions: § 1024.41(d)(procedures for denial of loan modification options); §
1024.41(e)(procedures dealing with borrower response to a loss mitigation offer); §
1024.41(f)(2)(dual track protections for application received before a foreclosure referral); §
1024.41(g)(dual track protections for application received more than 37 days before a
foreclosure sale); and § 1024.41(h)(appeal procedures). The application is considered complete
as of the date it is actually completed for purposes of § 1024.41(c)(procedures for evaluation of
loss mitigation applications).
29
Id.
Id.
31
See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60395 (Oct. 1, 2013) (emphasis in original).
32
Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014).
33
Id.
30
71
Servicer’s Duty to Respond to a “Complete” Application
Significantly greater rights accrue to a borrower whose submission constitutes a
“complete” loss mitigation application. If the servicer receives an application its deems
complete, it must acknowledge the application as “complete” by sending the borrower written
notice within the five-day period.34 The CFPB considered and rejected the option to have the
requirement for the five-day notice of application status apply only to incomplete applications.35
In addition to acknowledging the application in writing as “complete,” the servicer’s
immediate responsibility upon receipt of a complete loss mitigation application is to evaluate it.
Section 1024.41(c)(1)(i) sets a strict time frame for this evaluation provided that the complete
application is received by the servicer more than thirty-seven days before a foreclosure sale.36
The evaluation of the borrower for all loss mitigation options must be completed within thirty
days of receipt of a complete application.37 By this time deadline the servicer is also required
under § 1024.41(c)(1)(ii) to provide the borrower with a written notice stating the servicer’s
determination of which loss mitigation options, if any, are being offered to the borrower.38
As discussed more fully below, if the servicer is denying the borrower for any trial or
permanent loan modification option, the notice must state specific reasons for the denial of each
modification option.39 The decision not to offer a particular loan modification option available
to the borrower, even if a different loan modification option or other form of loss mitigation is
offered, constitutes the denial of that loan modification option.40 If applicable, the evaluation
notice must also inform the borrower of the amount of time the borrower has to accept or reject a
loss mitigation offer and to exercise appeal rights for the denial of a loan modification, which are
discussed in Part II of this article.41
Although the § 1024.41(c)(1)(ii) evaluation notice requirement refers to the loss
mitigation options being offered to the borrower, this provision should be construed to require
the servicer to provide the borrower with a written notice of its decision not to offer any loss
mitigation options to the borrower. In fact, another provision in § 1024.41 that deals with dual
tracking refers to a notice under § 1024.41(c)(1)(ii) as stating that the borrower is not eligible for
any loss mitigation options.42 However, there is no specific requirement to provide a detailed
written notice specifying the reasons for the denial of loss mitigation options other than loan
modification options.
This chart helps to illustrate the timelines for servicer treatment of applications under the
loss mitigation rule:
34
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,823-26 (Feb. 14, 2013).
36
Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014).
37
Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014).
38
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) (effective Jan. 10, 2014).
39
Reg. X, 12 C.F.R. § 1024.41(d) (effective Jan. 10, 2014).
40
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-3 (effective Jan. 10, 2014).
41
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) (effective Jan. 10, 2014).
42
See Reg. X, 12 C.F.R. § 1024.41(f)(2)(i) (effective Jan. 10, 2014).
35
72
Other Law May Require Evaluation of Applications Submitted Within 37 Days of
Foreclosure
The RESPA duty to evaluate the borrower for all loss mitigation options applies if the
borrower submits a complete loss mitigation application more than thirty-seven days before a
foreclosure sale. However, a servicer may be obligated under non-RESPA applicable law to
evaluate a borrower’s application submitted less than thirty-seven days before a foreclosure sale.
Consistent with the general RESPA preemption rule that more consumer protective laws are not
preempted,43 the CFPB explicitly stated in promulgating the RESPA loss mitigation rule that
“servicers should comply with the most restrictive requirements to which they are subject.”44
As an example, the CFPB noted that the National Mortgage Settlement and GSE
requirements impose obligations on servicers to conduct an expedited loss mitigation evaluation
for applications received thirty-seven days or less before a foreclosure sale.45 The CFPB stated
that “[n]othing in § 1024.41 prohibits or impedes a servicer from complying with these
requirements and servicers may be required to comply with requirements that are more
prescriptive than the regulations implemented by the Bureau.”46
43
See NCLC Foreclosures, § 9.4 (4th ed. and 2013 Supp.).
See also Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013).
45
The HAMP program guidelines also allow an application to be submitted up to seven business days before a sale
and would cause a foreclosure sale to be suspended. See NCLC Foreclosures, § 2.8.2.12 (4th ed. and 2013 Supp.).
46
Id.
44
73
Actions That Can be Taken Based on an Incomplete Application
The CFPB loss mitigation regulation emphasizes that a servicer shall not evade the duty
to evaluate the borrower for all loss mitigation options by offering the borrower an option based
on an incomplete application. 47 However, the regulation contains two limited exemptions to this
anti-evasion provision.
Exemption Where Application Remains Incomplete.
The first exemption provides that a servicer may in its discretion evaluate an incomplete
loss mitigation application and offer a borrower a loss mitigation option if the servicer exercises
reasonable diligence in obtaining the needed information and the application remains incomplete
for a significant period of time under the circumstances without any progress by the borrower to
complete the application.48 A servicer may consider the timing of the foreclosure process in
determining whether an application is incomplete for a significant period of time.49
For example, the CFPB’s Official Bureau Interpretation states that “if a borrower is less
than 50 days before a foreclosure sale, an application remaining incomplete for 15 days may be a
more significant period of time under the circumstances than if the borrower is still less than 120
days delinquent on a mortgage loan obligation.”50 If the servicer offers a loss mitigation option
in this situation, the evaluation of the incomplete application is not subject to § 1024.41 and does
not count as a single complete loss mitigation application for purposes of the duplicative request
rule discussed in Part II of this article.51
Exemption for Short-Term Forbearance Programs in §1024.41(c)(2)(iii).
A servicer can offer a borrower a short-term payment forbearance program based on an
incomplete loss mitigation application.52 The CFPB’s Official Bureau Interpretation notes that a
borrower’s incomplete loss mitigation application in this situation is still subject to the other
obligations in §1024.41, including the obligation to review the application to determine if it is
complete, to exercise reasonable diligence in obtaining documents and information to complete a
loss mitigation application, and to provide the borrower with the five-day notice of application
status.53 In addition, an offer of a payment forbearance option cannot preclude the borrower from
receiving an evaluation for all available options and access to review rights if the borrower later
submits a complete application.54
Any notification from the servicer that offers the borrower a short-term payment
forbearance should state that the borrower has the option of completing the application to receive
47
Reg. X, 12 C.F.R. § 1024.41(c)(2) (effective Jan. 10, 2014).
Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014).
49
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(ii)-1 (effective Jan. 10, 2014).
50
Id.
51
Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014).
52
Reg. X, 12 C.F.R. § 1024.41(c)(2)(iii) (effective Jan. 10, 2014).
53
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-2 (effective Jan. 10, 2014).
54
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-3 (effective Jan. 10, 2014).
48
74
a full evaluation.55 If a servicer provides such notification, and the borrower complies with the
payment forbearance and does not request further assistance, the CFPB’s Official Bureau
Interpretation states that the servicer may stop requesting documents from the borrower and
suspend its reasonable diligence efforts under § 1024.41(b)(1) until near the end of the payment
forbearance period.56 The Interpretation also instructs that before the end of the forbearance
period, the servicer should contact the borrower to determine if the borrower wishes to complete
the application and proceed with a full loss mitigation evaluation.
The CFPB describes a payment forbearance program as a loss mitigation option that
“allows a borrower to forgo making certain payments or portions of payments for a period of
time,” and a short-term payment forbearance as a program that “allows the forbearance of
payments due over periods of no more than six months.”57 The six-month period refers to the
amount of payments being deferred (no more than six months of payments) rather than the
duration of any repayment agreement that is part of the forbearance plan.58 For example, if the
borrower is permitted to defer payment of six monthly payments of $1,000 per month, the
forbearance program would be considered short-term even if the servicer allows the borrower to
pay the $6,000 in missed payments over an 18 month period.
The rule does not preclude a servicer from offering multiple, successive short-term
payment forbearance programs.59 However, to address the concern that a borrower might face an
immediate foreclosure at the end of the forbearance plan and would therefore lose the benefit of
the 120-day pre-foreclosure waiting period provided under § 1024.41(f)(discussed in Part II of
this article), § 1024.41(c)(2)(iii) provides that a servicer shall not make the first notice or filing
required by applicable law for any judicial or non-judicial foreclosure process, and shall not
move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is
performing under the terms of a payment forbearance program offered pursuant to the rule.60
In creating this exemption to the anti-evasion provision, the CFPB made clear that a
short-term payment forbearance is nevertheless a form of loss mitigation.61 Thus, if the borrower
wishes only to obtain a short-term payment forbearance and does not want to be considered for
other loss mitigation options, it may be advisable for the borrower to not complete the loss
mitigation application. If the borrower is offered a short-term payment forbearance in response
to a complete loss mitigation application, any additional loss mitigation applications submitted
by the borrower to that servicer, even if submitted years later, will not be subject to the
procedures under § 1024.41, based on the duplicative request provision discussed in Part II of
this article (forthcoming in a future NCLC eReport).
55
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)- 3(iii) (effective Jan. 10, 2014).
Id.
57
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-1 (effective Jan. 10, 2014).
58
Id. (“Such a program would be short-term regardless of the amount of time a servicer allows the borrower to make
up the missing payments.”).
59
See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60400 (Oct. 1, 2013).
60
Reg. X, 12 C.F.R. § 1024.41(c)(2)(iii) (effective Jan. 10, 2014).
61
See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60401 (Oct. 1, 2013).
56
75
Written Notice of Denial of Loan Modification Options
The regulation provides enhanced notification requirements if a loan modification is
being denied. The servicer has an obligation after evaluating a loss mitigation application to give
the borrower written notice of its decision to deny any trial or permanent loan modification
available to the borrower.62 The information required to be provided in this denial notification
must be included in the evaluation notice sent to the borrower under § 1024.41(c)(1)(ii) that
describes the loss mitigation options being offered to the borrower. Consistent with the
requirement to evaluate the borrower for all available loss mitigation options, a servicer’s
determination not to offer a borrower a loan modification available to the borrower is a denial of
that loan modification option for purposes of this notice requirement, notwithstanding that the
servicer offers the borrower a different loan modification option or other loss mitigation option.63
Disclosure of Reasons for Denial of Loan Modification Options
The rule requires that within thirty days of receipt of a complete loss mitigation
application, the servicer must give the borrower notice in writing of the servicer’s decision on the
borrower’s eligibility for all trial and permanent loan modification options available the
borrower.64 This written denial portion of the § 1024.41(c)(1)(ii) evaluation notice must state the
specific reasons for the servicer’s denial of any modification option, and if applicable, that the
borrower was not evaluated on other criteria.65 The CFPB’s Official Bureau Interpretation
makes clear that a servicer is required to disclose the actual reason or reasons for the denial.66 If
a servicer's systems establish a hierarchy of eligibility criteria (often referred to as a “waterfall”),
and the borrower is denied based on the first criterion and there is no further evaluation based on
additional criteria, a servicer complies with the rule by providing only the reason or reasons for
which the borrower was actually evaluated and rejected, as well as notification that the borrower
was not evaluated on other criteria.67 In this situation, a servicer is not required to determine or
disclose whether a borrower would have been denied based on the additional criteria if such
criteria were not actually considered.
For example, if a borrower must satisfy qualifications A, B and C to be approved for a
loan modification, and the servicer’s system determines that the borrower has failed qualification
A, the servicer may end the evaluation for that loss mitigation option and is required to disclose
the reason for denial based only on qualification A. The servicer need not disclose all potential
reasons for denial such as qualifications B and C if they were not actually evaluated.
If a reason for denial was a requirement set by an owner or assignee of the loan, the
notice must identify the owner or assignee and the specific requirement that was the basis for the
denial.68 A mere statement that a loan modification option is denied based on an investor
requirement, without additional information specifically identifying the relevant investor or
62
Reg. X, 12 C.F.R. § 1024.41(d) (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-3 (effective Jan. 10, 2014).
64
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) and (d) (effective Jan. 10, 2014).
65
Id.
66
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-4 (effective Jan. 10, 2014).
67
Id.
68
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-1 (effective Jan. 10, 2014).
63
76
guarantor and the specific applicable requirement, is insufficient.69 However, less detail is
required if the owner or assignee has an evaluation criteria that sets an order for ranking the
evaluation of loan modification options and a borrower has qualified for a particular loan
modification option in the ranking established by this waterfall. In this situation, it is sufficient
for the servicer to inform the borrower that the investor’s requirements include the use of a
waterfall and that the borrower is being denied for any other loan modification options ranked
below the option offered to the borrower.70
If the servicer denies any loan modification option because of a net present value
calculation,71 the notice must state this reason and include the inputs used for the calculation.72
This requirement should assist advocates who are reviewing a servicer’s denial of a modification
for a mortgage not subject to program guidelines with a similar requirement, such as those not
covered by HAMP or the National Mortgage Settlement.
Notice of Appeal Rights
The denial notice must also describe the borrower’s right to appeal the denial, the
deadline to make an appeal, and any requirements for making an appeal.73 As described in Part
II of this article (forthcoming in a future NCLC eReport), borrowers may generally exercise
appeal rights so long as the complete application was submitted at least ninety days before a
scheduled foreclosure sale.74
Rights Where Notice of Denial Not Compliant
Examine a denial notice carefully for both timing and accuracy. To be valid, the notice
of denial must specifically state all grounds considered for denial for each available loan
modification option applicable to the borrower. Non-RESPA guidelines determine what loan
modification options are available to the borrower or for a particular loan. These may be
guidelines under FHFA servicing standards, under the National Mortgage Settlement, under
government-insured (FHA, VA, RHS) programs, or under pooling and servicing agreements.
Failure to comply with the written notice of denial requirement is by itself a violation of
Regulation X and can give rise to a private legal claim. More significantly, the notice may serve
as a window into the servicer’s loss mitigation review process, or lack of one. A defective denial
notice may establish that an appropriate loss mitigation review never took place. Referral to
foreclosure or the conduct of a sale without complying with requirements for evaluating a
complete application violates the Regulation X’s dual tracking prohibitions described in Part II
of this article.75 If costs and fees were incurred or, more significantly, if the borrower lost a
69
Id.
Id.
71
See NCLC Foreclosures, § 2.8.2.3 (4th ed. and 2013 Supp.) (discussing generally the net present value test).
72
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-2 (effective Jan. 10, 2014).
73
Reg. X, 12 C.F.R. § 1024.41(d)(2) (effective Jan. 10, 2014).
74
Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).
75
See also NCLC Foreclosures, § 9.2.8.7 (4th ed. and 2013 Supp.) (discussing the dual tracking provisions).
70
77
home while the servicer ignored available alternatives to foreclosure, the borrower can hold the
servicer accountable through recourse to the remedies allowed under RESPA.76
New Restrictions on Dual Tracking
Regulation X’s loss mitigation rule limits mortgage servicers’ “dual tracking” practices.
Dual tracking refers to a common servicer practice of proceeding with foreclosure while
evaluating a borrower for loss mitigation options. As a consequence of this practice borrowers
lose their homes, or are subjected to emotional distress related to the fear of losing their homes,
before proper evaluations for foreclosure alternatives have been completed.
Regulation X § 1024.41 applies restrictions to dual tracking during two distinct stages.
The first period (discussed starting in the next section) runs 120 days from the beginning of the
borrower’s delinquency. Here, the intent of the rule is to encourage servicers to review all loss
mitigation options prior to the commencement of foreclosure, before substantial costs have been
incurred, and while the likelihood of a successful loss mitigation outcome is greatest.
Many borrowers, however, do not seek out legal help or are not directed by counselors to
loss mitigation until after the foreclosure process has begun. Therefore, some restrictions on
dual tracking are also placed on servicers during a second stage, during the period after a
foreclosure has been initiated (as discussed later in this article). During this second period
servicers must continue to seek out borrowers for applications, complete evaluations, and, in
certain situations, refrain from completing a foreclosure.
The 120-day Pre-Foreclosure Review Period
During the initial 120 days of a delinquency, a borrower should be insulated from
foreclosure activity.77 Section 1024.41(f)(1) prohibits, during this time period, servicers from
taking the first step to initiate foreclosure proceedings under state law—called “first notice or
filing.”78 Instead, during the early months of a delinquency Regulation X mandates that
servicers take affirmative steps through verbal and written solicitation to engage borrowers in the
process of submitting a loss mitigation application for evaluation.79 The requirement to give the
borrower a forty-five-day early intervention written notice regarding loss mitigation is one aspect
of this mandated solicitation effort.80
The import of Regulation X’s 120-day rule is significant. Both the GSE servicing
guidelines and the National Mortgage Settlement had restricted in some ways the servicer’s
76
See NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.)
See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 10,833 (Feb. 14, 2013) (“The Bureau further believes
it necessary and appropriate for borrowers, servicers, and courts to have a known early period during which a
servicer shall not begin the foreclosure process.”).
78
Reg. X, 12 C.F.R. § 1024.41(f)(1) (effective Jan. 10, 2014).
79
Reg. X, 12 C.F.R. § 1024.39 (effective Jan. 10, 2014).
80
Reg. X, 12 C.F.R., § 1024.39(b) (effective Jan. 10, 2014). See NCLC eReports, Jan. 2014, No. 5; NCLC
Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.), discussing the early intervention written notice.
77
78
flexibility in referring a case to foreclosure during the initial 120 days of delinquency.81
However, § 1024.41(f)(1) impacts foreclosure timelines in a more significant way. Section
1024.41(f)(1) preempts state foreclosure timelines to the extent that they allow an earlier
commencement of foreclosure.82 The GSE guidelines and National Mortgage Settlement applied
a 120-day time frame to the servicer’s “referral” of a foreclosure case to an attorney or trustee to
commence foreclosure. Section 1024.41(f)(1), on the other hand, sets an absolute bar to the
commencement of foreclosure by applying the 120-day limitation to the “first notice or filing
required by applicable law for any judicial or non-judicial foreclosure process.”83
What is the “First Notice or Filing?” The “first notice or filing” of a foreclosure is
defined broadly as “any document required to be filed with a court, entered into a land record, or
provided to a borrower as a requirement for proceeding with a judicial or non-judicial
foreclosure process.”84 Examples of a “first notice or filing” include “a foreclosure complaint, a
notice of default, a notice of election or demand, or any other notice that is required by
applicable law in order to pursue acceleration of a mortgage loan obligation or sale of a property
securing a mortgage loan obligation.”85 The question of whether a document is the first notice or
filing is determined by the foreclosure procedure under applicable state law.86
Under certain state laws, to begin a foreclosure the foreclosing party must give the
borrower a notice sixty, ninety, or more days before accelerating a mortgage or before filing
certain documents in land records or with a court.87 In response to questions from the mortgage
81
Before § 1024.41 became effective, the general strategy of the GSE servicing standards had been to authorize
financial incentives to servicers who obtained completed loss mitigation applications from borrowers during the
initial 120-day delinquency period and to impose financial sanctions on servicers who had not complied with statespecific time frames for completing foreclosures, regardless of the status of loss mitigation applications at the end of
120 days pre-foreclosure referral period. See e.g., Fannie Mae Single Family Servicing Guide, ch. VIII § 103.04,
801-8 through 801-10 (Mar. 14, 2012); Freddie Mac Servicing Alignment Initiative FAQs (Jan. 8, 2013), No. 66.
Because the GSE guidelines had encouraged only delays in referrals to foreclosure during the initial 120 days of
delinquency, the GSE guidelines allowed the servicer to give a notice of breach or acceleration to the borrower
before the 120 days expired if giving the notice earlier is required under state law. Freddie Mac Servicing
Alignment Initiative FAQs (Jan. 8, 2013), No. 34. The CFPB rule preempts such state laws and this is therefore no
longer permitted if the notice is the “first notice” for purposes of § 1024.41(f)(1). The National Mortgage
Settlement servicing guidelines prohibit referral to foreclosure while a loss mitigation application is under review.
See e.g. Settlement Term Sheet, Exhibit B (Servicing Standards) Part IV, ¶ B.1. The Settlement provision limits
referrals during the initial 120-days of delinquency. However, like the prior GSE rules, the Settlement appears to
allow the referral earlier than 120 days if the servicer completed the review at an earlier date.
82
See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 10,833 (Feb. 14, 2013) (“The Bureau understands
and intends that any such requirement will preempt State laws to the extent such laws permit filing of foreclosure
actions earlier than after the 120th day of delinquency.”).
83
Reg. X, 12 C.F.R. § 1024.41(f)(1) (effective Jan. 10, 2014; emphasis added).
84
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)(1)-1 (effective Jan. 10, 2014).
85
Id.
86
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014).
87
See e.g. Ariz. Rev. Stat. Ann. § 33-807(D) (power of sale may not be executed until 91st day after recording
notice of sale); Cal. Civ. Code § 2924(a)(2),(3) (foreclosing entity must record notice of default and right to cure
three months before notice of sale); Mass. Gen. Laws ch. 244§ 35(foreclosing entity must serve borrower with 90day notice of right to cure before recording notice of sale, potentially 150 days before recording notice of sale if
foreclosing party elects to refrain from a statutory loss mitigation review); N.Y. Real Prop. Acts. Law § 1304 (notice
sent at least 90 days before filing foreclosure action); Nev. Rev. Stat. 107.080(c),(d) (power of sale may not be
79
industry and consumer advocates about whether these state law notices must be delayed until
after the borrower is 120 days delinquent, the CFPB amended the Official Bureau Interpretation
before its effective date to include additional commentary.88 The amended CFPB’s
Interpretation clarifies that such notices may be sent in many instances during the 120-day
delinquency period, by describing the following three categories of foreclosure proceedings:
•
Where foreclosure procedure requires a court action or proceeding, a document
is considered the first notice or filing if it is the earliest document required to be
filed with a court or other judicial body to commence the action or proceeding
(e.g., a complaint, petition, order to docket, or notice of hearing).
•
Where foreclosure procedure does not require an action or court proceeding,
such as under a power of sale, a document is considered the first notice or filing
if it is the earliest document required to be recorded or published to initiate the
foreclosure process.
•
Where foreclosure procedure does not require any court filing or proceeding, and
also does not require any document to be recorded or published, a document is
considered the first notice or filing if it is the earliest document that establishes,
sets, or schedules a date for the foreclosure sale.89
Some state laws provide that any notice required to be sent to the borrower before a
judicial foreclosure action is filed must be attached to the complaint, or compliance with such a
requirement must be alleged and proven as a condition precedent to a foreclosure judgment.90
However, the fact that a document or notice must later be filed with a court is not determinative
of the first notice or filing for purposes of the rule. The Official Bureau Interpretation states that
“a document provided to the borrower but not initially required to be filed, recorded, or
published is not considered the first notice or filing on the sole basis that the document must later
be included as an attachment accompanying another document that is required to be filed,
recorded, or published to carry out a foreclosure.”91
Thus, in judicial foreclosure states, the first notice or filing is likely to be the filing of the
initial complaint with the court. In nonjudicial foreclosure states, the first notice or filing will in
most instances be the document that first sets the date of the foreclosure sale that is recorded in
the land records, published in a newspaper, or sent to the borrower. The 120 days from
commencement of delinquency must have passed before these preforeclosure complaints or
notices may be filed, given, published, or recorded.92 In other words, the 120-day time period
exercised until three months after recording notice of breach and election to sell). See generally, § 4.2.5 (discussing
right to cure notices under state law) and § 4.3 (other notice requirements under state foreclosure laws).
88
See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 60404 (Oct. 1, 2013).
89
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014).
90
See e.g. Md. Code Ann. Real Prop. § 7-105.1(c)(1) (affidavit stating that notice of intent to foreclosure was sent at
least 45 days earlier must be attached to Order to Docket or complaint in action to foreclose).
91
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1.iv (effective Jan. 10, 2014).
92
Although a definition of “delinquency” is not provided for purposes of section 1024.41(f), the Commentary to
Regulation X defines “delinquency” for purposes of another Regulation X provision. See Official Bureau
80
under Regulation X and the time period for making the first notice or filing under state law run
consecutively and not concurrently.
Complete Loss Mitigation Application May Extend the 120-day Pre-Foreclosure
Period. Under certain circumstances the bar on initiation of foreclosure can extend beyond 120
days from the beginning of the delinquency. If a borrower submits a complete loss mitigation
application at any time before the first filing or notice of foreclosure has been given or recorded
(even after 120 days), the servicer must evaluate the application, provide a written decision, and
allow for appeal rights before initiating foreclosure.93 More specifically, the servicer may not
make the first notice or filing for any judicial or non-judicial foreclosure process unless:
•
The servicer has sent the borrower a notice under § 1024.41(c)(1)(ii)94 stating
that the borrower is not eligible for any loss mitigation option and the appeal
process under § 1024.41(h)95 is not applicable, the borrower has not requested
an appeal within the applicable time period, or the borrower’s appeal has been
denied;
•
The borrower rejects all loss mitigation options offered by the servicer; or
•
The borrower fails to perform under an agreement on a loss mitigation option.96
For borrowers facing foreclosure, this provision raises two important questions. First,
during the initial 120 days of delinquency or before the first notice of foreclosure under state law
was given, did the borrower submit a complete loss mitigation application? Second, if the
borrower submitted a complete application, did the servicer follow required steps to evaluate and
give notice to the borrower of the outcome of the application? As to the first question, it should
be kept in mind that Regulation X does not define the content of a “complete loss mitigation
application,” other than to reference the information a servicer requires based on guidelines set
by investors, owners of loans, and other non-RESPA law.97 The servicer may have erred in
failing to treat as complete an application that qualified as complete under ascertainable nonRESPA guidelines that apply to the loan.
A borrower who believes that a servicer gave the first notice to commence foreclosure
under state law without evaluating a complete application should invoke RESPA’s error
resolution procedures by sending the servicer a notice of error.98 The borrower should request
that the servicer correct any errors in its treatment of a complete application submitted before the
first notice was given. The correction should include a proper evaluation of the borrower for all
Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-1 and 39(b)-1 (effective Jan. 10, 2014). See also NCLC eReports,
Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.).
93
Reg. X, 12 C.F.R. § 1024.41(f)(2) (effective Jan. 10, 2014).
94
See NCLC Foreclosures, § 9.2.8.2.3 (4th ed. and 2013 Supp.).
95
See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.).
96
Reg. X, 12 C.F.R. § 1024.41(f)(2) (effective Jan. 10, 2014).
97
See NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.).
98
Reg. X, 12 C.F.R. § 1024.35(b)(9) (effective Jan. 10, 2014; scope of error resolution procedures expressly
includes “[m]aking the first notice or filing required by applicable law for any judicial or non-judicial foreclosure
process in violation of § 1024.41(f) or (j).”). See NCLC Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.).
81
loss mitigation options that were available before the servicer erroneously commenced
foreclosure. An evaluation should proceed in accordance with the procedural requirements that
should have been implemented before the foreclosure began.
If the servicer receives such an error notice at least seven days before a scheduled
foreclosure sale, the servicer must comply with the requirements for responding to an error
notice.99 These include acknowledging receipt of the notice of error within five business days.100
The servicer must then comply with the response options within thirty business days or prior to
any foreclosure sale, whichever is earlier.101 The CFPB’s Official Bureau Interpretation
indicates that the appropriate response for a servicer that receives an error notice under this
provision at least seven days before a scheduled foreclosure sale is to cancel or postpone the sale
and satisfy the response requirements during the full thirty-day period allowed under the rule.102
Obviously, a servicer who ignores the error notice and proceeds with a scheduled sale
does so at its peril. If the borrower asserted a valid error involving the decision to proceed to the
first notice of foreclosure, the completion of the foreclosure sale under these circumstances
would expose the servicer to liability under multiple provisions of Regulation X.
Dual Tracking Restrictions After Initiation of Foreclosure
The servicer’s obligation to evaluate borrowers for all available loss mitigation options
does not end once the servicer has made the first notice or filing of the foreclosure process.
After taking the first step in the foreclosure process, the servicer may still be required to follow
up on verbal loss mitigation applications, attempt to finalize incomplete applications, and
evaluate complete applications.
If a borrower who has never had a complete loss mitigation application evaluated submits
a complete application that is received by the servicer more than thirty-seven days before a
scheduled foreclosure sale, the servicer must not conduct a sale or move for a foreclosure
judgment or order of sale until the application has been evaluated and notice of decision given.103
More specifically, § 1024.41(g) prohibits a servicer from taking these actions related to the sale
of the property unless:
•
The servicer has sent the borrower a notice under § 1024.41(c)(1)(ii)104 stating
that the borrower is not eligible for any loss mitigation option and the appeal
process under § 1024.41(h)105 is not applicable, the borrower has not requested
99
Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5 (4th ed. and 2013
Supp.).
100
Reg. X, 12 C.F.R. § 1024.35(d) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5.3 (4th ed. and 2013
Supp.).
101
Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5.3 (4th ed.
and 2013 Supp.).
102
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 35(e)(3)(i)(B)-1 (effective Jan. 10, 2014). See
also NCLC Foreclosures, § 9.2.2.5.3 (4th ed. and 2013 Supp.).
103
Reg. X, 12 C.F.R. § 1024.41(g) (effective Jan. 10, 2014).
104
See NCLC Foreclosures, § 9.2.8.2.3 (4th ed. and 2013 Supp.).
105
See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.).
82
an appeal within the applicable time period, or the borrower’s appeal has been
denied;
•
The borrower rejects all loss mitigation options offered by the servicer; or
•
The borrower fails to perform under an agreement on a loss mitigation option.106
The prohibition on a servicer moving for a foreclosure judgment or order of sale includes
making a dispositive motion, such as a motion for default judgment, judgment on the pleadings,
or summary judgment, which may directly result in a foreclosure judgment or order of sale.107 A
servicer that has made such a motion before receiving a complete loss mitigation application
does not violate the rule if it takes reasonable steps to avoid a ruling on the motion or issuance of
an order, until it completes the requirements under § 1024.41.108 A servicer is responsible for
promptly instructing foreclosure counsel it has retained, once it has received a complete loss
mitigation application, not to take actions in violation of § 1024.41(g).109 This may include
instructing counsel to move for a continuance with respect to the deadline for filing a dispositive
motion.110
Section 1024.41(g) does not prevent a servicer from proceeding with the foreclosure
process, including any publication, arbitration, or mediation requirements under applicable law,
when the first notice or filing for a foreclosure proceeding occurred before a servicer receives a
complete loss mitigation application, so long as these actions do not result in the issuance of a
foreclosure judgment, order of sale, or sale of the property.111
Critical Time Periods Before Scheduled Foreclosure Sale
Although the servicer’s obligation to review for loss mitigation continues after
commencement of foreclosure, the Regulation X loss mitigation rules modify certain procedures
in the later stages of foreclosure. As a foreclosure sale date approaches, the borrower’s
procedural protections against dual tracking become more limited. Incrementally, the limitations
restrict appeal rights and cut back on notices that servicers must give regarding application status
and evaluation outcomes. The diminished procedural protections have the greatest impact on
borrowers in non-judicial foreclosure states where the prescribed time from the initial notice of
foreclosure to the date of sale is relatively short.
Particularly under these fast-moving foreclosure regimes, advocates must pay careful
attention to certain time frames that come into play under § 1024.41 after the initial notice of
foreclosure has been given. The dual tracking and other protections under § 1024.41 that apply
to the borrower based on the timeframe between receipt of a complete loss mitigation application
106
Reg. X, 12 C.F.R. § 1024.41(f)(2) (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-1 (effective Jan. 10, 2014).
108
Id.
109
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-3 (effective Jan. 10, 2014).
110
Id.
111
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-2 (effective Jan. 10, 2014).
107
83
and a scheduled foreclosure sale remain in effect even if a foreclosure sale is later scheduled or
rescheduled.112
The important limitations on the borrower’s procedural rights under the loss mitigation
rules go into effect as follows:
(1) if the borrower submits a complete loss mitigation application less than
ninety days before a scheduled foreclosure sale date, the servicer is no longer
required to offer appeal rights to the borrower;113
(2) if the borrower submits a loss mitigation application less than forty-five days
before a scheduled foreclosure sale date, the servicer is no longer required to
give the borrower the five-day notice acknowledging receipt of a complete loss
mitigation application or a notice describing actions needed to complete an
incomplete application;114
(3) if the borrower submits a complete loss mitigation application less than
thirty-seven days before a scheduled foreclosure sale date, the servicer is not
required to evaluate and give a written notice of decision on all available loss
mitigation options, or notice of denial of all loan modification options;115
(4) if the borrower submits a complete loss mitigation application less than
thirty-seven days before a scheduled foreclosure sale date, the servicer may
conduct a sale or move for a foreclosure judgment or order of sale without
complying with the requirements under § 1024.41;116
(5) if the borrower sends a notice of error asserting violations of section
1024.41(f),(g), or (j), and the servicer receives the error notice seven days or less
before a scheduled foreclosure sale, the servicer is not required to comply with
the requirements for responding to an error notice.117
It is important to keep in mind that these time limits curtail only certain procedural rights
of borrowers created under the Regulation X loss mitigation rules. To the extent that other
RESPA requirements (such as error resolution), servicing guidelines, consent decrees,
regulations promulgated by government insurers, or state law create greater procedural or
substantive rights for borrowers, those rights are unaffected by the Regulation X loss mitigation
rules.118 This is true particularly for rights borrowers may have under non-RESPA law to assert
claims accruing during the thirty-seven days before a scheduled foreclosure sale date.
112
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(3)- 2 (effective Jan. 10, 2014).
Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).
114
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i) (effective Jan. 10, 2014).
115
Reg. X, 12 C.F.R. § 1024.41(c)(1), (d) (effective Jan. 10, 2014).
116
Reg. X, 12 C.F.R. § 1024.41(g) (effective Jan. 10, 2014).
117
Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014).
118
Under the National Mortgage Settlement (NMS) and FHFA/GSE servicing guidelines, unlike the CFPB rules, the
servicer must conduct an expedited loss mitigation evaluation if the borrower submits a complete application during
the period 37 to 15 days before the foreclosure sale date. See, e.g., Bank of America, Appendix B § IV.B.7; Fannie
113
84
Finally, the error resolution procedures under § 1024.35 remain an option even in later
stages of foreclosure. As was the case for error notices regarding violation of the 120-day bar on
initiation of foreclosure, discussed above, violations of the post-initiation dual tracking
restrictions are specifically subject to the error resolution procedures.119 The borrower may
challenge violations of the pre-sale and prejudgment dual tracking restrictions by giving an error
notice. If the servicer receives this notice of error more than seven days before a scheduled
foreclosure sale, the servicer may have to postpone the sale in order to comply with the error
notice response requirements.120
Deadline for Borrower’s Response to Loss Mitigation Offer
As with other timing issues under § 1024.41, the deadline for a borrower to respond to a
loss mitigation offer is determined by when the borrower’s complete application is received by
the servicer. If a complete loss mitigation application is received ninety days or more before a
foreclosure sale, a servicer may require that a borrower accept or reject an offer of a loss
mitigation option no earlier than fourteen days after the offer is provided to the borrower.121 If a
complete loss mitigation application is received less than ninety days but more than thirty-seven
days before a foreclosure sale, a servicer may require that a borrower accept or reject an offer of
a loss mitigation option no earlier than seven days after the offer is provided to the borrower.122
In general, the failure of a borrower to accept a loss mitigation option within a deadline
established by the servicer in accordance with § 1024.41(e)(1) may be treated by the servicer as a
rejection of the offer.123 However, if a borrower has a right to appeal pursuant to § 1024.41(h)
and requests an appeal, the borrower’s deadline for accepting a loss mitigation option is extended
until fourteen days after the servicer provides the appeal determination notice.124 In addition, if a
borrower does not satisfy the servicer’s requirements for accepting a trial loan modification plan,
but submits the payments required by the plan within a deadline established pursuant to §
1024.41(e)(1), the deadline shall be extended for a reasonable period of time to permit the
borrower to fulfill any remaining requirements for acceptance of the trial modification plan.125
Appeal Rights for Loan Modification Denials
The loss mitigation rule includes an appeal procedure that covers only servicers’
decisions involving eligibility for loan modifications. Borrowers may appeal a servicer’s
decision to deny a borrower’s application for a trial or permanent loan modification.126
However, this right to appeal a loan modification denial applies only if the servicer receives a
Mae Single Family 2012 Servicing Guide § 107.01.03. The CFPB acknowledges that servicers must comply with
these more extensive procedural protections where they apply. See Section-by-Section Analysis, § 1024.41(f), 78
Fed. Reg. 10,833 (Feb. 14, 2013).
119
Reg. X, 12 C.F.R. § 1024.35(b)(10) (effective Jan. 10, 2014; stating that covered errors include “[m]oving for
foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of § 1024.41(g) or (j).
120
Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014).
121
Reg. X, 12 C.F.R. § 1024.41(e)(1) (effective Jan. 10, 2014).
122
Id.
123
Reg. X, 12 C.F.R. § 1024.41(e)(2) (effective Jan. 10, 2014).
124
Reg. X, 12 C.F.R. § 1024.41(e)(2)(iii) (effective Jan. 10, 2014).
125
Reg. X, 12 C.F.R. § 1024.41(e)(2)(ii) (effective Jan. 10, 2014).
126
Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).
85
complete application from the borrower at least ninety days before a scheduled foreclosure sale
or during the 120-day preforeclosure review period under § 1024.41(f) discussed below.127 If no
foreclosure sale has been scheduled as of the date a complete loss mitigation application is
received by the servicer, the application is considered to be received more than ninety days
before any foreclosure sale, thereby preserving the borrower’s right to appeal a loan modification
denial.128
The notice of denial, which is included as part of the notice sent to the borrower under §
1024.41(c)(1)(ii),129 must inform the borrower of the right to request an appeal. The borrower
must request an appeal within fourteen days after the servicer provides the notice of denial
within the § 1024.41(c)(1)(ii) evaluation notice.130
The “appeal” is a review by “different personnel than those responsible for evaluating the
borrower’s complete loss mitigation application.”131 Supervisory personnel that are responsible
for oversight of the personnel that conducted the initial evaluation of the borrower’s application
may perform the review, as long as the supervisory personnel were not directly involved in the
initial evaluation.132 The appeal process resembles the “escalation” procedures available under
certain standard loan modification programs, such as HAMP.
The servicer must make an appeal determination and provide the borrower with a notice
of the determination within thirty days of the borrower’s appeal request.133 A servicer’s
determination is not subject to any further appeal.134 If the servicer offers a loss mitigation
option as part of the appeal determination, it may require the borrower to accept or reject the
offer no earlier than fourteen days after the appeal determination notice is provided to the
borrower.135 Even when the appeal decision is ultimately negative, the notice should give the
borrower additional information that may aid in determining whether to challenge the servicer’s
actions on grounds other than the Regulation X requirements.
Exclusion for “Duplicative” Applications
The most significant limitation on the borrower’s procedural rights under the various
components of the loss mitigation rule is that a servicer is not required to comply with § 1024.41
if a borrower has been evaluated previously by that servicer for loss mitigation options for the
borrower’s mortgage loan account. Section 1024.41(i) provides that a servicer is “only required
to comply with the requirements of this section for a single complete loss mitigation application
for a borrower’s mortgage loan account.”136 This exclusion from the application of § 1024.41
127
Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(3)-1 (effective Jan. 10, 2014).
129
This notice requirement is discussed in part 1 of this article.
130
Reg. X, 12 C.F.R. § 1024.41(h)(2) (effective Jan. 10, 2014).
131
Reg. X, 12 C.F.R. § 1024.41(h)(3) (effective Jan. 10, 2014).
132
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(h)(3)-1 (effective Jan. 10, 2014).
133
Reg. X, 12 C.F.R. § 1024.41(h)(4) (effective Jan. 10, 2014).
134
Id.
135
Id.
136
Reg. X, 12 C.F.R. § 1024.41(i) (effective Jan. 10, 2014).
128
86
will greatly undermine the effectiveness of the CFPB’s loss mitigation rule and present
challenges for borrowers and their advocates.
One plausible interpretation of this brief provision is that the exclusion applies only to
any follow-up or request related to an initial application, but not to a totally separate request
coming at a different time and under different circumstances. The caption for the provision is
“Duplicative requests.” The word “duplicative” is a derivative of “duplicate,” which is defined
as “exactly like something else,” or as having “two corresponding or identical parts: a duplicate
application form.”137 This suggests that the provision would not be referring to a loss mitigation
request being made years after an earlier request, as the two requests could not possibly be
viewed as “duplicative.”
Moreover, in explaining the provision at the time of its issuance, the CFPB repeatedly
referred it as dealing with “renewed applications.”138 The word “renew” describes an attempt to
“resume (an activity) after an interruption.”139 Again, this is consistent with a request being
made in close proximity to an earlier request and involving the same nucleus of facts. A request
made five years after an earlier request does not involve a resumption after an interruption of the
earlier request. Thus, the phrase “single complete loss mitigation application” in § 1024.41(i)
must be referring to one application made during a particular time period, in order to exclude
multiple overlapping and contemporaneous requests for loss mitigation. This interpretation is
certainly most consistent with the consumer protection purposes of RESPA.
However, further explanation by the CFPB when the rule was promulgated suggests that
the scope of the duplicative application exclusion is broad. During the rulemaking proceeding,
the CFPB requested comment on whether there should be some time limitation for the exclusion,
such that the procedures would apply again if a new application were submitted after a specific
time period has passed since the initial evaluation.140 Consumer organizations requested that the
CFPB include at a minimum an exception for new applications submitted after a material change
in circumstances. The CFPB refused to include a time or material change limitation in the final
rule, noting that limiting the loss mitigation procedures to a “single complete loss mitigation
application provides appropriate incentives for borrowers to submit all appropriate information
in the application and allows servicers to dedicate resources to reviewing applications most
capable of succeeding on loss mitigation options.”141
The adoption of this ill-conceived exclusion may mean that a borrower could lose the few
important rights provided under § 1024.41 by simply having requested years earlier a short, sixmonth forbearance agreement to deal with a temporary job layoff. If the borrower in this
example submits a complete loss mitigation application, it will be evaluated for all applicable
loss mitigation options under the CFPB’s rules even though the borrower was requesting only a
short-term forbearance agreement. Because the duplicative request exclusion is not limited to an
application for a loan modification, this request for a forbearance would be the borrower’s one
137
New Oxford American Dictionary, Oxford University Press, Third Ed., 2010.
See Section-by-Section Analysis, § 1024.41(i), 78 Fed. Reg. 10,836 (Feb. 14, 2013).
139
New Oxford American Dictionary, Oxford University Press, Third Ed., 2010.
140
See Section-by-Section Analysis, § 1024.41(i), 78 Fed. Reg. 10,836 (Feb. 14, 2013).
141
Id.
138
87
and only opportunity with that servicer to have access to the consumer protections under the
Regulation X loss mitigation rules.
Even if there were an economic crisis five or ten years later not unlike that which
preceded the adoption of the HAMP program, any request by the borrower at that later time for
loss mitigation assistance for that mortgage account would not be subject to § 1024.41. The
borrower would lose the regulation’s notification requirements for incomplete applications and
loan modification denials, evaluation and appeal rights, and protections from dual tracking. Of
course, the servicer would still be required to comply with any investor or GSE guidelines, or
any applicable non-RESPA legal requirements, that might provide similar rights.
When Does the Duplicative Application Exclusion Not Apply?
When application made to a different servicer. One exception to the duplicative request
exclusion applies when a loss mitigation application is made to a different servicer on the
borrower’s mortgage account, most often when there has been a transfer of servicing. A
transferee servicer is required to comply with the requirements of § 1024.41 regardless of
whether a borrower received an evaluation of a complete loss mitigation application from a
transferor servicer.142
The CFPB’s commentary does not address whether this transferee exception covers
transfers between affiliates or that result through merger or acquisitions of servicers. Another
section of Regulation X that deals with mortgage servicing transfers, § 1024.33(b)(2), provides
that such transfers are not assignments, sales, or transfers of mortgage loan servicing for
purposes of that section if there is no change in the payee, address to which payment must be
delivered, account number, or amount of payment due. However, given the harshness of the
duplicative request rule and the CFPB’s failure to include language similar to § 1024.33(b)(2) in
§ 1024.41, any change in servicer, even if through merger or acquisition, should give the
borrower another opportunity to have a loss mitigation application considered under the §
1024.41 procedures.
When borrower’s application is not completed. In addition, the duplicative request
exclusion does not apply if the borrower’s application is never completed. As discussed in Part I
of this article,143 a servicer may offer certain loss mitigation options based on an incomplete
application without violating the duty to evaluate the borrower for all loss mitigation options.
This may occur 1) when the servicer exercises reasonable diligence to obtain needed information
and the application remains incomplete for a significant period of time, 144 and 2) when the
servicer offers a borrower a short-term payment forbearance program based on an incomplete
142
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014).
143
See “New RESPA Loss Mitigation Procedures,” NCLC eReports, Feb. 2014, No. 3.
Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014). The CFPB notes that any such evaluation and
offer in this situation is “not subject to the requirements of § 1024.41 and shall not constitute an evaluation of a
single complete loss mitigation application for purposes of § 1024.41(i).” See Section-by-Section Analysis, §
1024.41(c), 78 Fed. Reg. 10,829 (Feb. 14, 2013).
144
88
loss mitigation application.145 If the borrower is offered a short-term payment forbearance or
other loss mitigation option under these circumstances in response to an incomplete application,
the duplicative request exclusion does not apply to a subsequent loss mitigation application
submitted by the borrower to that servicer. For borrowers who wish to be considered only for a
short-term payment forbearance program, it may be advisable to not complete the loss mitigation
application so as to preserve rights under § 1024.41 for future applications.
In order to claim the benefit of the duplicative request exception, servicers may be eager
to assert that a borrower’s prior application was “complete,” when in fact it was not. A servicer
must not be permitted to take inconsistent positions in its treatment of a borrower’s loss
mitigation applications. For example, if the servicer deemed a prior application to be complete
and the application was received 45 days or more before a foreclosure sale, the servicer must
have given the borrower a written notice within five days of receipt of the application stating that
it determined the application to be complete.146
When servicer does not properly evaluate borrower’s application. In addition, advocates
may argue that the exclusion does not apply if the servicer never properly evaluated the
borrower’s initial loss mitigation application. The precise wording of § 1024.41(i) suggests that
it applies only if the servicer did in fact “comply with the requirements of this section” with
respect to the initial application. Upon receipt of a “complete application,” the servicer must
evaluate the borrower for all available loss mitigation options within thirty days.147 When the
evaluation is complete, the servicer must give the borrower notice of specific reasons for denial
of loan modification options as well as a description of appeal rights, if applicable.148
If the servicer cannot produce copies of required notices and documentation of a review
for all available loss mitigation options, the servicer cannot claim the benefit of an exception that
assumes it satisfied all requirements for evaluation of a complete loss mitigation application in
the past. Because the one review of a complete application may be the only opportunity a
borrower has for a review for all available loss mitigation options, the rules governing all aspects
of how servicers process a complete application must be strictly construed.
Scope of Duplicative Application Exclusion
The exclusion under § 1024.41(i) is limited to the procedures under the § 1024.41 loss
mitigation rule. The servicer must still comply with the early intervention requirements under §
1024.38,149 and the continuity of contact requirements under § 1024.39,150 even if the borrower
has previously been evaluated for loss mitigation options. The servicer is also required to
comply with any notice of error sent by the borrower under § 1024.35, or any request for
information under § 1024.36, in relation to a subsequent loss mitigation application.151
145
Reg. X, 12 C.F.R. § 1024.41(c)(2)(iii) (effective Jan. 10, 2014).
Reg. X, § 1024.41(b)(2)(A) (effective Jan. 10, 2014).
147
Reg. X, §§ 1024.41(c)(1)(i) and (ii) (effective Jan. 10, 2014).
148
Reg. X, §§ 1024.41(d) (effective Jan. 10, 2014).
149
See NCLC Foreclosures, § 9.2.6 (4th ed. and 2013 Supp.).
150
See NCLC Foreclosures, § 9.2.7 (4th ed. and 2013 Supp.).
151
See NCLC Foreclosures, § 9.2.2 (4th ed. and 2013 Supp.).
146
89
Even when the exclusion does apply, the CFPB was careful to note that Regulation X §
1024.38(b)(2)(v) nevertheless applies, which requires servicers to implement policies and
procedures to achieve the objective of “[p]roperly evaluat[ing] a borrower who submits an
application for a loss mitigation option for all loss mitigation options for which the borrower
may be eligible pursuant to any requirements established by the owner or assignee of the
borrower's mortgage loan and, where applicable, in accordance with the requirements of
§1024.41.”152 In other words, a servicer must still review a borrower’s subsequent application
for any applicable loss mitigation options, but in doing so it need not comply with § 1024.41. 153
For example, if the HAMP, GSE, or investor guidelines require a borrower's subsequent
request to be considered based on a change in circumstances, nothing in § 1024.41 prohibits a
servicer from complying with these requirements. In fact, § 1024.38(b)(2)(v) makes clear that a
servicer must comply with these investor guidelines, and if § 1024.41 also happens to be
applicable, then the servicer must comply with the procedural requirements of § 1024.41.
Duty to Comply Following Transfer of Servicing
The requirements for responding to a loss mitigation application may continue to apply
even after the servicing of the borrower’s loan has been transferred. Although a servicer is
required to comply with § 1024.41 only for a single complete loss mitigation application for a
borrower’s mortgage loan,154 a transferee servicer is required to comply with the requirements of
§ 1024.41 regardless of whether a borrower received an evaluation of a complete loss mitigation
application from a transferor servicer.155 Documents and information transferred from a
transferor servicer to a transferee servicer may constitute a loss mitigation application and may
require a transferee servicer to comply with the § 1024.41 loss mitigation requirements.156
In addition, if the borrower is in process of having an application evaluated when the
mortgage is transferred, the transferee servicer must obtain any documents and information
submitted by the borrower to the transferor servicer in connection with the loss mitigation
application and should “continue the evaluation to the extent practicable.”157 For purposes of the
time deadlines and other requirements in §§ 1024.41(e)(1), 1024.41(f), 1024.41(g), and
1024.41(h), a transferee servicer must consider documents and information received from a
transferor servicer that amount to a complete loss mitigation application to have been received by
the transferee servicer as of the date such documents and information were provided to the
transferor servicer.158
152
Reg. X, §§ 1024.38(b)(2)(v) (effective Jan. 10, 2014).
See Section-by-Section Analysis, § 1024.41(i), 78 Fed. Reg. 10,836 (Feb. 14, 2013).
154
Reg. X, 12 C.F.R. § 1024.41(i) (effective Jan. 10, 2014).
155
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014).
156
Id.
157
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-2 (effective Jan. 10, 2014). See also Reg.
X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014).
158
Id.
153
90
Small Servicer and Other Exemptions from Coverage
Small servicers159 are required to comply with the prohibition under § 1024.41(f) on
starting the foreclosure process before the borrower is more than 120 days delinquent.160 After
the loan is more than 120 days delinquent, small servicers are also barred from making the first
notice or filing required to start the foreclosure process, moving for a foreclosure judgment or
order of sale, or conducting a foreclosure sale. But, unlike larger servicers, this requirement
applies only if the borrower is performing pursuant to the terms of a loss mitigation
agreement.161
Unlike the dual tracking requirements for larger servicers, small servicers after the 120
day period need not postpone various steps in the foreclosure process with the submission of a
complete loss mitigation application, unless the borrower is offered and accepts a loss mitigation
option, and performs under the terms of that loss mitigation agreement. Small servicers are
exempt from all other requirements in § 1024.41, including those related to various notices,
reasonable diligence in obtaining documents and information, and the appeal procedure.162
A servicer with respect to a reverse mortgage loan transaction is also exempt from all of the §
1024.41 requirements.163 In addition, the loss mitigation procedures under § 1024.41 only apply
to a closed-end mortgage loan that is secured by property that is the debtor’s principal
residence.164 There is no exemption from the Regulation X loss mitigation procedures when a
borrower is in a bankruptcy proceeding.
159
A small servicer, as defined by Regulation Z § 1026.41(e)(4), is a servicer that “services 5,000 or fewer mortgage
loans, for all of which the servicer (or an affiliate) is the creditor or assignee.” Reg. Z, 12 C.F.R. §
1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also includes “Housing Finance
Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage loans serviced by such
agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014). See also NCLC Foreclosures, § 9.1.4.3
(4th ed. and 2013 Supp.). (discussing definition of small servicer).
160
Reg. X, 12 C.F.R. § 1024.41(j) (effective Jan. 10, 2014).
161
Id.
162
Reg. X, 12 C.F.R. § 1024.30(b)(1) (effective Jan. 10, 2014).
163
Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014). A reverse mortgage transaction is defined at 12
C.F.R. § 1026.33(a).
164
Reg. X, 12 C.F.R. § 1024.30(c)(2) (effective Jan. 10, 2014) (making §§ 1024.39 through 1024.41 applicable
only to a “mortgage loan that is secured by a property that is the borrower’s principal residence’). Reg. X, 12 C.F.R.
§ 1024.31 excludes “open-end lines of credit (home equity plans)” from the definition of “mortgage loans.”
91
Sample RESPA Request for Information About a Loss Mitigation Application
Several courts had held in cases decided before the 2013 RESPA Servicing Rule, under
the former qualified written request procedure, that a request for information about a loan
modification application was not related to the servicing of a loan and therefore could not be a
valid qualified written request.1 Such requests sent after January 10, 2014 are now covered
under Regulation X § 1024.36 and are clearly valid.
A servicer is required to respond to any written request for information from a borrower
that “states the information the borrower is requesting with respect to the borrower’s mortgage
loan.”2 Unlike the earlier version of this regulation that applied to qualified written requests, the
scope of an information request under Regulation X § 1024.36 is no longer tied solely to
information that is “related to the servicing of the loan.”3 Rather, requests are effective if they
seek any information concerning the borrower’s mortgage loan, which would include, but would
not be limited to, the servicing of the loan. The validity of a request no longer turns on the
narrow definition of “servicing” found in RESPA that focuses on the receipt of payments from
the borrower.4 Requests are valid even if the mortgage loan is in default and the servicer is not
“receiving” payments from the borrower.
In discussing a borrower’s right to assert a notice of error for a servicer’s failure to
provide accurate information to a borrower about available loss mitigation options, the CFPB
stated that “it is critical for borrowers to have information regarding available loss mitigation
options,” and that this access should include “accurate information about the loss mitigation
options available to the borrower, the requirements for receiving an evaluation for any such loss
mitigation option, and the applicable timelines relating to both the evaluation of the borrower for
the loss mitigation options and any potential foreclosure process.”5 The CFPB also noted that
servicers are typically required to provide borrowers with information about loss mitigation
options and foreclosure under the National Mortgage Settlement and servicer participation
agreements with the Department of the Treasury, HUD, Fannie Mae and Freddie Mac, and that
1
See, e.g., Christenson v. Citimortgage, Inc., 2013 WL 5291947 (D. Colo. Sep 18, 2013) (determining that
“servicing” does not include acceleration, loss mitigation or foreclosure issues); Darlington v. Bank of Am., N.A.,
2013 WL 1827739 (D. Minn. Apr. 20, 2013) (letter seeking information about available loan modification programs
did not constitute a qualified written request); Mitchell v. Reg’l Trust Serv. Corp., 2013 WL 556395 (N.D. Cal. Feb.
12, 2013); Van Egmond v. Wells Fargo Home Mortg., 2012 WL 1033281 (C.D. Cal. Mar. 21, 2012); Saucedo v.
Bank of Am., 2011 WL 6014008, (D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011).
See also Foreclosures, § 9.2.2.2.3.1 (4th ed. and 2013 Supp.).
2
Reg. X, 12 C.F.R. § 1024.36(a) (effective Jan. 10, 2014). The request for information must also comply with the
general requirements for borrower inquiries, such as by including the name of the borrower and information that
enables the servicer to identify the borrower’s mortgage loan account. See Foreclosures, § 9.2.2.2.1 (4th ed. and
2013 Supp.).
3
Reg. X, 12 C.F.R. § 1024.21(e)(2)(i)(effective until Jan. 10, 2014).
4
See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,761 (Feb. 14, 2013) (“the final rule . . . does
not limit information requests to those related to servicing”).
The term “servicing” is defined in RESPA § 2605(i)(3) to mean “receiving any scheduled periodic
payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . and making
the payments of principal and interest and such other payments with respect to the amounts received from the
borrower as may be required pursuant to the terms of the loan.”
5
See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10,742 (Feb. 14, 2013).
92
“providing such information to borrowers is a standard servicer duty.”6 The general servicing
requirements set out in Regulation X § 1024.38(b)(2) require servicers to have policies and
procedures designed to “provide accurate information regarding loss mitigation options available
to the borrower from the owner or assignee of the borrower's mortgage loan.”7
For a detailed discussion of the RESPA requirements for requests for information, see §
9.2.2 of NCLC’s Foreclosures (4th ed. 2012 and 2013 Supp.) and NCLC eReports, Dec. 2013,
No. 6.
Sample Language for the Request for Information
Advocates should check that the address they use in preparing and sending the request is
one given by the servicer for requests for information, and not assume that the address used by
the client to send monthly payments is the proper designated address. 8 If the request is sent by
an attorney on behalf of a client, it should include a written authorization from the client similar
to that provided below.9 Appropriate alterations based on your client’s situation must be made
before sending the following sample request.10 To avoid a servicer response that a request for
information is overbroad or burdensome, only those specific request items that are applicable to
your client and needed to assist in representing the client should be included.11
[date]
[Mortgage servicer]
[Address]
Attn: Borrower Inquiry Department
Re:
[Borrowers’ name, address, account number]
To Whom it May Concern:
6
Id.
Reg. X, 12 C.F.R. § 1024.38(b)(2)(i).
8
Borrower written inquiries (including notices of error) under the RESPA must be sent to the “designated” address
for receipt and processing of such inquiries, if the servicer has properly designated such an address. See Reg. X, 12
C.F.R. § 1024.35(c); § 9.2.2.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.). The servicer’s website should be
checked for the designated address.
9
A servicer is required to respond to a request for information that is sent by the borrower or the borrower’s agent.
12 U.S.C. § 2605(e)(1)(A). However, a servicer may require that the borrower or agent provide documentation, such
as an authorization, that the agent has authority to act on the borrower’s behalf. See Official Bureau Interpretation,
Supplement 1 to Part 1024, ¶ 36(a)-1 (effective Jan. 10, 2014); § 9.2.2.4 of NCLC’s Foreclosures (4th ed. and 2013
Supp.).
10
No response is required by a servicer to a request for information that is irrelevant, which the regulation describes
as information requested that is not directly related to the borrower’s mortgage loan account. See 12 C.F.R. §
1026.36(f)(1)(iii); § 9.2.2.2.3.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.).
11
A servicer is not required to comply with a request for information if the servicer reasonably determines that it is
overbroad or burdensome. See 12 C.F.R. § 1026.36(f)(1)(iv); § 9.2.2.2.3.3 of NCLC’s Foreclosures (4th ed. and
2013 Supp.).
7
93
Please be advised that I represent [borrowers] with respect to the mortgage loan you are
servicing on the property located at [address]. My clients have authorized me to send this
request on their behalf (see Authorization below). As servicer of my client’s mortgage loan,
please treat this as a “request for information” pursuant to the Real Estate Settlement Procedures
Act, subject to the response period set out in Regulation X, 12 C.F.R.§ 1024.36(d)(2)(i)(B).
Specifically, I am requesting the following information for the period beginning [when account
went into default or some other period] until your receipt of this request (the “applicable
period”):
1. Identify and briefly describe all loss mitigation options that were available to my
clients from the owner or assignee of my clients’ mortgage loan.
2. Provide any notices sent to my clients advising them of the availability of loss
mitigation options.
3. For each loss mitigation application you have received from my clients during the
applicable period, identify the following:
a. the date it was received;
b. the date you sent my clients an acknowledgment of receipt of the
application;
c. the date you determined it was complete;
d. a description of your evaluation of it, including your determination of
which loss mitigation options were or were not offered to my clients.
4. If any loss mitigation application you received from my clients is currently under
review and is considered to be incomplete, provide a list of the additional
documents and information my clients must submit to make the application
complete, as well as any applicable deadline for returning such documents.
5. Identify any other documents or information not under the control of my clients
needed to make the application complete.
6. [For loan modification denial based on investor restrictions] If you have
determined that a loan modification option is not available to my clients because
of a requirement or restriction imposed by the owner or assignee of my clients’
mortgage loan, provide the following:
a. a description of the requirement or restriction and the identity of the owner
or assignee, including the name of any applicable trusts and trustees;
b. the document, or provision within the document, that contains the
requirement or restriction, and information identifying the document
sufficient to locate the document if it is publicly available;
c. a description of your actions to seek a waiver of the requirement or
restriction;
94
d. any documents relating to your efforts to seek a waiver of the requirement
or restriction, and whether such waiver request was approved or denied;
e. any summary information created or retained by you pertaining to loan
modifications available to my clients and investor restrictions applicable
to my clients’ loan or loans pooled with this loan; and
f. any guidance provided to you by the owner or assignee pertaining to
modifications applicable to my clients’ loan.
7. [For loan modification denial based on NPV] If you have determined that a loan
modification option is not available to my clients because of a net present value
calculation, provide:
a. the inputs used for the calculation; and
b. the date the calculation was done.
8. [For loan modification denial based on excessive principal forbearance] If you
have determined that a loan modification option is not available to my clients
because of excessive principal forbearance, provide the figures used in reaching
this determination, including the current unpaid principal balance, value of the
property, gross monthly income, and monthly escrow payment.
9. [For FHA loan modification denial] If you have determined that a loan
modification option is not available to my clients, provide the figures and
calculations used in reaching this determination, including the gross monthly
income, monthly escrow payment, interest arrears, any other fees or charges to be
capitalized, current unpaid principal balance, unpaid principal balance as of the
date of any previous partial claim, and amount of any previous partial claim.
10. If you have determined that a loan modification option is not available to my
clients for any other reason(s), describe in detail the reason(s) for denial and
provide documentation of any reason(s) for denial.
11. Provide any notices or documents you sent to my clients in relation to loss
mitigation of my clients’ loan during the applicable period, including:
a. any notices acknowledging receipt of any loss mitigation application from
them and stating whether the application was complete or incomplete;
b. any notices stating the outcome of your evaluation of their application;
c. any proposed written agreement that offered a loss mitigation option to my
clients;
d. any written agreement signed by my clients that provided for a loss
mitigation option; and
e. any notices stating the outcome of their appeal of your denial of a loan
modification option.
95
12. [If payments made on a loss mitigation option] For any payments made by my
clients pursuant to a temporary or permanent loan modification offer, trial period
plan, forbearance, or any other loss mitigation offer during the applicable period,
describe the following:
a. the date you received each payment;
b. the amount of each payment;
c. a breakdown showing the amount, if any, of each payment that was
applied to principal, interest, escrow, fees and charges, and the amount, if
any, sent to any suspense or unapplied funds account; and
d. the date, amount, and destination of any payment or amount that was
applied from a suspense or unapplied funds account.
13. If you initiated a foreclosure proceeding against my clients during the applicable
period, identify or provide the following:
a. the date the matter was referred to your attorney to begin the legal
foreclosure process;
b. the date you or your attorney made the first notice or filing to begin the
foreclosure process, and a description of the actions taken;
c. [for judicial foreclosure] a listing of any dispositive motions filed and the
date filed;
d. any steps taken to schedule the foreclosure sale, and the date those steps
were taken;
e. the date of any scheduled or rescheduled foreclosure sale; and
f. any notices sent to my clients about the foreclosure of their mortgage loan.
14. Provide any appraisal, broker’s price opinion, automated valuation model
analysis, or other assessment of the value of the property securing my clients’
mortgage loan that you obtained during the applicable period.
15. Provide any notes or logs created by your personnel reflecting communications
with my clients about their request for loss mitigation assistance or about their
default on the loan during the applicable period.
Thank you for taking the time to respond to this request for information.
Very truly yours,
___________________
[attorney]
Authorization to Release Information
To:
[servicer]
Re:
Borrowers: [name of borrowers]
96
Account No: [account no.]
Property Address: [address]
We are represented by the law office of [name of firm] and attorney [name of attorney]
concerning the mortgage on our home located at [address]. We hereby authorize you to release
any and all information concerning our mortgage loan account to the law office of [name of firm]
and attorney [name of attorney] at their request. We also authorize you to discuss our case with
the law office of [name of firm] and attorney [name of attorney].
Thank you for your cooperation.
Very truly yours,
_____________________
[borrower 1]
_______________________
[borrower 2]
Copyright © 2014 National Consumer Law Center, Inc. All rights reserved.
97
Sample RESPA Notice of Error for Dual Tracking Violations
RESPA Regulation X’s loss mitigation rule limits mortgage servicers’ “dual tracking”
practices—the common servicer practice of proceeding with foreclosure while evaluating a
borrower for loss mitigation options. Another new Regulation X provision allows the
homeowner to cancel or postpone a foreclosure sale by sending a “notice of error” to a servicer
engaged in illegal dual tracking. This article contains sample language for such a notice, with
several variations depending on the nature of the servicer’s violation.
Effective January 10, 2014, under the Regulation X provision implementing 12 U.S.C. §
2605(e) , a written inquiry that asserts servicer error with respect to the borrower’s mortgage
loan is referred to as “notice of error.” For most notices of error, a servicer must acknowledge
the request within 5 business days of receipt, and respond within 30 business days of receipt.1
Of even greater significance, if the borrower or borrower’s agent sends a written notice of
error that is received by the servicer more than 7 days before a scheduled foreclosure sale and the
notice asserts certain violations of the dual tracking provisions of the loss mitigation procedures,
the servicer must respond prior to the date of a foreclosure sale or within 30 business days after
the servicer receives the notice of error, whichever is earlier. To qualify as this type of notice of
error, the notice must assert that the servicer either:
•
•
initiated a foreclosure before the 120th day of delinquency in violation of
Regulation X § 1024.41 (f) or (j)2or
moved for a foreclosure judgment or conducted a foreclosure sale in
violation of Regulation X § 1024.41(g) or (j).3
Thus, if the servicer receives this notice of error more than 7 days before a scheduled
foreclosure sale, the servicer may have to cancel or postpone the sale in order to comply with the
error notice response requirements.4 If the servicer receives this notice of error 7 or less days
before a scheduled foreclosure sale, a servicer is not required to comply with the response
obligations but must make a good faith attempt to respond to the borrower, orally or in writing,
and either correct the error or state the reason the servicer has determined that no error has
occurred. 5
For a detailed discussion of the RESPA requirements for notices of error, see § 9.2.2 of
NCLC’s Foreclosures (4th ed. 2012 and 2013 Supp.).
1
Reg. X, 12 C.F.R. § 1024.35(d) and (e).
This is a covered error under Regulation X § 1024.35(b)(9).
3
This is a covered error under Regulation X § 1024.35(b)(10).
4
Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) and § 1024.35(f)(2); Official Bureau Interpretation, Supplement 1 to Part
1024, ¶ 35(e)(3)(i)(B)-1.
5
Reg. X, 12 C.F.R. § 1024.35(f)(2).
2
98
Sample Language for the Notice of Error
Advocates should check that the address they use in preparing the notice is one given by
the servicer for notices of error, and not assume that the address used by the client to send
monthly payments is the proper designated address. 6 If the notice is sent by an attorney on
behalf of a client, it should include a written authorization from the client similar to that provided
below.7 Appropriate alterations based on your clients’ situation must be made before sending the
following sample notice:
[date]
[Mortgage servicer]
[Address]
Attn: Borrower Inquiry Department
Re:
[Borrowers’ name, address, account number]
To Whom it May Concern:
Please be advised that I represent [borrowers] with respect to the mortgage loan you are
servicing on the property located at [address]. My clients have authorized me to send this
request on their behalf (see Authorization below). As servicer of my client’s mortgage loan,
please treat this as a “notice of error” pursuant to the Real Estate Settlement Procedures Act,
subject to the response period set out in Regulation X, 12 C.F.R.§ 1024.35(e)(3)(i)(B).
[Alternative A – violation of § 1024.41(f)(1)]
You have asserted that my clients’ mortgage account became delinquent beginning on
[date]. On [date], you initiated a foreclosure proceeding against my clients by [filing a court
action, sending a notice of sale, etc.]. This action was taken when my clients’ mortgage account
was less than 120 days delinquent, in violation of Regulation X, 12 C.F.R.§ 1024.41(f)(1) [or
Regulation X, 12 C.F.R.§ 1024.41(j) if the servicer is a “small servicer.”].
6
Borrower written inquiries (including notices of error) under the RESPA must be sent to the “designated” address
for receipt and processing of such inquiries, if the servicer has properly designated such an address. See Reg. X, 12
C.F.R. § 1024.35(c); § 9.2.2.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.). The servicer’s website should be
checked for the designated address.
7
A servicer is required to respond to a request for information that is sent by the borrower or the borrower’s agent.
12 U.S.C. § 2605(e)(1)(A). However, a servicer may require that the borrower or agent provide documentation, such
as an authorization, that the agent has authority to act on the borrower’s behalf. See Official Bureau Interpretation,
Supplement 1 to Part 1024, ¶ 36(a)-1 (effective Jan. 10, 2014); § 9.2.2.4 of NCLC’s Foreclosures (4th ed. and 2013
Supp.).
99
To correct this error, you should immediately [cancel the scheduled foreclosure sale and
any related legal advertisement of the sale, or dismiss or move to dismiss the foreclosure court
action filed against my clients].
[Alternative B – violation of § 1024.41(f)(2)]
In [month/year], my clients submitted to you a complete loss mitigation application. This
complete application was received by you [during the 120-day pre-foreclosure review period
provided for under Regulation X, 12 C.F.R.§ 1024.41(f)(1) or before you initiated foreclosure by
making the first notice or filing]. However, on [date], you initiated a foreclosure proceeding
against my clients by [filing a court action, sending a notice of sale, etc.]. This action was taken
[even though my clients have not received a notice pursuant to Regulation X, 12 C.F.R.§
1024.41(c)(1)(ii) stating the outcome of your evaluation of their application; or prior to the time
my clients’ appeals rights expired; or even though my clients have not received a notice pursuant
to Regulation X, 12 C.F.R.§ 1024.41(h)(4) stating the outcome of their appeal of your denial of a
loan modification option; or before my clients had rejected the loss mitigation option you offered
them; or even though my clients have not failed to perform under the loss mitigation agreement
you entered into with them], in violation of Regulation X, 12 C.F.R.§ 1024.41(f)(2).
To correct this error, you should immediately [cancel the scheduled foreclosure sale and
any related legal advertisement of the sale, or dismiss or move to dismiss the foreclosure court
action filed against my clients].
[Alternative C – violation of § 1024.41(g)]
In [month/year], my clients submitted to you a complete loss mitigation application. This
complete application was received by you more than 37 days before the foreclosure sale you
scheduled on their home. However, on [date], the law firm representing you in the foreclosure
proceeding moved for a foreclosure judgment or order of sale [including making a dispositive
motion, such as a motion for default judgment, judgment on the pleadings, or summary
judgment]. This action was taken [even though my clients have not received a notice pursuant to
Regulation X, 12 C.F.R.§ 1024.41(c)(1)(ii) stating the outcome of your evaluation of their
application; or prior to the time my clients’ appeals rights expired; or even though my clients
have not received a notice pursuant to Regulation X, 12 C.F.R.§ 1024.41(h)(4) stating the
outcome of their appeal of your denial of a loan modification option; or before my clients had
rejected the loss mitigation option you offered them; or even though my clients have not failed to
perform under the loss mitigation agreement you entered into with them], in violation of
Regulation X, 12 C.F.R.§ 1024.41(g).
To correct this error, you should immediately instruct the law firm representing you in
the foreclosure proceeding to take all necessary actions to avoid the issuance of a foreclosure
judgment or order of sale [or vacate any foreclosure judgment or order of sale].8
8
If a servicer conducts a foreclosure sale in violation of Regulation X, 12 C.F.R.§ 1024.41(g), the borrowers have a
direct cause of action for violation of the regulation and may pursue remedies available under 12 U.S.C. § 2605(f).
See NCLC’s Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
100
Thank you for taking the time to respond to this notice of error.
Very truly yours,
___________________
[attorney]
Authorization to Release Information
To:
[servicer]
Re:
Borrowers: [name of borrowers]
Account No: [account no.]
Property Address: [address]
We are represented by the law office of [name of firm] and attorney [name of attorney]
concerning the mortgage on our home located at [address]. We hereby authorize you to release
any and all information concerning our mortgage loan account to the law office of [name of firm]
and attorney [name of attorney] at their request. We also authorize you to discuss our case with
the law office of [name of firm] and attorney [name of attorney].
Thank you for your cooperation.
Very truly yours,
_____________________
[borrower 1]
_______________________
[borrower 2]
Copyright © 2014 National Consumer Law Center, Inc. All rights reserved.
101
Checklist for Reviewing RESPA Loss Mitigation Notices to Borrowers
Review of written notices can be an important tool for assessing whether a servicer
complied with various requirements under the RESPA loss mitigation rules. Regulation X
requires that a servicer give the borrower written notices at distinct stages in the loss mitigation
and foreclosure process. The servicer’s failure to comply with these notice requirements may
give rise to a private right of action for the borrower. Failure to give the notice in and of itself is
a violation of the rules. In addition, the notice defect may signal a violation of other rules,
including the dual tracking restrictions, and lead to further liability for the servicer.
The basic range of RESPA damages may be recoverable for violation of any of these
written notice requirements.1 Failure to comply with these requirements may also violate other
statutes, regulations, consent decrees, and common law rules applicable to servicers’ business
practices. These non-RESPA claims may contain enforceable standards and offer a greater range
of relief, including the ability to seek injunctive relief to stop a pending sale.
The following checklist describes the Regulation X early intervention and loss mitigation
written notices and the questions to consider when reviewing them:
1. Pre-Foreclosure “Early Intervention” Notice2
Did the servicer give this written notice no later than the forty-fifth day of the
borrower’s delinquency?3
Did the notice encourage the borrower to contact the servicer?4
Did the notice provide the servicer’s telephone number for the continuity of
contact personnel assigned to the borrower, and the servicer’s mailing address?5
Did the notice provide, if applicable, a brief description of examples of available
loss mitigation options?6
Did the notice include either application instructions or information on how the
borrower may obtain more information about the loss mitigation application
process?7
Did the notice provide the website address the borrower may use to access either
the CFPB’s list or HUD’s list of homeownership counselors or organizations, and
the HUD toll-free phone number.8
1
12 U.S.C.§ 2605(f); NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
See NCLC eReports, Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.), discussing the
early intervention written notice.
3
12 C.F.R. § 1024.39(b)(1) (effective Jan. 10, 2014).
4
12 C.F.R. § 1024.39(b)(2)(i)(effective Jan. 10, 2014).
5
12 C.F.R. § 1024.39(b)(2)(ii) (effective Jan. 10, 2014).
6
12 C.F.R. § 1024.39(b)(2)(iii) (effective Jan. 10, 2014).
7
12 C.F.R. § 1024.39(b)(2)(iv) (effective Jan. 10, 2014).
8
12 C.F.R. § 1024.39(b)(2)(v) (effective Jan. 10, 2014).
2
102
2. Five-Day Application Status Notice9
Did the servicer send the borrower within five business days of receipt of a loss
mitigation application a notice describing the documents and information needed
to complete the application (if the borrower’s application was received forty-five
days before a scheduled foreclosure sale and the servicer deemed the application
to be incomplete)?10
Did the notice described above include a “reasonable date” by which the borrower
must submit the missing documents and information?11
Did the servicer send the borrower within five business days of receipt of an
application a notice acknowledging that the application was complete (if the
borrower’s application was received forty-five days before a scheduled
foreclosure sale and the servicer deemed the application to be complete)?12
Did the notice include a statement that the borrower should consider contacting
servicers of any other mortgage loans secured by the same property to discuss
available loss mitigation options (if the borrower’s application was received fortyfive days before a scheduled foreclosure sale and the servicer deemed the
application to be either complete or incomplete)?13
3. Thirty-Day Evaluation and Loan Modification Denial Notice14
Did the servicer send the borrower within thirty days of receipt of a complete
application a notice stating the servicer’s determination of which loss mitigation
options, if any, are being offered to the borrower (if the servicer received a
complete application more than thirty-seven days before a foreclosure sale)?15
Did the evaluation notice described above inform the borrower of the amount of
time the borrower had to accept or reject a loss mitigation offer?16
Did the evaluation notice state the specific reasons for the denial of each
modification option and if applicable, that the borrower was not evaluated on
other criteria (if the servicer denied the borrower for any trial or permanent loan
modification option)?17
Did the evaluation notice identify the owner or assignee of the loan and the
specific requirement that was the basis for the denial (if a reason for denial of a
loan modification was a requirement set by an owner or assignee of the loan)?18
9
See NCLC eReports, Feb. 2014, No. 3; NCLC Foreclosures, § 9.2.8.2.2 (4th ed. and 2013 Supp.).
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
11
Reg. X, 12 C.F.R. § 1024.41(b)(2)(ii) (effective Jan. 10, 2014).
12
Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).
13
Id.
14
See NCLC eReports, Feb. 2014, No. 3; NCLC Foreclosures, §§ 9.2.8.2.3 and § 9.2.8.2.4 (4th ed. and 2013
Supp.).
15
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) (effective Jan. 10, 2014).
16
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) (effective Jan. 10, 2014).
17
Reg. X, 12 C.F.R. § 1024.41(d) (effective Jan. 10, 2014).
18
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-1 (effective Jan. 10, 2014).
10
103
Did the evaluation notice state that the denial was based on a net present value
calculation and include the inputs used for the calculation (if the servicer denied a
loan modification option because of a net present value calculation)?19
Did the evaluation notice describe the borrower’s right to appeal the denial, the
deadline to make an appeal, and any requirements for making an appeal (if the
servicer denied the borrower for a loan modification option20 and the borrower’s
complete application was received at least ninety days before a scheduled
foreclosure sale)?21
4. Appeal Decision Notice22
Did the servicer make an appeal determination and provide the borrower with a
notice of the determination within thirty days of the borrower’s appeal request?23
Did the notice state how long the borrower has to accept or reject the offer, which
should be no earlier than fourteen days after the appeal determination notice is
provided to the borrower (if the servicer offered a loss mitigation option as part of
the appeal determination)?24
19
See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-2 (effective Jan. 10, 2014).
Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).
21
Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) (effective Jan. 10, 2014).
22
See NCLC eReports, Feb. 2014, No. 3 and Mar. 2014, No. 4; NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013
Supp.).
23
Reg. X, 12 C.F.R. § 1024.41(h)(4) (effective Jan. 10, 2014).
24
Id.
20
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105
106
107
108
109
110
Loss Mitigation Procedures
©National Consumer Law Center 2013
Jan. 10, 2014 Effective Date
• Does not apply to applications received before
effective date
• Applies to applications received after effective
date even if borrower evaluated for loss
mitigation before effective date
• 120 day ban on foreclosure referrals applies to
mortgage loans that:
– become delinquent on or after effective date, and
– are delinquent on effective date but for which
foreclosure has not been initiated
111
Loss Mitigation Procedures
• CFPB: nothing in § 1024.41 imposes duty on a
servicer to provide borrower with a specific loss
mitigation option
• Borrowers do not have private right of action
under § 1024.41 to enforce terms of agreement
between servicer and mortgage holder concerning
evaluation for loss mitigation options
• Borrowers do have private right of action to
enforce the procedural requirements in § 1024.41
Loss Mitigation Procedures
• Nothing in § 1024.41 precludes borrowers from
enforcing substantive rights under state or other
federal laws for servicers’ failure to comply with
substantive standards of loss mitigation programs
• No preemption of other loss mitigation laws that give
borrowers greater protection
• Borrowers may use error correction procedures under
§ 1024.35 to address servicer’s failure to follow
procedures, including dual tracking protections
– and possibly for failure to correctly evaluate borrower for a
loss mitigation option
112
Application Received . . .
120 days of delinquency
Full evaluation,
notice of
incomplete
application, and
appeal rights
No referral to
foreclosure
90 days or more before sale
Full evaluation,
notice of
incomplete
application, and
appeal rights
No foreclosure sale
until application
reviewed
45 days or more before sale
Full evaluation and
notice of
incomplete
application
No foreclosure sale
until application
reviewed
38 days before sale
Full evaluation
No foreclosure sale
until application
reviewed
Date of Foreclosure Sale
• If date of foreclosure is not known, servicer may
use reasonable estimate
• If no foreclosure sale has been scheduled as of
date complete loss mitigation application is
received, the application is considered to be
received more than 90 days before any
foreclosure sale
• Dual track and other protections that apply based
on timelines remain in effect even if foreclosure
sale is later scheduled or rescheduled
113
Receipt of Application 45 Days
Before Sale
Servicer must:
• Conduct review to determine whether application
is complete
• Within 5 business days of receiving application,
provide written notice to borrower that:
• acknowledges application is complete, or
• describes documents and information needed to
complete the application, and
• provides “reasonable date” by which borrower
should submit missing documents and
information
“Reasonable Date” to Complete?
• A “reasonable date” should preserve the
“maximum borrower rights,” except when it would
be impracticable (e.g., requesting docs in less
than 7 days), based on the following milestones:
– date when documents already submitted will be
stale
– date that is 120th day of delinquency
– date that is 90 days before a foreclosure sale
– date that is 38 days before a foreclosure sale
114
What is Complete Application?
• All information the servicer requires from a borrower
in evaluating applications for the options available to
the borrower
• Servicers have flexibility to establish their own
application requirements, but must exercise
“reasonable diligence” to obtain information needed to
complete the application
– arguably requirements must be consistent with non-RESPA
standards and guidelines for loss mitigation programs
• Application is complete if borrower provides all
required information even if additional information not
in the control of the borrower is required (e.g., credit
report)
Evaluation of Complete Application
• If servicer receives complete loss mitigation
application more than 37 days before foreclosure
sale, servicer must within 30 days of receipt:
– Evaluate borrower for all loss mitigation options
available to the borrower
– Provide borrower with written notice of options being
offered to borrower
– Written notice of denial, including specific reasons for
the servicer’s decision for each option available to the
borrower
115
Facially Complete Application
• If borrower submits all missing documents and
information as stated in the 5-day notice, or nothing
additional is requested in the notice, the application is
considered facially complete
– if servicer later discovers more information is needed or 5day notice was incorrect, servicer must promptly request
missing information
– servicer must treat application as complete for purposes of
dual tracking provisions until borrower given reasonable
opportunity to complete
– if borrower completes application within this period,
application is considered complete as of date it was facially
complete for most timelines under rule
Evaluation of Incomplete Application
Servicer may
offer:
• A short-term payment forbearance (for payments
due over no more than 6 months)
• Other loss mitigation option if application remains
incomplete for a significant period of time
If forbearance
provided,
servicer must:
• Not initiate or continue with foreclosure if borrower
is performing under agreement
• Continue to comply with § 1024.41 and seek
documents to complete application and review if
later becomes complete
116
Loan Modification Denial
• If loan modification denial based on a requirement set
by loan owner or assignee, notice must identify owner
or assignee and specific requirement that was basis
for denial
• If loan modification denial based on net present value
test, notice must state this reason and include the
inputs used for the calculation
• Denial notice must also describe borrower’s right to
appeal, the deadline to appeal, and any requirements
for making an appeal, if applicable
Borrower’s Response
• If complete application received 90 days or more
before a foreclosure sale, servicer may require that
borrower accept or reject an offer no earlier than 14
days after offer made
• If a complete application received less than 90 days
but more than 37 days before a foreclosure sale,
servicer may require that borrower accept or reject
offer no earlier than 7 days after offer made
• If a borrower requests an appeal, deadline for
accepting option is extended until 14 days after
servicer provides the appeal determination notice
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Loss Mitigation Review Rights
Days Application
Received Before
Foreclosure Sale
Acknowledgment of
Application
≥ 90
≥ 45
≥ 38
Yes, must acknowledge within 5 business
days and provide deadline for supplying
additional documents
Time to Evaluate
No
30 days
Time to Appeal
14 days
No appeal rights
Time to Accept
Loan Mod Offer
14 days
7 days
Appeal Rights
• Appeal rights apply only to decisions:
– involving eligibility for loan modifications
– made on complete (or facially complete) applications submitted 90
days or more before a scheduled foreclosure sale or during the 120day pre-foreclosure review period
• Borrower must request an appeal within 14 days after
servicer provides initial notice of determination
• Review must be by “different personnel than those
responsible for evaluating” application
• Servicer must decide appeal and provide notice of
determination to borrower within 30 days of appeal request
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Dual-Tracking Protections Before
Foreclosure Referral
• Servicers must not make first notice or filing
required for foreclosure process until mortgage loan
is more than 120 days delinquent
• If borrower submits complete application during
120-day period or before first notice or filing, a
servicer can’t make first notice or filing until
evaluation complete
• State foreclosure timelines pre-empted to the extent
they allow an earlier commencement of foreclosure
• Protection does not apply if foreclosure based on
borrower’s violation of a due on sale clause or if
servicer is joining foreclosure action by a
subordinate lienholder
What is First Notice or Filing?
• Where judicial foreclosure: the earliest
document required to be filed with court
• Where non-judicial foreclosure: the earliest
document required to be recorded or
published
• Where no court filing or document required
to recorded or published: the earliest
document that sets or schedules a
foreclosure sale date
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Dual-Tracking Protections After
Foreclosure Referral
• If borrower submits complete application after first notice or
filing but more than 37 days before foreclosure sale, servicer
may proceed with foreclosure process, but shall not:
– move for foreclosure judgment or order of sale, or conduct
sale, until decision given or borrower rejects offer or fails to
perform
– make a dispositive motion, such as motion for default
judgment, judgment on pleadings, or summary judgment,
which may directly result in a foreclosure judgment or order of
sale
• If such a motion has been made before receiving a complete
application, servicer must take reasonable steps to avoid a
ruling or issuance of an order
What if Application Received 37 Days
or Less Before Sale?
• Servicer may be obligated under non-RESPA applicable law
to evaluate a borrower’s application.
• Consistent with the general RESPA preemption rule, CFPB
explicitly stated in promulgating loss mitigation rule that
“servicers should comply with the most restrictive
requirements to which they are subject.”
• CFPB referred to National Mortgage Settlement and GSE
requirements and stated that “[n]othing in § 1024.41
prohibits or impedes a servicer from complying with these
requirements and servicers may be required to comply with
requirements that are more prescriptive than the regulations
implemented by the Bureau.”
120
Transfer Requirements
• New servicer must obtain loss mitigation documents
and information submitted by borrower to former
servicer and comply with § 1024.41
• If borrower’s complete application is being evaluated
when mortgage is transferred, new servicer should
“continue the evaluation to the extent practicable”
• Documents in a complete application are received
for purposes of timelines as of date they were
received by former servicer, not new servicer
Other Transfer Requirements
• Covered error for notice of error includes:
– Failing to transfer accurately and timely
information relating to servicing of a borrower’s
mortgage loan account to a transferee servicer
• Transfer policies and procedures consistent
with § 1024.38(b)(4) (no right of action)
– Transferor must timely and accurately transmit
information
– Transferee must be able to identify missing
information
121
“Duplicative” Applications
• Section 1024.41(i): “A servicer is only required to comply
with the requirements of this section for a single complete
loss mitigation application for a borrower’s mortgage loan
account”
• Does this really mean borrowers have only “one bite at the
apple,” regardless of when earlier application was submitted
or whether there haven been changed circumstances?
What Must Still Be Done for
“Duplicative” Applications
• Exclusion does not apply if:
– Application is made to a different servicer – comment 41(i) states
that transferee servicer must comply (but does this include
transfers between affiliates or through merger?)
– Servicer provides short-term forbearance or other loss mitigation
option on an incomplete application
– Servicer did not properly evaluate the borrower’s application
• Servicer must still comply with:
– Early intervention and continuity of contact requirements
– NOE or RFI related to subsequent application
– Investor standards
122
Loss Mitigation Exemptions
• Loss mitigation procedures apply only to a mortgage
that is secured by the borrower’s principal residence
• Small servicers (5,000 or fewer loans)
– Must wait 120 days before initiating foreclosure
– Cannot initiate foreclosure after they have received a
complete loss mitigation application
– Cannot initiate foreclosure if a borrower is performing under
a loss mitigation agreement
– Exempt from all other loss mitigation procedures
• Reverse mortgages excluded from loss mitigation
requirements
Using RESPA Error Resolution
• Potential loss mitigation covered errors:
– failing to provide accurate information regarding
loss mitigation options and foreclosure
– failing to transfer accurate and timely information
about borrower’s mortgage account to a transferee
servicer, including loss mitigation information
– making the first notice or filing for any foreclosure
process in violation of § 1024.41(f) or (j) - NOE
must be received more than 7 days before a
scheduled foreclosure sale
– moving for foreclosure judgment or order of sale, or
conducting a foreclosure sale in violation of
§ 1024.41(g) or (j) - NOE must be received more
than 7 days before a scheduled foreclosure sale
123
TILA Rule on Periodic Mortgage Statements
Servicers of conventional mortgages typically have provided consumers with either
monthly statements or preprinted coupon books containing payment information. However,
federal law has never required such statements or regulated their content. Even when servicers
do provide monthly statements, they often stop providing them when the borrower is in default
or in a bankruptcy proceeding, times when the information is potentially most needed.1
Information that would assist a borrower in discovering account errors and avoiding default, such
as the assessment of fees or diversion of payments into suspense accounts, is also generally not
provided by servicers on monthly statements.
The Dodd-Frank Act and the 2013 TILA Servicing Rule have changed this by requiring
that periodic statements be sent to borrowers on residential mortgage loans, other than fixed rate
loans in which coupon books are given to borrowers containing information substantially similar
to that required by the rule.2 Detailed account information, including helpful disclosures for
borrowers who are in default, must now be provided.
If prepared in accordance with the regulation, periodic statements will give consumers
significant information about their mortgage accounts. The disclosures provided on the
statements may also assist advocates in determining whether an account is actually in default and
whether a servicer has properly applied payments or improperly charged unauthorized fees.
Application of Periodic Statement Requirement
The requirement generally applies to mortgage loans that are closed-end consumer credit
transactions secured by a dwelling, subject to certain exemptions discussed below.3 A servicer
of such a mortgage loan is required to provide the consumer, for each billing cycle, a periodic
statement that meets the requirements discussed below.4 If a mortgage loan has a billing cycle
shorter than a period of thirty-one days, such as a bi-weekly billing cycle, a periodic statement
covering an entire month may be used.5 The periodic statement must be delivered or placed in
the mail within a “reasonably prompt time” after the payment due date or the end of any
“courtesy” or grace period provided for the previous billing cycle.6 The commentary notes that
delivering, emailing or placing the periodic statement in the mail within four days of the close of
the courtesy period of the previous billing cycle generally would be considered reasonably
prompt.7
1
See In re Monroy, 650 F.3d 1300 (9th Cir. 2011) (approving local form plan language requiring secured creditors
to continue sending periodic statements to debtors if they were provided prepetition).
2
15 U.S.C. § 1638(f); Reg. Z, 12 C.F.R. § 1026.41 (effective Jan. 10, 2014).
3
Reg. Z, 12 C.F.R. § 1026.41(a)(1) (effective Jan. 10, 2014).
4
Reg. Z, 12 C.F.R. § 1026.41(a)(2) (effective Jan. 10, 2014).
5
Id. See also Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-2, effective Jan. 10, 2014 (“Such a
statement would separately list the upcoming payment due dates and amounts due, as required by § 1026.20(d)(1),
and list all transaction activity that occurred during the related time period, as required by paragraph (d)(4). Such
statement may aggregate the information for the explanation of amount due, as required by paragraph (d)(2), and
past payment breakdown, as required by paragraph (d)(3).”).
6
Reg. Z, 12 C.F.R. § 1026.41(b) (effective Jan. 10, 2014).
7
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(b)-1 (effective Jan. 10, 2014).
124
When two consumers are joint obligors on a covered mortgage loan, the periodic
statement may be sent to either one of them. The commentary provides an example of a married
couple who jointly own a home and notes that the servicer need not send statements to “both the
husband and the wife; a single statement may be sent.”8 The commentary does not address how
the servicer should comply when it is notified that the joint obligors are separated or divorced,
and living apart.
The periodic statement requirement under Regulation Z § 1026.41 applies to servicers of
covered mortgage loan transactions. However, for purposes of the regulation, a “servicer”
includes the “creditor, assignee, or servicer, as applicable.”9 All of these parties are subject to
the requirement, though only one statement must be sent to the consumer each billing cycle.
When two or more parties are subject to the requirement, “they may decide among themselves
which of them will send the statement.”10 A creditor or assignee that does not currently own the
mortgage loan or the mortgage servicing rights is not subject to the § 1026.41 requirement to
provide a periodic statement.11
The servicer can provide the periodic statements electronically, but only if the consumer
gives affirmative consent to receive them in this manner.12 If statements are provided
electronically, the servicer may send a notification in lieu of the statement indicating that a
consumer’s statement is available, with a link to where the statement can be accessed.
Consumers who are currently receiving disclosures electronically from their servicer for their
mortgage account or some other account with the servicer shall be deemed to have consented to
receiving electronic statements and will not be sent paper statements unless they withdraw
consent.13
A consumer is not permitted to opt out of receiving periodic statements. However, the
commentary provides that “consumers who have demonstrated the ability to access statements
online” may opt out of receiving only the notifications that the statements are available.14 The
CFPB suggests that this ability may be demonstrated, for example, by consumers going to the
servicer’s website after receiving notification that their statements are available, viewing the
information about their account, and selecting a link or option to indicate they no longer wish to
receive notifications when new statements are available.
Form and Content of Periodic Statement
The disclosures required by the periodic statement rule must be made by the servicer
clearly and conspicuously in writing, or electronically if the consumer agrees, and in
a form that the consumer may keep.15 The CFPB has provided sample forms for periodic
statements that are found in appendix H-30 to Regulation Z.16 If a servicer makes proper use of
8
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-1 (effective Jan. 10, 2014).
Reg. Z, 12 C.F.R. § 1026.41(a)(2) (effective Jan. 10, 2014).
10
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-3 (effective Jan. 10, 2014).
11
Id.
12
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-3 (effective Jan. 10, 2014).
13
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-4 (effective Jan. 10, 2014).
14
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-4 (effective Jan. 10, 2014).
15
Reg. Z, 12 C.F.R. § 1026.41(c) (effective Jan. 10, 2014).
9
125
these forms, it is deemed to have complied with the form and layout requirements of sections
1026.41(c) and (d).17
The regulation does not prohibit a servicer from adding to the disclosures or including
additional information or disclosures required by other laws, as long as the
additional information does not “overwhelm or obscure the required disclosures.”18
The regulation requires that the statements contain information in the following
categories: amount due for the billing period, explanation of amount due on the account
including fees imposed, past payment breakdown, transaction activity, partial payment
information, contact and account information, and delinquency information if applicable.19 Each
of these categories is discussed more fully here:
(1) Amount due.20 This category must include: (i) payment due date; (ii) amount of any
late payment fee, and the date when that fee will be imposed if payment is not received; and (iii)
amount due, shown more prominently than other disclosures on the page (if the transaction has
multiple payment options, the amount due under each payment option). The information for this
category must be grouped together in close proximity and located at the top of the statement’s
first page.
(2) Explanation of amount due.21 This category must include: (i) monthly payment
amount, including a breakdown showing how much, if any, will be applied to principal, interest,
and escrow (if a mortgage loan has multiple payment options, a breakdown of each of the
payment options along with information on whether the principal balance will increase, decrease,
or stay the same for each option listed); (ii) total sum of any fees or charges imposed since the
last statement; and (iii) any payment amount past due. The information for this category must be
grouped together in close proximity and located on the statement’s first page.
(3) Past payment breakdown.22 This category must include: (i) total of all payments
received since the last statement, including a breakdown showing the amount, if any, that was
applied to principal, interest, escrow, fees and charges, and the amount, if any, sent to any
suspense or unapplied funds account and (ii) total of all payments received since the beginning
of the current calendar year, including a breakdown of that total showing the amount, if any, that
was applied to principal, interest, escrow, fees and charges, and the amount, if any, currently
held in any suspense or unapplied funds account. The information for this category must be
grouped together in close proximity and located on the statement’s first page.
16
These sample forms are reprinted in Appx. C.3, infra.
Reg. Z, 12 C.F.R. § 1026.41(c) (effective Jan. 10, 2014).
18
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-1 (effective Jan. 10, 2014).
19
Reg. Z, 12 C.F.R. § 1026.41(d) (effective Jan. 10, 2014). See Official Interpretation, Supplement 1 to Part 1026, ¶
41(d)-1 (effective Jan. 10, 2014; “Paragraph (d) requires several disclosures to be provided in close proximity to one
another. To meet this requirement, the items to be provided in close proximity must be grouped together, and set off
from the other groupings of items. This could be accomplished in a variety of ways, for example, by presenting the
information in boxes, or by arranging the items on the document and including spacing between the groupings.
Items in close proximity may not have any intervening text between them.”).
20
Reg. Z, 12 C.F.R. § 1026.41(d)(1) (effective Jan. 10, 2014).
21
Reg. Z, 12 C.F.R. § 1026.41(d)(2) (effective Jan. 10, 2014).
22
Reg. Z, 12 C.F.R. § 1026.41(d) (effective Jan. 10, 2014).
17
126
(4) Transaction activity. This category must include a list of all the transaction activity
that occurred since the last statement. Transaction activity means any activity that causes a
credit or debit to the amount currently due. This list must include the date of the transaction, a
brief description of the transaction, and the amount of the transaction for each activity on the list.
Examples of the transactions that must be disclosed would include payments received and
applied, payments received and held in a suspense account, the imposition of any fees such as
late fees, and the imposition of any charges such as private mortgage insurance.23 The
description of any late fee charges includes the date and amount of the late fee, and the fact that a
late fee was imposed.24 If a partial payment is sent to a suspense or unapplied funds
account, this fact must be disclosed in the transaction description along with the date and amount
of the payment.25
(5) Partial payment information.26 If a statement reflects a partial payment that was
placed in a suspense or unapplied funds account, the statement must provide information
explaining what must be done for the funds to be applied. The information for this category
must be on the front page of the statement or, alternatively, may be included on a separate page
enclosed with the periodic statement or in a separate letter.
(6) Contact information.27 The servicer must provide a toll-free telephone number and,
if applicable, an electronic mailing address that may be used by the consumer to obtain
information about the consumer’s account. The information for this category must be located on
the front page of the statement.
(7) Account information.28 This category must include: (i) amount of the outstanding
principal balance; (ii) current interest rate in effect for the mortgage loan; (iii) date after which
the interest rate may next change; (iv) existence of any prepayment penalty that may be
charged;29 (v) website to access either the CFPB list or the HUD list of homeownership
counselors and counseling organizations and the HUD toll-free telephone number to obtain
contact information for homeownership counselors or counseling organizations.
(8) Delinquency information.30 If the consumer is more than 45 days delinquent, the
statement must include: (i) date on which the consumer became delinquent; (ii) notification of
possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not
cured; (iii) account history showing, for the previous six months or the period since the last time
the account was current, whichever is shorter, the amount remaining past due from each billing
cycle or, if any such payment was fully paid, the date on which it was credited as fully paid; (iv)
notice indicating any loss mitigation program to which the consumer has agreed, if applicable;
(v) notice of whether the servicer has made the first notice or filing required by applicable law
for any judicial or non-judicial foreclosure process, if applicable; (vi) total payment amount
23
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-1 (effective Jan. 10, 2014).
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-2 (effective Jan. 10, 2014).
25
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-3 (effective Jan. 10, 2014).
26
Reg. Z, 12 C.F.R. § 1026.41(d)(4) (effective Jan. 10, 2014).
27
Reg. Z, 12 C.F.R. § 1026.41(d)(6) (effective Jan. 10, 2014).
28
Reg. Z, 12 C.F.R. § 1026.41(d)(7) (effective Jan. 10, 2014).
29
Prepayment penalty is defined in 12 C.F.R. § 1026.32(b)(6)(i).
30
Reg. Z, 12 C.F.R. § 1026.41(d)(8) (effective Jan. 10, 2014).
24
127
needed to bring the account current; and (vii) reference to the homeownership counselor
information disclosed in the above account information category. Information in this category
must be grouped together in close proximity and located on the first page of the statement or,
alternatively, on a separate page enclosed with the periodic statement or in a separate letter.
Coupon Book Exemption
The CFPB was compelled to include some form of exemption for creditors, assignees,
and servicers that provide coupon books to consumers, because the Dodd-Frank Act amendment
to TILA explicitly includes this exemption.31 However, to qualify for the exemption, the
statutory language requires the servicer to provide a coupon book that includes “substantially the
same information” required the statute.32 The Regulation X provision that implements the
exemption provides that the periodic statement requirement does not apply to fixed-rate loans if
the servicer:
•
provides the consumer with a coupon book that includes on each coupon in the book the
amount due information required by section 1026.41(d)(1);
•
provides the consumer with a coupon book that includes anywhere in the coupon book:
(i) the account information listed in section 1026.41(d)(7);33 (ii) the contact information
for the servicer required by section 1026.41(d)(6); and (iii) information on how the
consumer can obtain the explanation of amount due, past payment breakdown,
transaction activity and partial payment categories of information required by section
1026.41(d)(2) though (5);34
•
makes available upon request to the consumer by telephone, in writing, in person, or
electronically if the consumer consents, the explanation of amount due, past payment
breakdown, transaction activity and partial payment categories of information required by
section 1026.41(d)(2) though (5); and
•
provides the consumer the delinquency information required by section 1026.41(d)(8) in
writing, for any billing cycle during which the consumer is more than forty-five days
delinquent.35
Importantly, the CFPB did not draft the exemption so broadly as to exclude the additional
information provided to borrowers who are having payment problems. If the coupon book
exclusion otherwise applies, but the borrower is more than forty-five days delinquent, the
31
15 U.S.C. § 1638(f)(3).
Id.
33
Section 1026.41(d)(7)(i) requires the disclosure of the outstanding principal balance. If the servicer makes use of a
coupon book, it need only disclose the principal balance at the beginning of the time period covered by the coupon
book. See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(3)-4 (effective Jan. 10, 2014).
34
This information need not be provided on each coupon, but should be provided somewhere in the coupon book,
such as on or inside the front or back cover, or on filler pages in the coupon book. See Official Interpretation,
Supplement 1 to Part 1026, ¶ 41(e)(3)-3 (effective Jan. 10, 2014).
35
Reg. Z, 12 C.F.R. § 1026.41(e)(3) (effective Jan. 10, 2014).
32
128
servicer must provide the required delinquency information separately in writing, including an
account history for the delinquency period.
The commentary provides a description of a coupon book for purposes of the
exemption.36 A coupon book is a booklet provided to the consumer with a page for each billing
cycle during a set period of time, typically a one year period. The pages are designed to be torn
off and returned to the servicer with a payment. Additional information about the loan is often
included on or inside the front or back cover, or on filler pages in the coupon book.
Exemptions from Coverage
General. Servicers are not required to provide periodic statements to borrowers with
reverse mortgages,37 and timeshare plans.38 The regulation applies only to closed-end mortgage
loans, so open-end home loans such as HELOCs are exempted from coverage of the regulation.39
In addition, mortgage loans that are serviced by small servicers are exempt from the
requirements of the periodic statement regulation.40 Importantly there is no exemption for a
borrower in default.
Bankruptcy Exemption. In addition, no blanket exemption was initially provided for
borrowers in bankruptcy. Industry commenters suggested during the rulemaking proceeding that
the periodic statement rule should not apply to borrowers in bankruptcy because accounting
issues related to the treatment of prepetition arrearages were problematic. The CFPB’s response
was practical--complexity alone does not justify a complete exemption, but may warrant certain
adjustments. In fact, it is the “complexities” of the bankruptcy scenario that “necessitate” the
periodic statement information be provided to consumers.41 Applying a conflict analysis similar
to that set out in Randolph v. IMBS, Inc.,42 the CFPB noted that while certain laws such as the
Bankruptcy Code and the Fair Debt Collection Practices Act may prevent the collection of a
debt, these laws do not prevent a servicer from sending a periodic statement that is tailored to the
particular circumstances of the bankruptcy case. The final rule allows servicers to make changes
to the statement as they believe are necessary when a borrower is in bankruptcy, so as to reflect
the payment obligations of the debtor in the bankruptcy proceeding. The CFPB even provided a
sample message servicers may add to the statement to avoid conflict with the automatic stay and
discharge injunction.43
36
See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(3)-2 (effective Jan. 10, 2014).
Reg. Z, 12 C.F.R. § 1026.41(e)(1) (effective Jan. 10, 2014). The definition of a reverse mortgage is provided at
12 C.F.R. § 1026.33(a).
38
Reg. Z, 12 C.F.R. § 1026.41(e)(2) (effective Jan. 10, 2014).
39
Reg. Z, 12 C.F.R. § 1026.41(a) (effective Jan. 10, 2014).
40
Reg. Z, 12 C.F.R. § 1026.41(e)(4) (effective Jan. 10, 2014). The definition of small servicer is discussed below.
41
See Section-by-Section Analysis, § 1026.41(d)(2), 78 Fed. Reg. 10,966 (Feb. 14, 2013).
42
368 F.3d 726 (7th Cir. 2004).
43
See Section-by-Section Analysis, § 1026.41(d)(2), 78 Fed. Reg. 10,966, note 125 (Feb. 14, 2013) (“For example,
servicers may include a statement such as: ‘To the extent your original obligation was discharged, or is subject to an
automatic stay of bankruptcy under Title 11 of the United States Code, this statement is for compliance and/or
informational purposes only and does not constitute an attempt to collect a debt or to impose personal liability for
such obligation. However, Creditor retains rights under its security instrument, including the right to foreclose its
lien.’ ”).
37
129
However, after the final rule was published and without using the advance notice and
comment procedure, the CFPB issued an “Interim Final Rule” that granted a bankruptcy
exemption that applies to the periodic statement requirements.44 The CFPB has indicated that the
bankruptcy exemption is still under consideration and that some portions of it may be revised or
repealed when a final exemption rule is issued.
Section 1026.41(e)(5) provides that a servicer is exempt from the periodic statement
requirements for a mortgage loan while the borrower is a debtor in a bankruptcy case.45 The
CFPB’s Official Interpretations for this section provide that the exemption applies for any
portion of the mortgage debt that is discharged in bankruptcy.46 This fails to recognize that many
consumers file chapter 7 for non-mortgage related reasons and continue to maintain payments on
the mortgage after receiving a discharge. These consumers typically do not enter into a
reaffirmation agreement with the mortgage holder because there is an exception to the discharge
injunction under section 524(j) of the Bankruptcy Code that permits the mortgage holder to
accept payments and service the loan in the ordinary course.47 In addition, all of the government
sponsored loan modification programs require that a borrower who has received a chapter 7
discharge and not reaffirmed the mortgage debt must still be considered for loss mitigation
options.48 Thus, the CFPB’s commentary is inconsistent with the policies of these loss
mitigation programs and the Bankruptcy Code, and hopefully will be reconsidered by the CFPB.
In addition, the CFPB’s Official Interpretations provide that if there are joint obligors on
a mortgage, the exemption applies if any of the borrowers is in bankruptcy. An example is given
of a husband and wife who jointly own a home, stating that if “the husband files for bankruptcy,
the servicer is exempt from providing periodic statements to both the husband and the wife.”49 If
the husband in this example filed a chapter 7 bankruptcy case, the automatic stay in his case does
not apply to his spouse or any other joint obligors as there is no co-obligor stay in chapter 7. The
commentary would appear to prevent the wife in the example provided by the Bureau from
receiving information about loss mitigation options even if the husband filed a chapter 7 case
years after the couple were separated or divorced and the husband’s participation is not required
to complete the loss mitigation application.
Small Servicer Exemption. The CFPB elected to exempt “small servicers” from several
of the requirements imposed on servicers by the 2013 TILA and RESPA Servicing Rules. The
definition of small servicer was placed in the Regulation Z provision that covers the periodic
statement requirement, and that definition is referenced in the other applicable regulations. A
small servicer, as defined by Regulation Z section 1026.41(e)(4), is a servicer that “services
5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or
assignee.”50 The small servicer definition also includes “Housing Finance Agencies, as defined
44
See 78 Fed. Reg. 62,993 (Oct. 23, 2013).
12 C.F.R. § 1026.41(e)(5) (effective Jan. 10, 2014).
46
See Official Interpretations, Supplement 1 to Part 1026, ¶ 41(e)(5) - 2(ii) (effective Jan. 10, 2014).
47
11 U.S.C. § 524(j).
48
See Ch. 2, supra.
49
See Official Interpretations, Supplement 1 to Part 1026, ¶ 41(e)(5) - 3 (effective Jan. 10, 2014).
50
Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014).
45
130
in 24 C.F.R. § 266.5,” without regard to the number of mortgage loans serviced by such
agencies.51
The following mortgage loans are not counted when determining whether a small servicer
services 5000 or fewer mortgage loans:
•
•
•
Mortgage loans voluntarily serviced by the servicer for a creditor or assignee that is not
an affiliate of the servicer and for which the servicer does not receive any compensation
or fees;
Reverse mortgage transactions; and
Mortgage loans secured by consumers' interests in timeshare plans.52
The commentary to Regulation Z provides some explanation as to how the 5000
mortgage cap should be applied. If a servicer services any mortgage loans for which it or an
affiliate is not the creditor or assignee, it is not a small servicer. For example, a servicer that
owns mortgage servicing rights for mortgage loans that are not owned by the servicer or an
affiliate, or for which the servicer or an affiliate was not the entity to whom the obligations were
initially payable, is not a small servicer.53
Any mortgage loans obtained by a servicer or an affiliate as part of a merger or
acquisition, or as part of the acquisition of all assets or liabilities of a branch office of a creditor,
are considered mortgage loans for which the servicer or an affiliate is the creditor to which the
mortgage loan is initially payable.54 A branch office is either an office of a depository institution
that is approved as a branch by a Federal or State supervisory agency or an office of a nondepository for-profit mortgage lending institution that takes mortgage loan applications from the
public.55
Both a master servicer and a subservicer56 must qualify as a small servicer to gain the
exemption.57 For example, if a master servicer satisfies the definition of a small servicer, but
retains a subservicer that does not, the subservicer is not a small servicer for the purposes of the
exemption and must comply with the requirements of a servicer.
In determining whether a small servicer services 5000 or fewer mortgage loans, the test is
based on the number of mortgage loans serviced by the servicer and any affiliates as of
January 1 for the remainder of the calendar year. A servicer that “crosses the threshold will have
six months after crossing the threshold or until the next January 1, whichever is later, to comply
with any requirements for which a servicer is no longer exempt as a small servicer.”
51
Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014).
Reg. Z, 12 C.F.R. § 1026.41(e)(4)(iii) (effective Jan. 10, 2014).
53
Official Bureau Interpretation, ¶ 41(e)(4)(ii)-1 (effective Jan. 10, 2014).
54
Official Bureau Interpretation, ¶ 41(e)(4)(iii)-1 (effective Jan. 10, 2014).
55
Id.
56
These terms are defined in 12 C.F.R. § 1024.31.
57
Official Bureau Interpretation, ¶ 41(e)(4)(ii)-2 (effective Jan. 10, 2014).
52
131
The Commentary provides some examples of when a servicer “crosses the threshold” and
its qualification as a small servicer changes over time:
58
•
A servicer that begins servicing more than 5000 mortgage loans on October 1, and
services more than 5000 mortgage loans as of January 1 of the following year, would no
longer be considered a small servicer on April 1 of that following year.
•
A servicer that begins servicing more than 5000 mortgage loans on February 1, and
services more than 5000 mortgage loans as of January 1 of the following year, would no
longer be considered a small servicer on January 1 of that following year.
•
A servicer that begins servicing more than 5000 mortgage loans on February 1, but
services less than 5000 mortgage loans as of January 1 of the following year, is
considered a small servicer for that following year.58
Official Bureau Interpretation, ¶ 41(e)(4)(iii)-2 (effective Jan. 10, 2014).
132
Periodic Mortgage Statements
©National Consumer Law Center 2014
Periodic Statements
• Servicer must send statement for each billing cycle with
the following categories of information:
–
–
–
–
–
–
–
amount due for the billing period
explanation of amount due including fees imposed
past payment breakdown
transaction activity
partial payment information
contact and account information, and
delinquency information, if applicable
• Disclosure required of payments servicer decides to hold
in suspense account rather than apply to account
133
Periodic Statements When Homeowner Is >
45 Days Late
Date consumer became delinquent;
Notification of possible risks, such as foreclosure, and expenses, if
delinquency is not cured;
Account history for previous six months or since last time account was
current, showing the amount remaining past due from each billing cycle;
Notice of any loss mitigation program to which the consumer has agreed;
Notice of whether the servicer has initiated foreclosure by making the first
notice or filing required by state law;
Total payment amount needed to bring the account current; and
Either the CFPB list or the HUD list of homeownership counseling
organizations and the HUD toll-free telephone number
Exemptions from Periodic Statements
Fixed rate mortgages if substantially similar information provided on
coupon book
• Must still provide delinquency information, separately in writing, including an account
history for the delinquency period
Small servicers
• Service 5,000 or fewer mortgage loans of which servicer or affiliate is creditor or
assignee
State housing finance agencies
Reverse mortgages and timeshare plans
HELOCs
134
How to Count 5000 Mortgage
“Small Servicer” Cap?
• Test is based on number of mortgage loans
serviced by the servicer and any affiliates as
of January 1 for remainder of calendar year
– Servicer has six months after “crossing the
threshold” or until the next January 1, whichever
is later, to comply with any requirements
• If servicer services any mortgage loans for
which it or an affiliate is not the creditor or
assignee, it is not a small servicer
• Both a master servicer and a subservicer
must qualify as a small servicer
Bankruptcy & Default
Bankruptcy
exemption
• Statements not required for any borrower
in bankruptcy or for any portion of debt
discharged in bankruptcy
• For joint borrowers, exemption applies if
any of the borrowers are in bankruptcy
No default
exemption
• Regulation contemplates that statement
provided even if borrower more than 45
days delinquent
135
Damages?
• Probably not available under TILA
because in § 1638(f)
• Can you use a RESPA tool to dispute?
• Consumer fraud?
• Negligence?
136
RESPA Rule on Prompt Crediting of Payments
Mortgage servicers are typically responsible for collecting and processing mortgage
payments from borrowers. Servicers’ delays in processing payments can result in unwarranted
late fees and unjustified claims of borrower default. Complaints about slow payment processing
led the Federal Reserve Board in 2008 to promulgate a rule that requires mortgage servicers to
credit payments to consumers’ accounts as of the date of receipt.1 Section 1464 of the DoddFrank Act, enacted in 2010, essentially codified the FRB rule.2 The CFPB has finalized
regulations implementing the prompt crediting provision of the Dodd-Frank Act.3 The CFPB
regulations became effective January 10, 2014.4 Prior to January 10, 2014, the FRB rule was in
effect.
Prompt Crediting Under FRB Rule
Under the FRB rule, a servicer must credit payments to the consumer’s loan account as of
the date of receipt. The rule applies to loans secured by a consumer’s principal dwelling.5 There
are two exceptions to the “same-day” requirement: (1) when a delay in posting does not result in
any charge to the consumer or in the reporting of negative information to a consumer reporting
agency;6 and (2) when a servicer specifies in writing requirements for the consumer to follow in
making payments but accepts a payment that does not conform to these requirements.7 In this
latter case, the servicer must credit the nonconforming payment within five days after receipt.
The date of receipt is the date when the payment (in whatever form) reaches the servicer.8 For
example, payment by check is received when the check reaches the servicer, not when the funds
are collected. Electronic fund transfers, preauthorized payment arrangements, and the like are
received when the servicer receives the transfer.
Payments should be credited based on the legal obligations between the parties to the
transaction, which are determined by applicable state or other law.9 In addition, the servicer may
specify reasonable requirements for making payments in writing. The Official Interpretations
list some examples: setting a cut-off hour for payment to be received; requiring that the payment
be accompanied by the account number or payment coupon; specifying that only checks or
money orders be sent by mail; requiring that payments be in U.S. dollars; specifying that the
consumer use a particular address.10 However, such requirements must not be difficult for most
consumers to follow. The Interpretations mention that a cut-off time of 5:00 p.m. for receipt of a
mailed check is reasonable.11 In the absence of servicer guidelines for making payments,
1
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) [§ 226.36(c)(1)(i)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008). See
National Consumer Law Center, Truth In Lending § 9.4.3.2 (8th ed. 2012 and Supp.).
2
15 U.S.C. § 1639f, as amended by Pub. L. N. 111-203, § 1464, 124 Stat. 1376 (July 21, 2010).
3
See 78 Fed. Reg. 10,902 (Feb. 14, 2013) (effective Jan. 10, 2014).
4
See id. at 10,902.
5
Reg. Z, 12 C.F.R. § 1026.36(c)(1) [§ 226.36(c)(1)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008).
6
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) [§ 226.36(c)(1)(i)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008); Official
Interpretations § 1026.36(c)(1)(i)-1 [§ 226.36(c)(1)(i)-1]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
7
Reg. Z, 12 C.F.R. § 1026.36(c)(2) [§ 226.36(c)(2)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008).
8
Official Interpretations § 1026.36(c)(1)(i)-3 [§ 226.36(c)(1)(i)-3]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
9
Official Interpretations § 1026.36(c)(1)(i)-2 [§ 226.36(c)(1)(i)-2]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
10
Official Interpretations § 1026.36(c)(2)-1 [§ 226.36(c)(2)-1]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
11
Official Interpretations § 1026.36(c)(2)-2 [§ 226.36(c)(2)-2]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
137
payments may be made at any location where the servicer conducts business, at any time during
normal business hours, and by cash, money order, draft, or other similar instrument in a properly
negotiable form, or by electronic fund transfer if so agreed by the consumer and the servicer.12
Prompt Crediting Under Dodd-Frank and RESPA Regulations
The Dodd-Frank Act also mandates that servicers credit periodic payments on consumer
credit transactions secured by a consumer’s principal dwelling as of the date of receipt.13 Like
the FRB rule there is an exception when a delay in crediting the payment does not result in any
charge to the consumer or in the reporting of negative credit information to a consumer reporting
agency.14 Neither the FRB rule nor the Dodd-Frank Act define the term “payment” for purposes
of the prompt crediting rule. The CFPB rule uses the term “periodic payment” and defines it as
the amount necessary to cover principal, interest, and escrow (if applicable) for a given billing
cycle.15 Though servicers may charge and collect fees for late payments, the prompt crediting
rule applies even if the payment does not include a late fee. The rule also applies if the
consumer’s payment does not include other fees or non-escrow payments that the servicer has
advanced on the consumer’s behalf.16
The CFPB rule offers new and specific guidance to servicers on how to deal with partial
payments (i.e., payments less than periodic payments).17 The final rule allows, but does not
require, servicers to place partial payments received into a suspense account, also known as an
unapplied fund account. Suspense accounts, however, may be used only if authorized by the
contract and permitted by state law.18 Funds must be applied from the suspense account when
the amount in suspense in equal to or greater than a periodic payment.19 If the servicer elects to
hold funds in suspense rather than crediting the partial payment or returning it to the consumer,
the servicer must disclose the amount of funds held in suspense on the periodic statement, if such
a statement is required.20
12
Official Interpretations § 1026.36(c)(2)-3 [§ 226.36(c)(2)-3]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).
15 U.S.C. § 1639f(a).
14
Id.
15
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) (effective Jan. 10, 2014). Obligations for force-placed insurance or
delinquent taxes that have been paid through an escrow account are considered part of the periodic payment. See 78
Fed. Reg. 10,902, 10,954 (Feb. 14, 2013). If the mortgage loan has been accelerated, the periodic payment
constitutes at least the total amount owed for all principal and interest. See id. For accelerated loans the CFPB’s
analysis of the rule is unclear as to whether amounts for escrow advances and fees are part of the periodic payment.
16
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) (effective Jan. 10, 2014).
17
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(ii) (effective Jan. 10, 2014).
18
Official Interpretations § 1026.36(c)(1)(ii)-1; 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). The CFPB omitted
language from the proposed rule that would have required periodic payments to be credited to the oldest outstanding
delinquency. The Bureau removed this language after concluding that it may conflict with state law and that the
problem is mitigated through other means. 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013).
19
Reg. Z, 12 C.F.R. § 1026.36(c)(1)(ii)(B) (effective Jan. 10, 2014); Official Interpretations § 1026.36(c)(1)(ii)1(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013).
20
Reg. Z, 12 C.F.R. §§ 1026.36(c)(1)(ii)(A), 1026.41(d)(3)(i), (ii) (effective Jan. 10, 2014); Official Interpretations
§ 1026.36(c)(1)(ii)-1(iii), 1026.41(d)(3)-1; 78 Fed. Reg. 10,902, 11,019-20 (Feb. 14, 2013). See § 9.6.4, infra
(discussion of periodic mortgage statements). Servicers not required to send periodic statements are exempt from
this provision requiring disclosure of the amount of funds held in the suspense account on the periodic statement.
See 78 Fed. Reg. 10,902, 10,955 (Feb. 14, 2013).
13
138
A separate subsection of the Dodd-Frank Act and the CFPB rule address non-conforming
payments.21 Non-conforming payments are payments that have been accepted by the servicer
and are distinguished from partial payments that are placed in suspense, which are considered
not to have been accepted.22 Any non-conforming payment must be credited within five days of
receipt. As with the FRB rule, the servicer may specify reasonable requirements for making
payments in writing.23 Failure to comply with these written payment instructions may result in a
non-conforming payment. What constitutes reasonable requirements remains unchanged from
the FRB rule to the CFPB rule.24
There is no exception to the prompt crediting rules when the borrower is in bankruptcy or
in a trial loan modification.25 There is also no specific exception to the rule for small servicers.26
21
15 U.S.C. § 1639f(b); Reg. Z, 12 C.F.R. § 1026.36(c)(1)(iii) (effective Jan. 10, 2014).
See 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013).
23
Official Interpretations § 1026.36(c)(1)(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013).
24
See § 9.3.5.2, supra (setting forth examples of reasonable requirements).
25
See 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013) (“[w]hile the Bureau understands the requirement that the prepetition and postpetition accounts must be kept separate during a bankruptcy, the Bureau believes that if sufficient
funds accrue in either account to make a periodic payment due, those funds should be applied.”).
26
Small servicers are exempt from some of the CFPB’s mortgage servicing rules. See § 9.1.4.3, supra. Small
servicers are defined as servicers that service 5000 mortgage loans or less and only service mortgage loans the
servicer or an affiliate owns or originated.
Note that small servicers are not required to provide periodic mortgage statements and as a result they are
exempt from the requirement to disclose funds held in suspense pursuant to § 1026.36(c)(1)(ii)(A).
22
139
Duty to Provide Timely Mortgage Payoff Statements
An amendment to the Truth in Lending Act made by the Dodd-Frank Act requires that
accurate payoff statements be provided to consumers.1 Regulations implementing this
amendment issued by the Consumer Financial Protection Bureau (CFPB) are effective on
January 10, 2014. For any loan secured by the consumer’s dwelling, the creditor, assignee or
servicer,2 as applicable, must provide an accurate statement of the total outstanding balance
required to pay the obligation in full if a request is made in writing by the consumer or someone
acting on behalf of the consumer.3 The statement must provide the payoff amount as of a
specified date. With limited exceptions discussed below, the payoff statement must be provided
within a reasonable time, but no later than seven business days after a creditor, assignee or
servicer receives a written request. Payoff statements for high-cost mortgages are treated under a
different timeline and must be provided within five business days of receiving a request for such
statement.4
Broad Coverage of Rule
Coverage of the payoff statement rule is significantly broader than the other 2013 RESPA
and TILA Servicing Rules. The language of the Dodd-Frank Act amendment makes the payoff
statement requirement applicable to all “home loans,” a term not defined by the Act that is
presumably broader than “residential mortgage loans.”5 The final regulation implements the
statutory language by providing that the requirement applies to any consumer credit transaction
secured by a “consumer’s dwelling.”6 Thus, the rule applies even to open-end, home-secured
loans such as HELOCs. By not limiting application to mortgage loans on the consumer’s
principal dwelling, the rule also covers loans secured by vacation homes.
Request by Agent
The written request for a payoff statement may be sent by a person acting on behalf of the
consumer. The Commentary to Regulation Z notes that a person acting on behalf of the
consumer may include the consumer’s representative, such as an attorney, a non-profit consumer
counseling or similar organization, or a creditor with which the consumer is refinancing and
which requires a payoff statement to complete the refinancing.7 However, the Commentary
further indicates that a creditor, assignee or servicer can take “reasonable measures” to verify the
identity of the consumer’s agent or representative and that the seven-day response period does
not begin until a request is received from a “verified party.”8 Thus, if a creditor, assignee or
servicer must verify authorization that a third party is acting on behalf of the consumer, it will
1
15 U.S.C. § 1639g, as amended by Pub. L. No. 111-203, § 1464, 124 Stat. 1376 (July 21, 2010).
“Servicer” has the same meaning as in the regulations promulgated under RESPA. See NCLC Foreclosures, §
9.1.4.1 (4th ed. and 2013 Supp.).
3
12 C.F. R. § 1026.36(c)(3) (effective Jan. 10, 2014).
4
15 U.S.C. § 1639; 78 Fed. Reg. 6966 (Jan. 31, 2013) (effective Jan. 10, 2014).
5
See 15 U.S.C. § 1602(cc)(5), as amended by Dodd-Frank (defining “residential mortgage loan” to exclude openend, home-secured credit).
6
12 C.F. R. § 1026.36(c)(3) (effective Jan. 10, 2014).
7
Official Interpretations, 12 C.F.R. § 1026.36(c)(3)-1.
8
Id. See also 78 Fed. Reg. 10,957 (Feb. 14, 2013).
2
140
have seven business days from when a verified request is received to provide the payoff
statement. A verified request sent by a borrower’s attorney or other representative typically will
include an authorization signed by the borrower.
Comparison with Current Rule
Prior to January 10, 2014, servicers are required to provide payoff statements pursuant to
an amendment to Regulation Z made by the CFPB’s predecessor, the Federal Reserve Board,
that became effective on October 1, 2009. Servicers must provide an accurate statement of the
amount necessary to pay off an account in full after receiving a request from the consumer or the
consumer’s agent.9 Under most circumstances the payoff statement must be provided within five
business days of receipt of the consumer’s request.10 Unlike the CFPB’s final rule, the request
need not be in writing. In addition, the requirement applies only to servicers, whereas the
obligation to comply with the CFPB’s final rule applies the creditor, assignee or servicer of the
loan, as applicable.
Limits on Duty
The Commentary to Regulation Z states that a creditor, assignee or servicer may specify
reasonable requirements that a consumer must follow in making payoff requests.11 For example,
a creditor, assignee or servicer can require that requests be directed to a mailing address, email
address, or fax number specified by the creditor, assignee or servicer, or can impose any other
reasonable requirement or method. If the consumer does not follow these requirements, the
Commentary indicates that a longer timeframe for responding to the request would be
reasonable. This suggests that a request that is not sent to a designated address or does not
follow reasonable requirements, but is otherwise received by the creditor, assignee or servicer, is
nevertheless a valid payoff request that must be complied with, though over a longer time period.
Numerous industry commenters stated that they needed more than seven days to provide
payoff statements for loans in delinquency status, foreclosure, or bankruptcy. The CFPB refused
to create a blanket exemption but agreed that it may not be feasible in some situations for
servicers to prepare the statement within seven days.12 The final rule thus provides that when a
servicer is unable to provide a payoff statement within seven days because a loan is in
bankruptcy or foreclosure, or because the loan is a reverse mortgage or shared appreciation
mortgage, or because of natural disasters or similar circumstances, the payoff statement must be
provided within a reasonable time.13 No definition of “reasonable time” is provided.
9
12 C.F.R. 1026.36(c)(1)(iii); 73 Fed. Reg. 44,522, 44,604 (July 30, 2008). See also National Consumer Law
Center, Truth In Lending § 9.4.3 (8th ed. 2012). The FRB’s rule was issued under its authority to prohibit unfair
and deceptive acts and practices in connection with mortgage loans.
10
Official Interpretations, 12 C.F.R. § 1026.36(c)(1)(iii)-1.
11
Official Interpretations, 12 C.F.R. § 1026.36(c)(3)-2.
12
See 78 Fed. Reg. 10,957 (Feb. 14, 2013).
13
12 C.F.R. § 1026.36(c)(3)(effective Jan. 10, 2014).
141
The final rule also provides that a creditor or assignee that does not currently own the
mortgage or the mortgage servicing rights for the loan is not subject to the requirement to
provide a payoff statement.14
Unlike many other servicing requirements, the CFPB did not include in the final rule an
exemption for community banks, credit unions, and small servicers. The CFPB noted that small
servicers have not had difficulty in complying with the FRB’s existing rule, and no compelling
justification was put forth during the rulemaking proceeding to warrant an exclusion.15
Interaction with RESPA--Right to Dispute Accuracy of Payoff Statement
As of January 10, 2014, the failure to provide an accurate payoff statement based on a
TILA request is subject to error resolution under RESPA. If the borrower sends a notice of error
disputing the accuracy of a payoff statement, the servicer must respond within seven business
days, rather than the longer thirty day response period for other error notices.16
Servicers, however, need not treat a borrower’s request for payoff balances as a request for
information under RESPA.17 If a servicer receives a request for information seeking a payoff
statement that is labeled as a RESPA request, the servicer may ignore the requirements under
Regulation X and instead handle the request under the Regulation Z requirements. One effect of
this treatment is that there is no prohibition under federal law for charging the borrower a fee to
provide a payoff statement. If the CFPB had permitted a RESPA request for information to be
used to obtain a payoff statement, the rule prohibiting the charging of fees for responding to
information requests would have applied.18
No Preemption of State Law
Many states have enacted laws dealing with payoff statements. Summaries of these state
laws are provided in NCLC’s Foreclosures, Appendix D.2. In issuing the final rule, the CFPB
acknowledged that many of these state laws have longer or shorter timelines for compliance,
allowing from three to twenty-one days.19 Consistent with general preemption guidelines in
which a conflict analysis is applied, the CFPB concluded that there was no need for the final rule
to preempt these state laws. Regulation Z sets the maximum time period for compliance, but
does not prevent creditors, assignees, or servicers from complying with a state law that would
require a payoff statement to be provided sooner than seven days. These entities can comply
with both the state law and Regulation Z deadlines by providing the payoff statement within the
shorter of the two deadlines. State laws that allow a longer time period also do not prohibit the
creditor, assignee, or servicer from providing a payoff statement within seven business days, and
so there is no direct conflict between state law and the Regulation Z requirement and the shorter
seven business day Regulation Z requirement would control.
14
Id.
See 78 Fed. Reg. 10,958 (Feb. 14, 2013).
16
12 C.F.R. 1024.35(e)(3)(a) (effective Jan. 10, 2014). For a discussion of error notices under RESPA, see NCLC
Foreclosures, § 9.2.2 (4th ed. and 2013 Supp.).
17
See 12 C.F.R. 1024.36(a) (effective Jan. 10, 2014). Prior to the effective date of these rules, a payoff statement
may still be obtained using a qualified written request under RESPA.
18
See 12 C.F. R. § 1024.36(g) (effective Jan. 10, 2014); NCLC Foreclosures, § 9.2.2.7 (4th ed. and 2013 Supp.).
19
See 78 Fed. Reg. 10,957 (Feb. 14, 2013).
15
142
Although not explicitly addressed by the CFPB, Regulation Z should not preempt the
remedy provisions of any applicable state payoff statement law, and the remedies under TILA
should not be viewed as exclusive. Thus, if a creditor, assignee, or servicer is required under
state law to provide a payoff statement in less than seven business days, and there has been a
violation of that state law, the consumer should be able to pursue any applicable remedies
available under the state payoff statement statute. If in this example the creditor, assignee, or
servicer also fails to provide the statement within seven business days after receipt of the request,
then the TILA private remedies additionally should be available to the consumer, including
actual and statutory damages, and attorney fees.20
20
15 U.S.C. § 1640(a). See also NCLC Foreclosures, § 9.6.6 (4th ed. and 2013 Supp.).
143
Interest Rate and Payment Change Notices
For most adjustable rate mortgages, consumers must be notified about upcoming interest rate
changes that will affect their payments. Advance notice of interest rate and payment changes permits
borrowers to adjust their finances to account for any increase in payment, gives borrowers the opportunity
to explore other options (e.g., refinancing, sale), and allows borrowers to work with their servicer if
expected increases are unaffordable. Regulations related to interest rate change notice have existed for
more than twenty-five years.1 In 2010, the Dodd-Frank Act added new statutory requirements for hybrid
adjustable rate mortgages,2 and recently the CFPB significantly amended the interest rate change notice
provisions in Regulation Z. The CFPB regulations became effective January 10, 2014.3 A more detailed
discussion of the TILA payment change notice requirements is provided in § 5.13.3 of National
Consumer Law Center, Truth In Lending (8th ed. and Supp.).
In general, interest rate and payment change notices are required for adjustable rate, closed-end
consumer transactions secured by the consumer’s principal dwelling.4 Notices must be sent to consumers
even if they are in default and regardless of whether they are debtors in a bankruptcy case. Small
servicers5 are not exempt from the change notice requirements.6 Required disclosures under both the old
and new rules include the current interest rate, the new interest rate, and the new payment.7 If the new
payment is insufficient to fully amortize the loan balance, the disclosure must also state the payment
amount that would fully amortize the loan balance. Regulation Z requires additional disclosures related to
how the new interest rate and payment are determined, prepayment penalties, interest-only or negatively
amortizing loans and hybrid adjustable rate loans.8 The new rules also make clear that responsibility for
providing the change notices lies with the creditor, the assignee, or the servicer.9
For adjustments occurring before January 10, 2014, the general rule requires notices to be
provided to consumers at least twenty-five, but not more than 120, days before the first payment at the
adjusted level is due.10 The Regulation Z amendment effective January 10, 2014 increases the minimum
advance notice to consumers, thus giving them more time to prepare for any anticipated increases in
payments. Under the amended rule, notices must be provided to consumers at least sixty, but no more
than 120, days before the first payment at the adjusted level is due.11 There are exceptions to these timing
requirements under both the old and new rules.12
1
Reg. Z, § 1026.20(c) [§ 226.20(c)]. See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and
Supp.).
2
Pub. L. No. 111-203, § 1418 (July 21, 2010), codified at 15 U.S.C. § 1638a. See National Consumer Law Center,
Truth In Lending § 5.13.3 (8th ed. and Supp.).
3
See 78 Fed. Reg. 10,902 (Feb. 14, 2013) (effective Jan. 10, 2014).
4
Reg. Z, 12 C.F.R. § 1026.20(c). There are exceptions to the general rule under both the old rule and the new CFPB
rule. See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.).
5
Small servicers are exempt from some of the CFPB’s mortgage servicing rules. See § 9.1.4.3, supra. Small
servicers are defined as servicers that service 5000 mortgage loans or less and only service mortgage loans the
servicer or an affiliate owns or originated.
6
78 Fed. Reg. 10,902, 11,009 (Feb. 14, 2013).
7
See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.).
8
Reg. Z, 12 C.F.R. §§ 1026.20(c)(2), 1026.20(d) (effective Jan. 10, 2014).
9
Reg. Z, 12 C.F.R. § 1026.20(c) (effective Jan. 10, 2014).
10
Reg. Z, § 1026.20(c) [§ 226.20(c)].
11
Reg. Z, 12 C.F.R. § 1026.20(c)(2) (effective Jan. 10, 2014).
12
See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.).
144
Mortgage Transfer of Ownership Notices
When defending against a foreclosure or challenging servicing abuses it is important to
know not only who the servicer is, but also who is the current owner of the mortgage. The
identity of the current mortgage owner, however, may not always be apparent. Many mortgages
today are assigned by the loan originator to a purchaser on the secondary market. Very often the
mortgage owner at the time of foreclosure (or even shortly after the loan closing) is not the bank
or mortgage company that originated the loan. When mortgages are pooled and sold through the
securitization process, the ownership of the loan is typically transferred to a trust. A trustee,
usually a commercial bank, acts on behalf of the trust and investors.
The Truth In Lending Act requires that borrowers be notified whenever their mortgage
loan is sold, transferred, or assigned.1 The new owner or assignee must notify the borrower in
writing, within thirty days after the loan is sold or assigned, of its identity, address, telephone
number, and the date of transfer and location where the transfer is recorded.2 In addition, the
new owner must disclose how the borrower may reach an agent or party with authority to act on
behalf of the new owner, and any other relevant information.3
The Act applies to any consumer credit transaction that is secured by the principal
dwelling of a consumer.4 This includes loans secured by manufactured homes that are a
consumer’s principal dwelling. The TIL Official Interpretations make clear that closed-end
mortgage loans as well as open-end mortgage loans, such as home equity lines of credit, are
covered by the rule.5 The disclosure requirements do not apply to mortgage loans on investment
property and those not primarily for personal, family, or household purposes. The Final Rule
provides that if multiple covered persons jointly acquire the loan, a single disclosure must be
provided on behalf of all covered persons, not separate disclosures.6
The law became effective upon enactment, May 20, 2009.7 Failure to comply with these
requirements gives rise to a private right of action, which includes recovery of actual damages,
statutory damages, costs, and attorney fees.8 Borrowers may be entitled to statutory damages of
up to $4000 each time the rule is not complied with.
1
15 U.S.C. §§ 1641(g)(1)(A)/-/(E). See also Kishimoto v. H&R Block Mortgage Corp., Inc., 2011 WL 1135158 (D.
Haw. Mar. 24, 2011); Thepvongsa v. Reg’l Tr. Servs. Corp., 2011 WL 307364 (W.D. Wash. Jan. 26, 2011).
2
Borrower’s knowledge of the transfer does not abrogate the new owner’s duty to send the required notice. See
Richardson v. Rosenberg & Assoc., L.L.C., 2014 WL 823655 (D. Md. Feb. 27, 2014).
3
15 U.S.C. § 1641(g)(1)(C), (E).
4
15 U.S.C. § 1641(g)(2); Reg. Z, 12 C.F.R. § 1026.39(a)(2). See also Zirogiannis v. Dreambuilder Invs., L.L.C.,
782 F. Supp. 2d 14 (E.D.N.Y 2011) (dismissing, with leave to amend, complaint for failure to allege that the
property was the consumer’s principal dwelling, within the definition of TILA).
5
12 C.F.R. pt. 1026, supp. I, § 1026.39(a)(1) cmt. 2 (hereinafter cited as Official Interpretations § 1026.39(a)(1)-2).
6
Reg. Z § 1026.39(b)(5); Official Interpretations § 1026.39(d)(1)(i)-1.
7
Court have repeatedly held that application of 1641(g) is not retroactive, therefore it applies only to transfers after
May 20, 2009. See Jara v. Aurora Loan Serv., 852 F. Supp. 2d 1204 (N.D. Cal. 2012); Bradford v. HSBC Mortgage
Corp., 829 F. Supp. 2d 340 (E.D. Va. 2011).
8
15 U.S.C. § 1640(a); 11.2.5.6, infra. See generally National Consumer Law Center, Truth in Lending, § 11.6.9.3
(7th ed. 2010 and Supp.) (discussing assignee liability for failing to comply with these provisions).
145
To implement the statutory requirements for mortgage transfer notices, the Federal
Reserve Board issued an interim final rule on November 20, 2009, which initially became
effective on an optional basis on that date.9 Compliance with the interim final rule became
mandatory on January 19, 2010. A Final Rule was then issued, which became effective on
January 1, 2011.10
Persons Subject to the Notice Requirement
TILA applies to persons to whom an obligation is initially made payable and that
regularly engage in extending credit. However, section 1641(g)’s new transfer notice
requirement is not limited to loan originators and applies to persons that acquire ownership of an
existing debt. Thus, the rule uses the term “covered person” rather than “creditor” to describe
persons subject to its requirements.11
A “covered person” is an owner of the mortgage loan who has acquired legal title to the
debt obligation.12 The person must also acquire more than one mortgage loan in any twelvemonth period.13 The Official Interpretations clarify that a party may become a covered person by
acquiring a partial interest in a mortgage loan.14 All persons that jointly acquire a mortgage loan
are subject to the disclosure requirement.15 Further, an acquiring party that is a separate legal
entity from the seller or transferor of the mortgage must provide disclosures even if the parties
are affiliates.16
Industry groups had urged the Board to reverse its position taken in the interim rule that
acquisitions through merger were subject to the rule. The Board concluded that an exemption for
acquisition transfers was inconsistent with the purpose of the statute. The Final Rule therefore
applies even if ownership is transferred to a different legal entity based on a merger, acquisition,
or reorganization.17 The Board also rejected an industry proposal for a longer compliance period
for transfer by mergers.
It is the acquisition of a legal interest in the loan note that triggers the obligation to
comply, regardless of whether the security interest has been assigned or who the assignee of the
mortgage or mortgagee may be.18 Defendants in several cases have argued that the notice
9
See 74 Fed. Reg. 60,143 (Nov. 20, 2009).
See 75 Fed. Reg. 58,489 (Sept. 24, 2010).
11
See Valrie v. NationStar Mortg., L.L.C., 2012 WL 369455 (S.D. Ala. Jan. 18, 2012) (applying regulation and
rejecting defendant’s argument that TILA definition of “creditor” should be used), adopted by, 2012 WL 369288
(S.D. Ala. Feb. 3, 2012). But see Henson v. Bank of America, 935 F. Supp. 2d 1128 (D. Colo. 2013) (finding no
liability under 1641(g) where servicer did not originate the loan despite allegation that servicer was also assignee).
12
Reg. Z, 12 C.F.R. § 1026.39(a)(1). In states that use deeds of trust, it is important to distinguish between the
trustee named in the deed of trust and the trustee of the securitization trust (usually a large bank). The latter is
usually the owner of the debt obligation and qualifies as a “covered person.” By contrast, the trustee named in the
deed of trust is typically a third party with no interest in the debt obligation.
13
Id.
14
Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(i).
15
Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(ii).
16
Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(iii).
17
Official Interpretations to Reg. Z § 1026.39(a)(1)-4.
18
See Giles v. Wells Fargo Bank, 519 Fed. Appx. 576 (11th Cir. 2013) (per curium) (section 1641(g) applies upon
transfer of note not security instrument).
10
146
obligation had not been triggered because only the mortgage had been assigned. Courts in these
cases have generally refused to dismiss the cases at the pleading stage where it is not clear
whether some interest in the note may also have been transferred.19
By specifying that legal title must be acquired, the rule does not apply to a person who
acquires only a beneficial interest or security interest in the loan.20 For example, if the owner of a
mortgage loan uses the loan as security to obtain financing, the lender providing the financing is
not a “covered person” under the rule. It is not clear whether the rule will permit evasion of the
statutory requirement when there have been transfers of the debt obligation, but legal title is
purportedly retained by the Mortgage Electronic Registration System (MERS).21 However, as a
nominee only, MERS generally claims to hold title to the mortgage, but not the note.22 Transfers
of the note’s ownership within the MERS system, as opposed to simply the beneficial interest in
the security instrument, should be subject to the rule.23
A party that assumes credit risk without acquiring legal title to loans is not covered by the
rule. Thus, an investor that acquires mortgage-backed securities, pass-through certificates, or
participation interests and does not directly acquire legal title in the underlying mortgage loans is
not covered. This was apparently intended to exempt entities such as Ginnie Mae when it serves
as a guarantor of securities and obtains equitable title to loans. However, if the issuer of the
securities defaults and Ginnie Mae then acquires legal title to the loans, Ginnie Mae would be
required to comply with the rule.
24
19
See, e.g., Bernardi v. Deutsche Bank Nat’l Trust Co., 2013 WL 163285 (N.D. Cal. Jan. 15, 2013) (declining to
dismiss claim because of open question as to whether assignment of deed of trust can effect transfer in ownership of
loan). Cf. Connell v. CitiMortgage, Inc., 2012 WL 5511087 (S.D. Ala. Nov. 13, 2012) (transfer of debt obligation,
not assignment of mortgage triggers § 1641(g) obligation; MERS assignment purporting to convey “note and
indebtedness secured by the Mortgage” did not trigger obligation where assignor (MERS) had no interest in debt to
assign); Stennett v. Citimortgage, Inc., 2012 WL 1003485 (S.D. Fla. Feb. 29, 2012); Foley v. Wells Fargo Bank,
849 F. Supp. 2d (S.D. Fla. 2012); Valrie v. NationStar Mortg., L.L.C., 2012 WL 369455 (S.D. Ala. Jan. 18, 2012),
adopted by, 2012 WL 369288 (S.D. Ala. Feb. 3, 2012); Squires v. BAC Home Loans Servicing, L.P., 2011 WL
5966948 (S.D. Ala. Nov. 29, 2011) (allegation in complaint that “beneficial interest in the Plaintiffs’ mortgage and
note was assigned to [defendant]” was sufficient at 12(b)(6) stage); In re Ahmadi, 467 B.R. 782 (Bankr. M.D. Pa.
2012) (refusing to dismiss claim based on defendant’s claim that it became owner of loan before effective date of §
1641(g) amendment where assignment of mortgage was dated after effective date). Cf. Marzan v. Bank of New
York Mellon, 2011 WL 2357658 (D. Haw. June 9, 2011) (expressing confusion over conflict between recorded
assignment of mortgage and mortgage loan transfer disclosure notice, which noted transfer of “mortgage loan” more
than seven months after recorded assignment).
20
Official Interpretations to Reg. Z § 1026.39(a)(1)-2. See McCray v. Federal Home Loan Mortgage Corp., 2014
WL 293535 (D. Md. Jan 24, 2014) (transfer of beneficial interest in loan from MERS does not trigger obligations
under § 1641(g)).
21
See, e.g., Sakala v. BAC Home Loans Serv., L.P., 2011 WL 719482 n.8 (D. Haw. Feb. 22, 2011) (declining to
consider MERS and BAC’s argument that the recorded assignment of mortgage “did not transfer any ownership
interest in the underlying debt” and thus there was no requirement to issue a § 1641(g) notice). See also § 5.9, supra
(information about MERS).
22
Mortgage Elec. Registration Sys., Inc. v. Estrella, 390 F.3d 522, 524/-/525 (7th Cir. 2004).
23
The Board did not address this issue in the final rule.
24
Official Interpretations to Reg. Z § 1026.39(a)(1)-3(i).
147
The rule also provides an exception for mortgage servicers in certain situations,
consistent with the TILA assignee liability provision in 15 U.S.C. § 1641(f)(2).25 If the servicer
holds legal title to the loan or the obligation is assigned to the servicer “solely for the
administrative convenience of the servicer in servicing the obligation,” the servicer is not a
“covered person” under the rule.26 This servicer exemption should not apply to transfers to
MERS, however, since MERS is not a servicer and claims no rights to any payments made on
the mortgage loans or to any servicing rights related to mortgage loans.27 Servicers remain
obligated, however, to respond to borrower requests under section 1641(f)(2) for the name,
address, and telephone number of the loan owner.
An exception to the disclosure requirement is also provided for temporary holders of
mortgage loans. If a covered person sells or transfers legal title to the mortgage loan on or
before the thirtieth calendar day after the covered person acquired the mortgage loan, the covered
person is not required to provide the disclosure.28 The transferee in that situation who
subsequently becomes a covered person would be required to give the disclosure if the loan is
not transferred again within thirty days. The Commentary clarifies that if a covered person
transfers only a partial interest within the thirty-day period after it acquires a mortgage loan, it
must still comply with the disclosure requirements so long as it retains a partial interest in the
loan on the thirtieth day.29
The FRB suggests this exception will prevent borrowers from being confused by multiple
disclosures they would receive if the various entities that might briefly hold a mortgage loan
during the securitization process were required to comply. However, the exception makes it
difficult to use § 1641(g) notices to determine the chain of title of a mortgage. Practitioners may
need to investigate intermediate transfers to determine who should receive rescission notices or
whether a proper chain of title leads to the current holder.30
Timing of Disclosure Requirement
Section 1641(g) provides that the disclosures must be given “not later than 30 days after
the date on which the mortgage loan is sold or otherwise transferred or assigned to a third
party.”31 The interim rule had used the “acquisition date” as the date of transfer, which was
deemed to be the date recognized in the books and records of the acquiring person. Due to
Board concerns about compliance based on the different accounting methods used for
25
See Greer v. Ocwen Loan Servicing, L.L.C., 2014 WL 1593355 (W.D. Wash. Apr. 21, 2014) (servicer not liable
for 1641(g) violation where borrower failed to plead facts showing servicer owned the loan).
26
Reg. Z, 12 C.F.R. § 1026.39(a)(1). See Reed v. Chase Home Fin., L.L.C., 723 F.3d 1301 (11th Cir. 2013)
(servicer not covered where it obtained assignment for administrative purposes).
27
See § 5.9, supra.
28
Reg. Z, 12 C.F.R. § 1026.39(c)(1).
29
Official Interpretations to Reg. Z § 1026.39(c)(1)-2.
30
Similarly, there is an exception for repurchase agreements. If a mortgage loan is transferred to a covered person in
connection with a repurchase agreement, and the transferor that is obligated to repurchase the loan continues to
recognize the loan as an asset on its own books for accounting purposes, the covered person acquiring the loan is not
required to provide the disclosures. However, if the transferor does not repurchase the mortgage loan, the acquiring
party must make the disclosures within thirty days after the date that the transaction is recognized as an acquisition in its
books. Reg. Z, 12 C.F.R. § 1026.39(c)(2).
31
15 U.S.C. § 1641(g)(1).
148
recognizing acquisitions, the Final Rule clarifies that the disclosures must be provided on or
before the thirtieth day following the “date of transfer” which may be either the acquisition date
recognized by the transferee, or the date recognized by the transferor.32 Similarly, either date
may be stated on the disclosure as the date of transfer.
Persons Entitled to Receive Disclosure
The interim rule provided that if more than one consumer were liable on the mortgage,
disclosures were to be sent to any consumer who is “primarily liable.” No definition of
“primarily liable” was provided. Consumer groups asked the Board to require that transfer
notices be provided to all consumers obligated on the loan note, and to any consumer who would
be entitled to a notice of rescission on the transaction. The Board declined to adopt this
suggestion. Ignoring consumer comments that pointed out that a co-obligor in a divorce or
separation may never receive a notice mailed to only one borrower at the dwelling address, the
Board found that additional copies to multiple obligors would typically be sent to the same
address and would not “significantly enhance consumer protection.” The Board also concluded
that sending notice to non-obligors entitled to rescind would “create operational difficulties”
because the person acquiring the loan might not know which parties had a right to rescind when
the loan was made. Thus, no change was made in the Final Rule and the transfer notice may be
sent to any consumer who is primarily liable.33
Content of Required Disclosures
Identification of the loan. The disclosure must identify the loan that was acquired or
transferred.34 To provide flexibility, the Commentary permits a covered person to use any
information that would reasonably inform a consumer.35 Examples given include providing the
property address along with the pre-transfer account number, the account number alone (if
previously provided to the consumer such as on a monthly statement), or the date when the credit
was extended and the original loan amount or credit line.
New owner’s identity, address, and telephone number. The covered person acquiring
the loan must disclose its name, address, and telephone number.36 This information must be
provided even if there is another party who is servicing the loan.37 If a single disclosure is
provided for more than one covered person, the information shall be provided for each of them.38
However, if one of the covered persons in that case has been authorized to receive the
consumer’s notice of the right to rescind and to resolve issues concerning loan payments, the
disclosure may state the name, address, and telephone number only for that covered person.39
The covered person may, at its option, provide an e-mail or website address, but is not required
32
Reg. Z § 1026.39(b)(2).
Reg. Z § 1026.39(b)(3).
34
Reg. Z § 1026.39(d).
35
Official Interpretations to Reg. Z § 1026.39(d)-1.
36
Reg. Z § 1026.39(d)(1).
37
A different statute, the Real Estate Settlement Procedures Act, requires the borrower to be notified if servicing of
the loan is transferred from one entity to another. 12 U.S.C. § 2650(b). See § 9.2.3.3, supra.
38
Reg. Z § 1026.39(d)(1)(i).
39
Reg. Z § 1026.39(d)(1)(ii); Official Interpretations to Reg. Z § 1026.39(d)(1)(i)-1.
33
149
to do so.40
Transfer date. The covered person must disclose the date that the loan was transferred.41
The rule permits disclosure of either the acquisition date or the date of transfer recognized in the
books and records of the transferring party.42
Several courts have dismissed claims under section 1641(g) because the borrower has not
alleged the precise date when the loan was transferred.43 One court has correctly pointed out that
this places the borrower in a “Catch–22 type of situation” because the exact date of the transfer
was never disclosed and the information is totally within the control of the defendant.44 The
better view is that the borrower should be permitted to conduct discovery to determine the exact
date when loan ownership was acquired by the defendant.
Agent’s contact information. The interim rule had required that the notice identify a
person (or persons) authorized to receive legal notices on behalf of the covered person and
resolve issues concerning the consumer’s payments on the loan. Industry groups complained
that the “legal notice” requirement was too vague.
The interim rule also provided that a covered person could comply with this requirement
by simply providing the phone number for the agent, if the consumer can use the phone number
to obtain the agent’s address. Consumer groups pointed out that borrowers may mistakenly use
the telephone number to attempt rescission or to dispute servicer errors, unaware that an oral
communication with the agent will not effectuate rescission or be treated as a qualified written
request under RESPA.45
The Board responded in the Final Rule by changing the “legal notice” requirement and
also requiring that the agent’s address be included in the disclosure. The Final Rule requires that
the disclosure provide the name, address, and telephone number for the agent or other party
having authority to receive a rescission notice and resolve issues concerning loan payments.46 It
does not require contact information for an agent or other party if the consumer can use the
covered person’s contact information for these purposes. The Commentary provides that,
although a covered person is not required to designate an agent or other party, the name, address,
and telephone number for the agent or other party must be provided if the consumer cannot
contact the covered person to rescind or resolve payment disputes.47 If multiple agents are listed,
the notice must state which one is authorized to receive a rescission notice and which one is
authorized to resolve payment disputes.48 If the same person handles both rescission notices and
payment disputes, the disclosure need only state that the consumer may contact that person about
40
Official Interpretations to Reg. Z § 1026.39(d)(1)-1.
Reg. Z § 1026.39(d)(2).
42
Reg. Z § 1026.39(b)(2).
43
See, e.g., Deerinck v. Heritage Plaza Mortg. Inc., 2012 WL 1085520 (E.D. Cal. Mar. 30, 2012); Derusseau v.
Bank of Am., 2012 WL 1059928 (S.D. Cal. Mar. 28, 2012).
44
Humphreys v. Bank of Am. Corp., 2012 WL 1022988, *10 (W.D. Tenn. Mar. 26, 2012) (refusing to dismiss §
1641(g) claim); see also Pugh v. Bank of America, 2013 WL 3349649 (W.D. Tenn. July 2, 2013).
45
12 U.S.C. § 2605(e).
46
Reg. Z § 1026.39(d)(3).
47
Official Staff Commentary to Reg. Z § 1026.39(d)(3)-1
48
Id.
41
150
questions concerning the account without specifically mentioning rescission or payments.49 The
covered person may provide the agent’s email or website address, but is not required to do so.50
Recording location. Section 1641(g) provides that the notice must disclose “the location
of the place where transfer of ownership of the debt is recorded.”51 Because the statute refers to
debt ownership, the Board construed the requirement in the interim rule as applying only if
transfer of ownership has been recorded. Consumer groups suggested in comments that this
interpretation would render the rule meaningless since transfers of debt ownership are generally
not recorded in public land records, and that the Board should require disclosure of the location
where the covered person’s security interest in the property is located.
After considering the costs and benefits of providing more detailed information, the
Board chose to retain the original approach. The Final Rule requires the covered person to
disclose where transfer of ownership of the debt to the covered person is or may be recorded, or,
alternatively, that the transfer of ownership has not been recorded in public records at the time
the disclosure is provided.52
Optional disclosures. Section 1641(g) provides that the party acquiring a loan shall
notify the borrower of “any other relevant information regarding the creditor.”53 The Board
sought comment on whether the rule should include any additional requirements. The Final Rule
does not impose any additional requirements and provides that covered persons may, at their
option, include any other information regarding the transaction.54 The Commentary notes that a
covered person may provide any information considered relevant or helpful to consumers, such
as informing consumers that the location where they should send mortgage payments has not
changed.55
Private Remedies for Violation of Transfer Notice Requirement
Failure to comply with the transfer notice requirements gives rise to a private right of
action, which includes recovery of actual damages, statutory damages, costs, and attorney fees.56
Borrowers may be entitled to multiple statutory damages of up to $4000 per violation each time
the rule is not complied with.
If no section 1641(g) notice is given, the violation occurs upon the expiration of the
thirty-day period in which disclosure should have been provided.57 TILA requires any action
49
Id.
Official Staff Commentary to Reg. Z § 1026.39(d)(3)-2.
51
15 U.S.C. § 1641(g)(1)(D).
52
Reg. Z, § 1026.39(d)(4). See Reardean v. Federal Home Loan Mortg. Corp., 2014 WL 774939 (W.D. Tex. Feb.
24, 2014) (Section 1641(g) does not require new owner to record transfer); Altier v. Federal Nat. Mortgage Assn.,
2013 WL 6388521 (N.D. Fla. Dec. 6, 2013) (same).
53
15 U.S.C. § 1641(g)(1)(E).
54
Reg. Z, § 1026.39(e).
55
Official Interpretation, § 1026.39(e)-1.
56
15 U.S.C. § 1640(a). See generally National Consumer Law Center, Truth in Lending, § 11.6.9.3 (7th ed. 2010
and Supp.) (discussing assignee liability for failing to comply with these provisions).
57
See Squires v. BAC Home Loans Serv., L.P., 2011 WL 5966948 (S.D. Ala. Nov. 29, 2011) (claim accrues after
30-day period runs, not on date of transfer).
50
151
pursuant to section 1641 to be brought within one year from the date of the violation.58 The short
statute of limitations may present a challenge for borrowers who do not discover that their loan
was transferred within a year of the transfer date. These borrowers should consider avenues to
toll the limitations period such as equitable tolling and fraudulent concealment.59
The recovery of statutory damages for violation of the TILA transfer notice requirements
is not dependent upon an award of actual damages. Thus, a section 1641(g) claim should not be
dismissed at the pleading stage for failure to allege actual damages if the borrower is at a
minimum seeking statutory damages.60 One court rejected a creditor’s argument, based on the
statutory language in section 1640(a)(2)(A) setting damages at twice the finance charge, that
statutory damages cannot be recovered in a section 1641(g) action because the violation does not
involve the assessment of a finance charge against the borrower.61 Relying in part upon the
Supreme Court decision in Mourning v. Family Publications Service, Inc.,62 and the statutory
language in 1640(a)(2)(A)(iv) establishing a floor of $400 in statutory damages, the court held
that TILA statutory penalties may be assessed for violation of a TILA disclosure requirement
even in cases where no finance charge is implicated by the violation. Plaintiffs in such cases
would be entitled to at least the minimum $400 statutory penalty for a section 1641(g)
violation.63 The court also questioned, without deciding the issue, whether the finance charge
“in connection with the transaction” for purposes of TILA statutory damages would need to be
related to the section 1641(g) violation, noting that there were certainly finance charges imposed
in the underlying mortgage transaction that possibly could be used in calculating damages under
the statutory formula.64
58
15 U.S.C. § 1650(e).
See generally National Consumer Law Center, Truth in Lending, § 12.2.3.2 (7th ed. 2010 and Supp.). However, a
number of courts have rejected equitable tolling arguments where the underlying assignment was recorded in the
local land records. See, e.g., Sokol v. JP Morgan Chase Bank, N.A., 2013 WL 6623897 (N.D. Cal. Dec. 16, 2013)
(and cases cited).
60
Wise v. Wells Fargo Bank, 850 F. Supp. 2d 1047 (C.D. Cal. 2012); Foley v. Wells Fargo Bank, 849 F. Supp. 2d
1345 (S.D. Fla. 2012); Salmo v. PHH Mortg. Corp., 2012 WL 84222 (C.D. Cal. Jan. 11, 2012); Brown v.
CitiMortgage, Inc., 817 F. Supp. 2d 1328 (S.D. Ala. 2011). But see Bishop v. JPMorgan Chase & Co, 2013 WL
3177826 (D. Del. 2013) (misapplying Third Circuit decision, Vallies v. Sky Bank, 591 F.3d 152 (3d. 2009), related
to actual damages under TILA); Soares v. ReconTrust Co., 2012 WL 1901234 (N.D. Cal. May 25, 2012); Conley v.
Bank of New York Mellon Corp., 2012 WL 406911 (D. Haw. Feb. 7, 2012) (dismissing claim on basis that plaintiff
did not allege detrimental reliance upon an inaccurate or incomplete disclosure).
61
Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328 (S.D. Ala. 2011); see also Fowler v. U.S. Bank Nat. Assn., -F.Supp. 2d --, 2014 WL 850527 (S.D. Tex. Mar. 4. 2014). But see Beall v. Quality Loan Serv. Corp., 2011 WL
1044148 (S.D. Cal. Mar. 21, 2011) (holding with little analysis that failure to allege actual damages or finance
charge related to the violation precluded liability under § 1641(g)).
62
411 U.S. 356, 367, 93 S. Ct. 1652 (1973).
63
Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328, 1333/-/34 (S.D. Ala. 2011). See also Cloud v. EMC Mortg.
Corp., 2012 WL 1432594 (D. Or. Apr. 25, 2012) (awarding minimum $400 in statutory damages, $7334 in attorney
fees, and $517 in costs for servicer’s § 1641(f)(2) violation for failing to notify borrower of owner of obligation);
Foley v. Wells Fargo Bank, 849 F. Supp. 2d 1345 (S.D. Fla. 2012) (adopting reasoning set forth in Brown).
64
Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328, 1336 (S.D. Ala. 2011).
59
152
Other TILA Servicing Rules
©National Consumer Law Center 2014
Prompt Crediting of Payments
• Servicer must credit “periodic payment” upon
receipt, unless:
– no charge to consumer and
– no negative credit reporting; or
– borrower doesn’t follow instructions about how to pay
• “Periodic payment” – defined as amount
sufficient to cover principal, interest, and
escrow for billing cycle
• No pyramiding of late fees - same as FTC
Credit Practices Rule
153
Prompt Crediting of Payments
• Partial payments may be placed into a suspense
account and not treated as accepted
– suspense account may be used only if authorized by
contract and permitted by state law
– when funds held in suspense account are equal to or
greater than a periodic payment, they must be applied
– must disclose on periodic statement, if provided
• Non-conforming payments (do not comply with
payment instructions) are treated as accepted and
must be credited within 5 days of receipt
• No small servicer or bankruptcy exemption
Payment Change Notices
(Effective January 10, 2014)
When
Initial Rate Reset Notice
12 C.F.R. §1026.20(d)
Payment Change Caused by
Rate Reset
12 C.F.R. §1026.20(c)
210 to 240 days before the first
payment after the rate reset
60 to 120 days before the
change, unless
• Not possible, and then 25
days before the change, or
• Within 210 days (7 months) of
closing
What
•
Interest rate ending; Effective date of new rate; When future changes
will occur; Current & future interest rates; Current & future payments;
Explanations about how the rate and payment are determined, and
CFPB found no conflict with 21 day payment change notice requirement in Bankr. Rule 3002.1(b)
allocated (if not fully amortizing)
– sending TILA notice earlier than required under bankruptcy law “enhances consumer protection by providing these
consumers with additional time to adjust to an increase in their mortgage payments.”
Housing counseling notice;
Telephone number to call for
anticipated difficulties with
payments; Information on
refinancing or modifying
154
Payment Change Notices
• CFPB found no conflict with 21 day payment
change notice requirement in Bankr. Rule
3002.1(b)
– sending TILA notice earlier than required under
bankruptcy law “enhances consumer protection
by providing these consumers with additional
time to adjust to an increase in their mortgage
payments.”
Payoff Statements – TILA Request
• Payoff statements must be sent within 7
business days after written request received
• Reg. X 1024.36(a) - servicers need not treat
request for payoff balances as RESPA request
for information
– RESPA ban on servicer fees for response to
information requests does not apply
• Failure to provide accurate payoff statement
based on a TILA request is subject to error
resolution under RESPA
155
Payoff Statements – TILA Request
• Rule applies to all loans secured by a
consumer’s dwelling, including open-end loans
(HELOCs) and reverse mortgages
• CFPB refused to create a blanket exemption
for loans in default, foreclosure, or bankruptcy.
– if servicer is unable to provide a payoff statement
within 7 days because loan is in bankruptcy or
foreclosure, or loan is a reverse mortgage, or
because of natural disasters, payoff statement
must be provided within a “reasonable time,”
which is not defined.
Transfer of Ownership Notices
• “Covered person” must, within 30 days of
acquiring an interest in the loan, make the
required disclosures
• Given only to primarily liable borrower
• 15 U.S.C. §1641(g) & 12 C.F.R. § 1026.39
156
Covered Person
Legal ownership of debt obligation
Includes partial interests
Includes mergers
Excludes ownership of less than 30 days
Excludes servicer if transfer “solely for the administrative
convenience of the servicer in servicing the obligation”
Content of Required Disclosure
Loan identity
Identity, address, and telephone number of covered person
Acquisition date
Agent’s contact information
Recording location
157
TILA Remedies
• Actual Damages, Costs and Attorney’s
Fees
• Statutory Damages: twice the finance
charge, up to $4,000 for closed-end
mortgage violations
• Statutory damages are not available for violations
involving the periodic statement requirement
• TILA § 1640 refers to “creditor”, which is
typically the loan originator
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Private Remedies for RESPA Servicing Violations
I. State-law claims.
A. Negligence & negligent misrepresentation: may need special relationship or non-party
to contract (i.e., servicer) - Petty v. Countrywide Home Loans, Inc., CIV.A. 3:12-6677,
2013 WL 1837932 (S.D.W. Va. May 1, 2013)
B. Promissory Estoppel: Coleman v. JP Morgan Chase Bank, N.A., CIV.A. 3:14-0183,
2014 WL 1871726 (S.D.W. Va. May 8, 2014)
C. UDAP: Crilley v. Bank of Am., N.A., CIV. 12-00081 LEK, 2012 WL 1492413 (D. Haw.
Apr. 26, 2012)
D. Fraud: Petty v. Countrywide Home Loans, Inc., CIV.A. 3:12-6677, 2013 WL 1837932
(S.D.W. Va. May 1, 2013)
E. Misrepresentation in Debt Collection (FDCPA/State Consumer Act): for FDCPA
must show "debt collector"
F. Tort of Outrage/Intentional Infliction of Emotional Distress
G. Tortious interference with contract: Coleman v. JP Morgan Chase Bank, N.A., CIV.A.
3:14-0183, 2014 WL 1871726 (S.D.W. Va. May 8, 2014)
H. Unclean hands.
I. Unjust enrichment: Stroman v. Bank of Am. Corp., 852 F. Supp. 2d 1366 (N.D. Ga.
2012)
J. Failure to reinvestigate under FCRA: Stroman v. Bank of Am. Corp., 852 F. Supp. 2d
1366 (N.D. Ga. 2012)
K. Conversion (failing to credit payments): Stroman v. Bank of Am. Corp., 852 F. Supp.
2d 1366 (N.D. Ga. 2012)
L. Lack of standing.
M. Breach of Contract.
1. FHA: Kersey v. PHH Mortgage Corp., 682 F. Supp. 2d 588, 596 (E.D. Va. 2010)
vacated, 3:09CV726, 2010 WL 3222262 (E.D. Va. Aug. 13, 2010)
2. VA: Ranson v. Bank of Am., N.A., CIV.A. 3:12-5616, 2013 WL 1077093 (S.D.W. Va.
Mar. 14, 2013)
3. Trial Period Plan: Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 563 (7th Cir.
2012)
4. Final modification/forbearance
5. Breach of deed of trust/note re: right to cure, foreclosure process, interference with
right to reinstate, payment application: Stroman v. Bank of America Corp., 852
F.Supp.2d 1366, 1377 (N.D.Ga.2012) (plaintiff sufficiently plead breach of contract
when “[d]efendants ... failed to apply her payments properly according to the terms of
the contract.”).
II. Pre-suit investigation / actions
A. Assisting in loss mitigation — balancing the considerations of…
1. Timing: the need to submit a timely loss mitigation application in the face of the
choreography and deadlines imposed by the loss mitigation procedures under
Regulation X — 12 C.F.R. § 1024.41; with,
2. Conflict: being a witness in your own case;
159
B. Transmitting a compliant QWR (NOE/RFI)
1. Facts in QWR. Allege facts to support allegation of error in the QWR.
2. Consider having client send the first QWR. Hiring a lawyer to perform a follow-up
to non-responsive servicer can represent an element of actual damages. (See below.)
3. Balance the considerations of…
a) Getting specific information you need (and protecting your file); with,
b) Pleasing a judge: avoiding “shot-gun” requests, demonstrating that you’ve done
your homework when accusing the servicer of having committed an error; and,
c) Presenting an exhibit to a jury of dubious sophistication or objectivity.
4. Correct address. Triple confirm the correct address to which to send a QWR.
If you contend this letter has been sent to an address not designated by
you for receipt of notices of error in accordance with the procedures
under § 1024.35 of Regulation X then please immediately inform this
office as to the correct contact address, and provide this office with the
URL for any website that you maintain on which is listed the appropriate
contact address.
5. Agency. If you send the QWR identify yourself as an “agent” of the borrower under
6.
7.
8.
9.
12 U.S.C. § 2605(e)(1)(A), and include a smart looking or servicer-specific thirdparty-authorization form signed by each borrower/homeowner;
Duplicative request. Don’t risk accusation of having sent duplicative request.
Perform due diligence on whether a previous QWR has already been sent. Be sure to
include “new, material information and items that you may not have previously
reviewed in connection with your investigation of any prior notice of a similar error
or QWR.” Such information should be described as being reasonably likely to change
any prior determination about the noticed error(s). (Ref. 12 C.F.R. § 1024.35(g)).
Request the identity and contact information for a human point of contact.
“Please provide the name and telephone number of a person with whom we can
discuss this matter.” [cite]
Request supporting documents. “If you determine that no error has occurred, we
would request copies of any document or information relied upon by you in making
your determination that no error has occurred. You must comply with this request
within 15 business days of notifying this office of your determination. (Ref. 12 C.F.R.
§ 1024.35(e)(4).) If you contend that a we must make a new request for such
documents then please so advise this office immediately so that we may comply.”
Credit issues.
a) Consider FCRA notice to CRAs and any person reporting to a CRA.
b) Surveillance on credit reporting. Client should monitor credit reports.
c) In QWR advise servicer of responsibility regarding credit reporting.
Please be advised that for 60 days after receipt of this Notice of
Error, you must not furnish adverse information to any consumer
160
reporting agency regarding any payment, including any allegedly
overdue payment, owed by our client(s) that is the subject of this
Notice of Error under 12 C.F.R. § 1024.35(i).
C. Venue / SOL
1. A RESPA claim under § 2605, 2607, or 2608 may be brought “in the United States
district court or in any other court of competent jurisdiction, for the district in which
the property involved is located, or where the violation is alleged to have occurred,
within 3 years in the case of a violation of section 2605 of this title and 1 year in the
case of a violation of section 2607 or 2608 of this title from the date of the occurrence
of the violation, except that actions brought by the Bureau, the Secretary, the
Attorney General of any State, or the insurance commissioner of any State may be
brought within 3 years from the date of the occurrence of the violation.” See 12
U.S.C. § 2614.
2. State law SOL issues & use of discovery rule & laches
D. Proving a pattern & practice. “A single alleged RESPA violation is insufficient to
establish a ‘pattern or practice.”1 One court has noted that the “pattern and practice”
language in RESPA and other federal statutes is not a “term of art but rather is defined
according to the usual meaning of the words,” and that it suggests a “standard or routine
way of operating.”2
1. Past practice with this client (i.e., multiple failures to respond to QWR, provide
accurate notices, etc.)
2. Foreclosure records
3. Former clients
4. Clients of other attorneys (bankruptcy attorneys, legal aid, consumer attorneys)
5. Discovery:
a) Names of other borrowers: Marks v. Global Mortgage Group, Inc., 218 F.R.D.
492, 495-97 (S.D.W. Va. 2003); Robinson v. Quicken Loans Inc., CIV.A. 3:120981, 2013 WL 1704839 (S.D.W. Va. Apr. 19, 2013)
b) Policies & procedures (company’s written policies, or through Rule 30(b)(6)
representative testimony)
E. Attorneys’ Fees. Have your time-keeping and billing system set up to differentiate
between attorneys, paralegals, and other support staff. Enter into a standard hourly-rate
attorney-client employment agreement.
F. Pre-Suit Investigation.
1. Homework. Client to collect all notices, statements, correspondence, phone records,
cancelled checks, etc.
1
Lawther v. Onewest Bank, No. C 10-0054 RS, 2010 U.S. Dist. LEXIS 131090 at *20-21 (N.D. Cal. Nov. 30,
2010).
2
Cortez v. Keystone Bank, 2000 WL 536666 (E.D. Pa. May 2, 2000).
161
2. Transmit spoliation notices. For example Bank of America contends that it destroys
its e-mails that are over 90 days old. Send out formal demand to preserve such
evidence, including Electronically-Stored Information (“ESI”) before you even
suspect litigation is possible.
3. Recording phone calls with servicer’s agents. Client should be encouraged to
record conversations with servicer surreptitiously if consistent with applicable law
and ethics rules. Know whether you are in a state that is a one- or two-party recording
state. Know whether surreptitious recording can expose counsel to ethical sanctions
or other legal liability.
4. Running title. Check down publicly recorded instruments — both instruments of
conveyance and liens — to preserve the chain of title.
5. Web-based resources.
a) MERS Loan Locator. Identify servicer / owner of the loan. https://www.mersservicerid.org/sis/index.jsp
b) Fannie Mae Loan Lookup. https://knowyouroptions.com/loanlookup
c) Freddie Mac Loan Lookup. https://ww3.freddiemac.com/corporate/
d) SEC lookup publicly-issued securitized trusts. http://www.sec.gov/index.htm
e) Federal Reserve financial institution information.
http://www.ffiec.gov/nicpubweb/nicweb/SearchForm.aspx
f) State-based Division of Banking website for registration etc.
III. Damages / Relief
A. Actual damages. Trend towards requiring actual, but not onerous, damages as a sine qua
non of a RESPA claim. Remember that RESPA is remedial. “As a remedial statute,
RESPA is construed broadly to effectuate its purposes.” Marais v. Chase, 736 F.3d 711,
719 (2013).
1. Defined. The term “actual damages” is not defined within RESPA. 12 U.S.C. § 2602
(2006) (definitions do not list "actual damages" or even "damages"). The common
meaning of damages is “[a]n amount awarded to a complainant to compensate for a
proven injury or loss; damages that repay actual losses.” BLACK'S LAW DICTIONARY
(9th ed. 2009). RESPA authorizes the plaintiff to recover “all provable injuries that
are the result of [Servicer’s] response to receiving the QWR. Or, to put a finer point
on it, all expenses, costs, fees, and injuries fairly attributable to [Servicer’s] failure to
respond appropriately to the QWR, even if incurred before the failure to respond, are
included.… In addition, such damages include any losses or injury resulting from
damaged credit as a result of [Servicer’s] possible improper reporting to consumer
reporting agencies.3
2. Causation. Actual damages must be proximately caused by the misconduct at issue.
3. Examples of Economic Damages:
3
Marais v. Chase Home Fin., LLC, Case No. 2:11-cv-314 (S.D. Ohio, June 4, 2014).
162
a) Actual uncorrected servicing error. Misapplication of payments and failure to
correct those damages.4
b) Lost equity in home. Demonstrate causal relationship between failure of servicer
to provide requested information and plaintiffs’ inability to cure the default or
avoid foreclosure. 5
c) Attorney’s fees directly related to follow-up to QWR. “Had [the servicer]
properly responded in the first instance, Plaintiff would not have incurred those
additional [attorney’s] fees, as no follow-up would have been required. As
discussed above, attorney's fees are generally not available for bringing suit on an
alleged RESPA violation unless other actual damages are established, and the
Court does not include the fees incurred by Plaintiff in bringing this lawsuit as
actual damages. However, the Court finds that Plaintiff has identified a disputed
fact as to whether or not he is entitled to reimbursement of just those fees incurred
in his attempts to get a response to his QWR.”6
d) Photocopies, facsimile costs, postage, mileage for travel. To send a qualified
written request7 or to submit repeated loss mitigation packages or correspondence
to servicer. 8
e) Credit damage. Damages include any losses or injury resulting from damaged
credit as a result of [Servicer’s] possible improper reporting to consumer
reporting agencies.9 (See pleading caveats below.)
f) Accounting issues (i.e., amount claimed due is wrong)
g) Accrued arrears or fees caused by delay
h) moving expenses or improper REO procedures
i) Payments made to former servicer after effective date of transfer.10
4. Emotional Distress.
a) Presumed to be part of RESPA damages? Because RESPA “is remedial
consumer protection statute,” courts are finding that RESPA’s actual damages can
include emotional distress.11 “Plaintiffs arguably may recover for non-pecuniary
damages, such as emotional distress and pain and suffering, under RESPA.”
McLean v. GMAC Mortg. Corp., 398 Fed. App’x. 467, 471 (11th Cir. 2010)
4
Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430, 447–48 (E.D.N.Y., 2013).
Carr v. U.S. Bank, 2012 WL 5949798 (D. Colo. Nov. 28, 2012); Wanger v. EMC Mortg. Corp., 127 Cal. Rptr. 2d
685 (Cal. Ct. App. 2002) (foreclosure may be included in actual damages awarded under § 2605(f)(1), regardless of
whether foreclosure was wrongful, if borrower can show that foreclosure occurred as a result of the servicer’s failure
to deliver notice of servicing transfer).
6
Soriano v. Countrywide, Case No.: 09-CV-02415-LHK (N.D. Ca. April 11, 2011).
7
Cortez v. Keystone Bank, 2000 WL 536666 (E.D. Pa. May 2, 2000); In re Tomasevic, 273 B.R. 682 (Bankr. M.D.
Fla. 2002).
8
Marais v. Chase Home Finance LLC, 736 F.3d 711 (6th Cir. 2013) (remanding for district court to consider
borrower’s argument that the expenses she incurred in preparing her qualified written request became actual
damages when servicer failed to respond).
9
Marais v. Chase Home Fin., LLC, Case No. 2:11-cv-314 (S.D. Ohio, June 4, 2014).
10
Wanger v. EMC Mortg. Corp., 127 Cal. Rptr. 2d 685 (Cal. Ct. App. 2002).
11
Catalan v. GMAC Mortg. Corp., 629 F.3d 676 (7th Cir. 2011); McLean v. GMAC Mortg. Corp., 398 Fed. Appx.
467 (11th Cir. 2010) (unpublished); Palmer v. MGC Mortg., Inc., 2013 WL 6524648 (E.D. Pa. Dec. 10, 2013).
5
163
(citing Banai v. Sec’y U.S. Dep't of HUD, 102 F.3d 1203, 1207 (11th Cir.1997) (a
case under the Fair Housing Act)).12
b) In some jurisdictions, whether one must satisfy the more stringent requirements of
an IIED claim in the context of a wrongful foreclosure action is not clear.13Just in
case, you may want to allege emotional distress as if it were a free-standing claim.
(1) Intentional Infliction of Emotional Distress. High threshold of proof of
conduct, but lower threshold of proof of damages. Elements are “(1) extreme
and outrageous conduct; (2) intentional or reckless infliction of emotional
distress; and (3) actual result to plaintiff of severe emotional distress.” Rice v.
Janovich, 742 P.2d 1230, 1238 (Wash. 1987). See Vawter v. Quality Loan
Serv. Corp. of Washington, 404 F. Supp. 2d 1115, 1128 (W.D. Wash. 2010)
(dismissing claim against a bank and MERs because their “actions in
connection with the nonjudicial foreclosure process, as alleged . . . do not
involve physical threats, emotional abuse, or other personal indignities aimed
at the [plaintiffs]”).
(2) Negligent Infliction of Emotional Distress. Lower threshold of proof of
conduct, but a higher threshold of damages and causation. Elements of
Negligent IED are “negligence, that is, duty, breach of the standard of care,
proximate cause, and damages, and . . . the additional requirement of objective
symptomology… [i.e.,] objective symptoms that are ‘susceptible to medical
diagnosis and proved through medical evidence.’” Strong v. Terrell, 195 P.3d
997, 982–83 (Wash. Ct. App. 2012).
c) Evidence. Rely on experts and/or plaintiff’s testimony & testimony of collateral
witnesses (family members, work colleagues, etc.); actual therapy or medical /
expert testimony is desirable and could be necessary for a negligent infliction
case.
B. Civil Penalties / Statutory Damages
1. UDAP/state consumer act
2. RESPA:
a) Up to $2000 for each violation for pattern or practice “as the court may allow”;
12 U.S.C. § 2605(f);
b) Pattern and practice is a precondition for statutory award (see pleading
requirements below in Part IV) but statistical analysis is not (yet) necessary;
c) Class cap of the lesser of $1 million or 1% of servicer’s net worth.
3. Trivial clams. Don’t assert “trivial” claims and assume you will be entitled to
statutory damages. See Graziano v. Harrison, 950 F.2d 107, 114 (3d Cir.1991)
(courts interpreting FDCPA language authorizing “statutory damages as determined
12
See Buckentin v. SunTrust Mortgage Corp., 928 F. Supp. 2d 1273, 1293-94 (N.D. Ala. 2013).
See, e.g., Blackburn v. BAC Home Loans Servicing, LP, 914 F. Supp. 2d 1316, 1330 (M.D. Ga., 2012) (noting
dicta that wrongful-foreclosure “plaintiff did not need to meet the more stringent requirements of an IIED claim”).
13
164
by the court” find that “in the instance of a single, trivial, and unintentional violation
of the Act, it is within the court's discretion to decline to award statutory damages at
all.”) Emanuel v. Am. Credit Exchange, 870 F.2d 805, 809 (2d Cir.1989).
C. Equitable relief
1. Rescission of foreclosure and/or injunction against foreclosure
2. Requirement that a modification or loss mitigation be properly considered
3. Requirement that a promised modification be provided
4. Strict performance with contract
5. Issues with equitable relief:
a) Proof of value of home may be an element of your equitable claim.
b) “Clean hands” i.e., pay what is acknowledged to be due.
c) Consider the original closing — was it a drive by? Were documents prepared by a
state-barred attorney? May go to the issue of whether the lender / servicer had
clean hands in an equity-balancing scenario.
D. Attorney’s fees, expenses of litigation, and costs.
1. Available with RESPA (and FDCPA, FCRA, etc.), state statutes (UDAP & consumer
act), and possibly intentional torts
2. Prepare ahead:
a) Client contract in writing and at set hourly rates based on prevailing rates in your
jurisdiction.
b) Know the lodestar rule for quantifying attorney’s fees.
c) Track your time and that of your staff.
d) Use a spreadsheet to break down attorney / paralegal time according to different
counts being prosecuted.
e) Consider supporting affidavit of attorney to review your billing when it’s being
submitted.
3. Costs include filing fees, travel expenses, expert witness expenses, deposition costs,
etc.
E. Nominal damages.
1. For cases where economic damages can’t or may be difficult to be quantified to
recognize "the violation of a right, not to compensate for actual injury.” Adam v.
Wells Fargo Bank, N.A. Civil Action No. ELH-09-2387 (D. Md., 2012).
2. “[I]n light of Wells Fargo's breach of the Modification, [Plaintiff] is entitled to an
award of nominal damages. ‘[I]t is well settled that where a breach of contract occurs,
one may recover nominal damages even though he has failed to prove actual
damages.’” Id. (citing Taylor v. NationsBank, N.A., 365 Md. 166, 175, 776 A.2d 645,
651 (2001)).
3. Importance of nominal damages is that it might provide a hook of prevailing-party or
actual damages on which to hang an award of attorney’s fees or even punitive
165
damages. “[a] plaintiff achieves ‘prevailing party’ status by recovering any judgment,
even for nominal damages.”14
F. Punitive damages.
1. Availability:
a) Punitive damages might be recoverable in a RESPA claim. See National
Consumer Law Center, Fair Debt Collection § 6.5.1 (7th ed. 2011 and Supp.)
b) Usually available for intentional torts or intentional/malicious conduct that is
prohibited by statute
2. Distinguished from actual damages. “Compensatory damages ‘are intended to
redress the concrete loss that the plaintiff has suffered by reason of the defendant's
wrongful conduct.’… By contrast, punitive damages serve a broader function; they
are aimed at deterrence and retribution.”15
3. Elements. Typically must have an award of actual (or even nominal) damages before
punitives may be considered. They may be awarded “to punish [defendants] for their
outrageous conduct and to deter them, and others like them, from engaging in similar
conduct in the future if you find by a preponderance of the evidence that [the
defendants] acted intentionally or recklessly. Guidance Endodontics v. Dentsply Int’l,
Inc., 749 F. Supp.2d 1235 (D.N.M., 2010)
4. Constitutional limitations.
a) Due Process. The Due Process Clause of the Fourteenth Amendment prohibits the
imposition of grossly excessive or arbitrary punishments on a tortfeasor. The
reason is that “[e]lementary notions of fairness enshrined in our constitutional
jurisprudence dictate that a person receive fair notice not only of the conduct that
will subject him to punishment, but also of the severity of the penalty that a State
may impose.”16
b) Guideposts of review. “[C]ourts reviewing punitive damages [must] consider three
guideposts: (1) the degree of reprehensibility of the defendant's misconduct; (2)
the disparity between the actual or potential harm suffered by the plaintiff and the
punitive damages award; and (3) the difference between the punitive damages
awarded by the jury and the civil penalties authorized or imposed in comparable
cases.” 17
5. Evidence of net worth.
a) Theoretically admissible… “[E]vidence of a tortfeasor's wealth is traditionally
admissible as a measure of the amount of punitive damages that should be
14
Dominguez v. Quigley's Irish Pub, Inc., 897 F.Supp.2d 674 (N.D. Ill., 2012) (FLSA claim) (citing Johnson v.
Daley, 339 F.3d 582, 587 (7th Cir.2003).
15
State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003).
16
State Farm, 538 U.S. at 416–17.
17
State Farm, 538 U.S. at 418.
166
awarded.” City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 270, 101 S.Ct.
2748, 2761, 69 L.Ed.2d 616 (1981).
b) But, beware enhanced pleading requirements. “[M]erely setting forth conclusory
allegations in the complaint is insufficient to entitle a claimant to recover punitive
damages [under Florida law.]” The facts at the basis of a punitive damages claim
must be specifically pleaded. See Porter v. Ogden, Newell & Welch, 241 F.3d
1334, 1341 (11th Cir. 2001).
c) Net-worth discovery is not automatic.
(1) Prima facie proof. Some courts require the plaintiff to prove prima facie
punitive-damages case to be entitled to discovery of net worth. See, e.g.,
Porter v. Ogden, Newell & Welch, 241 F.3d 1334, 1340 (11th Cir. 2001).
(2) In camera option. “[M]any federal courts allow for pretrial discovery of an
alleged tortfeasor’s financial condition, but there is authority for delaying
discovery until after the trier of fact has determined the question of liability.
See, e.g., Brink's Inc. v. City of New York, 717 F.2d 700, 707 (2d Cir.1983).
Therefore, all defendants will be required to furnish to the court in camera
well before trial an accurate statement of their respective net worths, certified
by a certified public accountant pursuant to generally accepted accounting
principles. The said reports will be furnished by the court to counsel for
plaintiff immediately upon any finding of liability by the jury on a federal
claim if there has been an evidentiary basis other than the financial worth of a
defendant for the imposition of punitive damages against that defendant.”
Wilson v. Gillis Adver. Co., 145 F.R.D. 578, 582 (N.D. Ala. 1993)
d) Nominal damages permit higher ratios. Nominal damages aren’t subject to same
limiting ratios relative to punitives as are compensatory damages. Single-digit
ratio between punitive and compensatory damages is not constitutionally
mandated in cases involving nominal damages. Arizona v. Asarco LLC (9th Cir.
2013).
IV. Filing Suit.
A. Venue selection
1. Section 2605(f) claims may be brought in state or federal court. 12 U.S.C. § 2614.
a) Strategic decision: for nonjudicial foreclosure should one file in federal court or
anticipate removal? Whether to move to remand? State-specific, and even judgespecific considerations.
b) Colorado River abstention. If there’s a pending “parallel lawsuit” in a state court
─ such as a state foreclosure action ─ should one consider filing a RESPA-based
action in federal court? Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976).
2. Statutory jurisdictional issues for GSEs.
167
a) Ginnie Mae can only be sued in Court of Federal Claims (and will be represented
by US Attorney’s office)
b) Fannie Mae can be sued in any court
c) Freddie Mac has automatic federal court jurisdiction
3. For servicing only claims, can usually file suit where the defendant does business; not
required necessarily to file where home is located
B. Timing of suit.
1. Before / after foreclosure sale?
a) First-party buyer (i.e. credit bid by original servicer or investor)
b) Third-party buyer (BFP issues, timing of recording lis pendens)
2. Before / after bankruptcy stay?
a) Adversary Proceeding in BK Court?
b) Stern v. Marshall, core jurisdiction issues regarding bankruptcy court’s
adjudication of a counterclaim outside the context of ruling on a creditor's proof
of claim.18
c) Risk of equity of redemption / right of reversion being cut off by f/c sale.
C. Key Allegations in Pleadings.
1. Twombly / Iqbal “plausible” pleading standard. The Supreme Court’s narrow
interpretation of Fed. R. Civ. P. 8’s pleading standard colors everything. Bell Atlantic
Corp. v. Twombly, 550 U.S. 544 (2007), Ashcroft v. Iqbal, 556 U.S. 662 (2009).
2. Introduction. Briefly educate the court regarding the essence of your case and the
purpose of RESPA: “[to] insure that consumers throughout the Nation are provided
with greater and more timely information on the nature and costs of the settlement
process and are protected from unnecessarily high settlement charges caused by
certain abusive practices that have developed in some areas of the country.’ 12 U.S.C.
§ 2601(a).’”19
3. The nature of the defendant ─ allege that the defendant is a servicer of federallyrelated mortgage loan.20
a) “Loan servicing” means “receiving any scheduled periodic payments from a
borrower pursuant to the terms of any loan . . . and making the payments of
principal and interest and such other payments with respect to the amounts
18
“Article III of the Constitution provides that the judicial power of the United States may be vested only in courts
whose judges enjoy the protections set forth in that Article. We conclude today that Congress, in one isolated
respect, exceeded that limitation in the Bankruptcy Act of 1984. The Bankruptcy Court below lacked the
constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of
ruling on a creditor's proof of claim.” Stern v. Marshall, 131 S. Ct. 2594, 2620 (2011).
19
Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430 (E.D.N.Y. 2013)
20
Claims must be brought against servicers of covered loans (“federally related mortgage loan” as defined under 12
U.S.C. § 2602) under 12 U.S.C. § 2605. See Lingad v. Indymac, 682 F. Supp. 2d 1142, 1151 (E.D. Cal. 2010)
(“Plaintiff has not alleged that [Defendant] is either a lender or a loan servicer to whom the requirements of section
2605 apply. Plaintiff merely alleges that he ‘is not certain at this time exactly which of Defendants was actually the
servicer of [his] [l]oan at any given time.”)
168
received from the borrower as may be required pursuant to the terms of the loan.”
12 U.S.C. § 2605(i)(3).
b) Federally-related mortgage loan. 12 U.S.C. § 2602 defines a “federally related
mortgage loan.”
On information and belief, Servicer services numerous federally-related mortgage
loans in that they are secured by a lien on residential real property designed
principally for the occupancy of from one to four families, and in that they are
made by “creditors” which make or invest in residential real estate loans
aggregating more than $1 million per year.
4. Description of the “Home.”
a) Provide a proper legal (metes and bounds) description of the home. (Sometimes
when the legal description is relevant to a claim for improper procedure this can
be a critical averment.)
b) Allege value of home for equitable relief purposes and for damages measurement.
(This should also be demonstrated at trial.)
5. Vicarious liability. Allege vicarious liability (principal and agent). “On information
and belief, any act (or failure to act) of Servicer described in this complaint was
performed within the scope of its agency for Fannie Mae; and, therefore, Fannie Mae
is vicariously liable for any act performed by Servicer for which Servicer is found to
be liable to the plaintiffs.
6. History of the transaction.
a) Chain of title: vesting deed into plaintiff / security deed / deed of trust /
assignments;
b) Key terms of the instruments, i.e. Paras. 19 & 22 of the Fannie Security Deed;
c) Identify corresponding promissory note / terms of loan.
d) Servicing history.
(1) Mutual deviations
(2) Waiver
(3) Estoppel
(4) Loss mitigation
(5) Detailed history of communications and transactions with servicer
7. Alleging elements of RESPA claims. For any one of the following RESPA breaches
the plaintiff is entitled to an award of actual damages under 12 U.S.C. §
2605(f)(1)(A).
a) Actual damages. Describe and quantify with particularity. See Discussion on
Damages in Parts II and III above.
b) QWR-specific allegations. Claims for violation of QWR / NOE / RFC should
include allegation that (1) written request made, (2) date sent, (3) how delivered,
169
(4) to which address / whom sent, (5) that letter was labeled as a qualified written
request, and (6) describing how contents satisfied 12 U.S.C. § 2605(e)(1)(B).21
c) Pattern or practice. Must allege more than one violation in the servicing of just
one plaintiff's loan to satisfy the pattern-or-practice requirement. “[V]iolations of
RESPA by AHMSI alleged in the amended complaint ‘constitute a pattern or
practice of noncompliance’ within the meaning of 12 U.S.C. § 2605.’” Kapsis v.
Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430 (E.D.N.Y. 2013).22
Pleadings: Servicer has engaged in a pattern or practice of non-compliance
with the requirements of the mortgage servicer provisions of RESPA in at
least the occasions described in this Count and as contemplated under 12
U.S.C. § 2605(f).”
[Describe with specificity the pattern or practice.]
Accordingly the plaintiff is entitled to recover from the defendants “any
additional damages, as the court may allow, in the case of a pattern or
practice of noncompliance with the requirements of [12 U.S.C. § 2605] not to
exceed $2,000, for each such occasion under 12 U.S.C. § 2605(f)(1)(B).
d) Causation. “[E]ven if a RESPA violation exists, Plaintiff must show that the
losses alleged are causally related to the RESPA violation itself to state a valid
claim under RESPA.”23 Demonstrate actual damages proximately caused by
Servicer’s RESPA violation in a non-conclusory way.24 Damages is an element of
21
Allege facts demonstrating that a proper QWR / NOE / RFI was made. State the date it was sent, how it was
delivered, its contents, and how it otherwise complied with 12 U.S.C. § 2605(e)(1)(B). See, e.g., Lucero v.
Diversified Inv., Inc., 2010 WL 3463607, at *4 (S.D.Cal. August 31, 2010) (“[B]ecause [the plaintiffs] do not allege
the contents of the QWR or attach it to their Complaint, it is unclear whether Plaintiffs included enough information
for the servicer to identify them, or asked for information covered by 12 U.S.C. § 2605.”); Williams v. Am.'s
Servicing Co., 2011 WL 1060652 (M.D.Fla. Mar. 22, 2011) (dismissing complaint because plaintiffs did not allege
“when they sent the QWR ... [or] that the QWR contained sufficient information to enable defendant to determine
the ‘name and account of the borrower’ ”); Carrillo v. Bank of New York, 2009 WL 5708925, at *4 (S.D.Fla. Dec.
22, 2009) (dismissing RESPA claim because plaintiff did not “allege to whom his request was addressed ... [or] the
subject matter of the written correspondence”); Correa v. BAC Home Loans Servicing LP, 2012 WL 1176701, at *7
(M.D.Fla. Apr. 9, 2012) (finding that a pro se plaintiff had “barely allege[d] sufficient facts” where she stated the
date the correspondence was mailed, to whom it was addressed, and that it was labeled as a qualified written
request). Costine v. BAC Home Loans, 946 F. Supp. 2d 1224, 1232-33 (N.D. Ala. 2013).
22
Caveat: in other contexts, such as Title VII employment litigation, in which courts hold that “pattern-or-practice”
suggests “widespread acts of [in Title VII cases] intentional discrimination against individuals.… [proof of] more
than sporadic acts of discrimination; rather, they must establish that intentional discrimination was the defendant's
‘standard operating procedure.” These will rely heavily on “statistical evidence.” Robinson v. Metro–N. Commuter
R.R. Co., 267 F.3d 147, 158 (2d Cir.2001); see also Bell v. EPA, 232 F.3d 546, 553 (7th Cir.2000) (describing
statistical evidence as the “core” of a prima facie pattern or practice case); Attenborough v. Constr. & Gen. Bldg.
Laborers' Local 79, 691 F.Supp.2d 372, 388–89 (S.D.N.Y.2009) (“[S]tatistical evidence is critical to the success of
a pattern-or-practice disparate treatment claim.”).
23
Lal v. American Home Servicing, Inc., 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010) (citing 12 U.S.C. §
2605(f)(1)(A).
24
Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430, 447–48 (E.D.N.Y., 2013).
170
the allegations in a complaint. See Stevens v. CitiGroup, Inc., 2000 U.S. Dist.
LEXIS 18201 (E.D. Pa. Dec. 15, 2000) (§ 2605(b) claim dismissed when
borrower failed to plead existence of damages flowing directly from servicer’s
failure to provide servicing transfer notice). See in-depth discussion of ways of
supporting causation above.
8. Credit damages. Demonstrate that information received by a credit reporting agency
from the servicer was reported to a third party.25 In addition, some courts have held
that the borrower must allege actual harm based upon the inaccurate reporting, such
as a denial of credit, in order to avoid dismissal.26
9. Attorney’s fees and costs. The plaintiff is entitled to recover from the defendant all
costs of this action, and “attorney’s fees incurred in connection with such action as
the court may determine to be reasonable under the circumstances, under 12 U.S.C. §
2605(f)(3).” Be sure to allege alternative bases for an award of attorney’s fees, such
as state-law claims. Keep Rule 11 in the back of your mind.
10. Humanize your client. Tell a compelling story, but without hyperbole or
condescension.
D. Property Preservation. Keep your client in possession.
1. TRO / Injunction.
2. Lis Pendens.
V. Pretrial Discovery.
A. Overall strategy. Discovery in federal courts is a good place to both gain and lose
strategic advantage.
1. Do your homework and aggressively request and demand supplementation of any
potential evidence that can be used to support a motion or otherwise at trial.
2. The timing of expert disclosures bears careful consideration.
B. GETTING — avoid surprises.
1. Self-authenticating records. Minimize surprise / fabrication:
Please Identify by author, date and specific act, event, condition, opinion and/or
diagnoses contained within any statement, memorandum, report, record, and/or
Electronically Stored Information that Servicer may either refer to, file, or move to
admit into evidence in connection with any motion or at trial under Federal Rules of
Evidence 803(6) or 902(11).
25
See Johnstone v. Bank of Am., 173 F. Supp. 2d 809 (N.D. Ill. 2001).
See Guidi v. Paul Fin., LLC, 2014 WL 60253 (N.D. Cal. Jan. 7, 2014) (unreported) (conclusory statements that
improper credit reporting resulted in damage to credit score were insufficient; plaintiffs did not provide information
as to “when such reporting occurred, to which agencies the reporting was made, or whether information regarding
any overdue payment was included in such a report”); Durland v. Fieldstone Mortg. Co., 2011 WL 805924 (S.D.
Cal. Mar. 1, 2011) (mere allegation of negative credit rating insufficient); Padgett v. OneWest Bank, 2010 WL
3239350 (N.D. W. Va. Aug. 16, 2010).
26
171
2. Records custodians. “Please Identify any Person who has custody or control of any
item Identified in response to the foregoing interrogatory, and any other Person —
including any “qualified person” under Federal Rule of Evidence 902(11) — who
may have custody or control of BANA’s Documents and business records.
3. Any potential exhibit. “Please identify any Document that Servicer intends to refer
to, to file, or to move to admit into evidence in connection with any motion, at any
hearing, or at any trial related to the Action.” Caveat: United States v. Wilson, 249
F.3d 366, 375-76 (5th Cir. 2001) (holding that, although foreign bank records were
not admissible under the business records exception because there was no custodian
available to testify, the district court properly admitted the documents under Rule 807
because "bank documents, like other business records, provide circumstantial
guarantees of trustworthiness because the banks and their customers rely on their
accuracy in the course of business"), abrogated on other grounds by Whitfield v.
United States, 543 U.S. 209 (2005).
4. Servicing history.
a) MERS Milestone reports;
b) Data from all internal servicing platforms (databases).
c) Life of loan reports.
d) Escrow accounting.
5. Get loss mitigation / default history.
a) All correspondence.
b) Contract-relevant documents.
Please Identify each Document or Communication that Servicer contends
satisfied its obligations related to the pre-acceleration notices and
information required to be transmitted under ¶¶ 19 or 22 of the Security
Deed.
6. Policies & Procedures
a) Internal manuals, etc.
b) Pooling & servicing agreement to show servicer motivations (not to assert third
party standing).
7. Affirmative defenses. “Please state the factual basis supporting Servicer’s contention
that [Homeowner’s] claims are barred or reducible under the “doctrines of
ratification, recoupment, novation, waiver, laches, estoppel, unclean hands or
mootness.” Prepare to move to dismiss or move for summary judgment regarding
affirmative defenses.
C. GIVING — make your initial disclosures. Under Fed. R. Civ. P. 26(a)(1)(A)(iii) the
plaintiff should provide “a computation of each category of damages claimed,” with
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enough wiggle room to modify these calculations as the proceedings develop. Caveat:
“Rule 37 requires virtually automatic preclusion of information not disclosed pursuant to
Rule 26(a)(1).”27 Identify your expert(s) early.
VI. Practice Pointers.
A. Cost-Benefit analysis. To pay for a U-Haul or to hire a lawyer to challenge the
foreclosure? Client relations should honor the “Law of Lowered Expectations.”
B. Settlement. Preserve creative settlement options. Do your best to acquaint your opposing
counsel with your client and to humanize your client ─ such as at informal negotiations,
courthouse hallways, hearings, mediations, etc.
C. Negate homeowner as intervening cause. “Because Plaintiff failed to pay her fully
monthly payments, a reasonable jury could find that Plaintiff's failure to do so,
irrespective of [AHMSI]'s actions, caused her default and eventual foreclosure.”
McGinnis v. AHMSI, Civil Action No. 5:11-CV-284 (M.D. Ga. 2013).
D. Dry Powder. Client should bank mortgage installment payments if they are not being
paid into court registry.
E. Shotgun pleadings. Avoid sanctions for “shotgun pleading.”Carefully identify the
factual predicates for your legal claims. Don’t incorporate giant swaths of your factual
allegations into each count in your complaint.28
F. Date calculations. See, e.g., 12 C.F.R. § 1024.35(e)(3)(C) may date calculations exclude
“legal public holidays, Saturdays, and Sundays.”
G. Servicer’s duty of diligence. Keep in mind that a servicer has no duty to modify a loan.
12 C.F.R. § 1024.41(a). The servicer’s evaluation of a modification is “in the sole
discretion of [the] servicer.”29 However, the servicer is obligated to “exercise reasonable
diligence in obtaining documents and information to complete a loss mitigation
application.” 12 C.F.R. § 1024.41(b).
27
Webb v. Chase Manhattan Mortg. Corp., 2:05-cv-548, 2008 U.S. Dist. LEXIS 42559, *40 (S.D. Ohio May 28,
2008) (Smith, J.)
28
Anderson v. Dist. Bd. of Trustees of Cent. Fl. Comm. Coll., 77 F.3d 364, 366 (11th Cir.1996) ( “[Plaintiff's]
complaint is a perfect example of ‘shotgun’ pleading in that it is virtually impossible to know which allegations of
fact are intended to support which claim(s) for relief.”) (internal citation omitted); Pelletier v. Zweifel, 921 F.2d
1465, (11th Cir.1991) (describing “quintessential shotgun pleadings” complete with “rambling recitations” and
“factual allegations that could not possibly be material” that force the “district court [to] sift through the facts
presented and decide for [itself] which were material to the particular cause of action asserted”), Strategic Income
Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1296 (11th Cir. 2002).
29
Official CFPB Interpretation: Definition of “evaluation.” The conduct of a servicer’s evaluation with respect to
any loss mitigation option is in the sole discretion of a servicer. A servicer meets the requirements of §
1024.41(c)(1)(i) if the servicer makes a determination regarding the borrower’s eligibility for a loss mitigation
program. Consistent with § 1024.41(a), because nothing in section 1024.41 should be construed to permit a
borrower to enforce the terms of any agreement between a servicer and the owner or assignee of a mortgage loan,
including with respect to the evaluation for, or provision of, any loss mitigation option, § 1024.41(c)(1) does not
require that an evaluation meet any standard other than the discretion of the servicer.
173
Attorney Fee Petition Checklist
(Koontz v. Wells Fargo Order, Mar. 29, 2013)
The original motion must include the following:
1. Affidavits from each attorney billing time
o Provide range of market rate
o Identify individuals who have informed you that this is the market rate
o State that these rates are in fact billed and received by local attorneys in
connection with the type of work at issue (consumer credit law)
o Maybe append CV
o years of graduation from college, law school, other distinctions (include years of
clerkship terms, etc.)
o appellate experience
o lectures/speaking engagements & publications
o when hired by MSJ
o type of law practiced over course of career
o NOTE: any affidavit from a senior attorney should include statements about the
education, skills, training, and reputations of the other attorneys seeking fees
o Exercised billing judgment
2. Affidavits from each paralegal billing time
3. Contemporaneous time records from Timeslips
o Describe with specificity, i.e., brief description of documents reviewed or drafted
o Organizing, calendaring, and copying are not billable.
o Do not include references to multiple tasks in one entry.
4. Orders awarding fees
o Include any order awarding the fee seeker fees
o But best – contested, with consideration of Aetna factors
5. Invoices for costs
6. Peer affidavits
o State hourly billing rates for consumer cases for them or members of their firm
o State that they personally know the reputations, skills & training of each of the
attorneys moving for fees
o Characterize the fee applicant’s experience & work favorably
o State that fee is appropriate for consumer credit law
o State that professional reputation of counsel is good in the community
o Ben Bailey, John Poffenbarger, Dave Grubb, Rob Bastress, Tony Majestro . . .
7. Motion/memo:
174
o even if federal court, should apply West Virginia law (and federal law to the
extent it doesn’t conflict)
o thorough review of federal and state law through 3/28/13 in the Koontz opinion
o reference United States Consumer Law Attorney Fee Survey Report (find at NCLC
website) [n. 2 in Koontz opinion sets forth courts recognizing the survey) &
Laffey Matrix
o Request enhancement for:
o success
o Novelty & difficulty of case
o “MSJ is the sole legal services organization in West Virginia providing
legal assistance at no cost to low-income recipients with complex credit
issues and claims. It is simply not feasible for most private bar attorneys
to take on these types of cases and MSJ fills a void in this much needed
and specialized practice area.” Cite to Cole.
175
MORTGAGE SERVICING CLAIMS CHART
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) and
TRUTH IN LENDING ACT (TILA)
©National Consumer Law Center 2014
CLAIM
CITATIONS
RIGHT
OF
ACTION
REMEDY1
APPLICATION
STATUTE OF
LIMITATION
EXEMPTIONS
RESPA
12 U.S.C. §
2605(g)
Duty to Make
Timely
Payments Out
of Escrow
Duty to
Provide
Annual
Escrow
Statements
Duty to
Perform
Escrow
Analysis and
Calculate
Proper
Escrow
Payment
Reg. X,
Subparts B
and C
12 C.F.R. §§
1024.17(k)
and
1024.34(a)
12 U.S.C.
§ 2605(f)
and
§ 2614
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
12 U.S.C. §
2609(c)(2)
open-end (as to §
1024.17) and
closed-end loans
on principal and
non-principal
residence
open-end and
closed-end loans
on principal and
non-principal
residence
Reg. X, Subpart
B
12 C.F.R. §
1024.17(i)
12 U.S.C. §
2609(a)
3 years
12 U.S.C.
§ 2614
borrower more
than 30 days
overdue (except
must pay
borrower’s
hazard insurance
rather than force
place) - 12 C.F.R.
§ 1024.17(k)(1),
(2), (5)(i)
borrower more
than 30 days
overdue, or in
foreclosure or
bankruptcy - 12
C.F.R. §
1024.17(i)(2)
open-end and
closed-end loans
on principal and
non-principal
residence
Reg. X,
Subpart B
12 C.F.R. §
1024.17(c)
1
If a remedy or right of action is not listed, the failure to comply with a servicing provision may possibly be pursued as a breach of
contract or state UDAP statute violation. See NCLC Foreclosures, Chapter 8.
176
Reg. X, Subpart
B
12 C.F.R. §
1024.17(f)
open-end and
closed-end loans
on principal and
non-principal
residence
Requirements
for Escrow
Shortages
Reg. X, Subpart
B
12 C.F.R. §
1024.17(f)
open-end and
closed-end loans
on principal and
non-principal
residence
Requirements
for Escrow
Deficiencies
Reg. X, Subpart
B
12 C.F.R. §
1024.17(f)
open-end and
closed-end loans
on principal and
non-principal
residence
Requirements
for Escrow
Surpluses
Duty to
Provide Notice
of Escrow
Shortage or
Deficiency
Duty to
Provide
Transfer of
Servicing
Statement and
60-day
Payment Safe
Harbor
Duty to
Respond to
Notice of
Error and
Request for
Information
12 U.S.C. §
2609(b)
borrower more
than 30 days
overdue - 12
C.F.R. §
1024.17(f)(4)(iii)
open-end and
closed-end loans
on principal and
non-principal
residence
Reg. X, Subpart
B
12 C.F.R. §
1024.17(f)(5)
12 U.S.C. §
2605(b)-(d)
12 U.S.C.
Reg. X, Subpart § 2605(f)
C
and
12 C.F.R. §
§ 2614
1024.33(b)
and (c)
12 U.S.C. §
2605(e)
Reg. X,
Subpart C
12 C.F.R. §§
1024.35 and
1024.36
borrower more
than 30 days
overdue - 12
C.F.R. §
1024.17(f)(2)(ii)
12 U.S.C.
§ 2605(f)
and
§ 2614
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
177
closed-end loans
on principal and
non-principal
residence
closed-end loans
on principal and
non-principal
residence
3 years
12 U.S.C.
§ 2614
3 years
12 U.S.C.
§ 2614
Duty to
Respond to
Request for
Identity of
Mortgage
Owner
General
Servicing
Requirements
Early
Intervention
Requirements
Continuity of
Contact
Requirements
Duty to
Comply with
Loss
Mitigation
Procedures
2
12 U.S.C. §
2605(k)(1)(D)
Reg. X,
Subpart C
12 C.F.R. §
1024.36(d)
12 U.S.C.
§ 2605(f)
and
§ 2614
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
Reg. X, Subpart
C
12 C.F.R. §
1024.40
Reg. X, Subpart
12 U.S.C.
C
§ 2605(f)
12 C.F.R. §
and
1024.41
§ 2614
3 years
12 U.S.C.
§ 2614
small servicer;
reverse
mortgage;
qualified lender2
- 12 C.F.R. §
1024.30(b)
closed-end loans
on principal and
non-principal
residence
Reg. X, Subpart
C
12 C.F.R. §
1024.38
Reg. X, Subpart
12 U.S.C.
C
§ 2605(f)
12 C.F.R. §
and
1024.39
§ 2614
closed-end loans
on principal and
non-principal
residence
closed-end loans
on principal
residence
3 years
12 U.S.C.
§ 2614
small servicer;
reverse
mortgage;
qualified lender 12 C.F.R. §
1024.30(b)
closed-end loans
on principal
residence
actual
damages,
costs and
attorney’s
fees; plus
$2,000 per
violation if
pattern and
practice of
noncompliance
closed-end loans
on principal
residence
borrower in
bankruptcy;
small servicer;
reverse
mortgage;
qualified lender 12 C.F.R. §
1024.30(b) and §
1024.39(d)
3 years
12 U.S.C.
§ 2614
small servicer
(except per §
1024.41(j) must
not initiate
foreclosure if
borrower
performing on
loss mitig. option
and if not more
than 120 days
delinquent);
reverse
mortgage;
qualified lender 12 C.F.R. §
1024.30(b)
A “qualified lender” is defined in 12 C.F.R.§ 617.7000 (referring to mortgage loans made under the Farm Credit System).
178
TILA
Duty to Send
Interest Rate
and Payment
Change
Notices
Duty to
Promptly
Credit
Payments
Ban on
Pyramiding of
Late Fees
Duty to
Provide
Timely Payoff
Statement
15 U.S.C. §
1638a
15 U.S.C.
Reg. Z, 12
§ 1640(a)
C.F.R. §
1026.20(c) and
(d)
15 U.S.C. §
1639f
Reg. Z, 12
C.F.R. §
1026.36(c)(1)
Reg. Z, 12
C.F.R. §
1026.36(c)(2)
15 U.S.C.
§ 1640(a)
15 U.S.C.
§ 1640(a)
15 U.S.C. §
1639g
Reg. Z, 12
C.F.R. §
1026.36(c)(3)
15 U.S.C.
§ 1640(a)
actual
damages,
plus twice
finance
charge (up
to $4,000
for closedend
mortgage),
costs and
attorney’s
fees
actual
damages,
plus twice
finance
charge (up
to $4,000
for closedend
mortgage),
costs and
attorney’s
fees
actual
damages,
plus twice
finance
charge (up
to $4,000
for closedend
mortgage), 3
costs and
attorney’s
fees
actual
damages,
plus twice
finance
charge (up
to $4,000
for closedend
mortgage),
costs and
attorney’s
fees
3
adjustable rate,
closed-end loans
on principal
residence
closed-end loans
on principal
residence
open-end and
closed-end loans
on principal
residence
open-end and
closed-end loans
on principal and
non-principal
residence
1 year
15 U.S.C. §
1640(e)
ARMs with term
of 1 year or less
1 year
15 U.S.C. §
1640(e)
1 year
15 U.S.C. §
1640(e)
1 year
15 U.S.C. §
1640(e)
Because this requirement is found only in Reg. Z, some courts may find that no statutory damages are available. See NCLC Truth in
Lending, § 11.6.8 (8th ed. 2012 and Supp.).
179
Duty to Send
Periodic
Mortgage
Statements
15 U.S.C. §
1638(f)
Reg. Z, 12
C.F.R. §
1026.41
15 U.S.C.
§ 1640(a)
actual
damages,
costs and
attorney’s
fees
180
closed-end loans
on principal and
non-principal
residence
1 year
15 U.S.C. §
1640(e)
borrowers in
bankruptcy;
small servicer;
reverse
mortgage;
timeshares;
fixed-rate
mortgages with
qualifying
coupon books
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