August 11, 2014
by Andrew W. Saag
Sirote & Permutt, P.C.
USFN Member (Alabama)
The mortgage servicing rules that went into effect in January 2014 established new rules and restrictions with respect to loss mitigation procedures during the foreclosure process. Discussed here are the procedures by which a mortgage servicer should operate upon receipt of a complete loss mitigation package (CLMP).
What is a CLMP?
The new rules do not specifically define what constitutes a CLMP. Instead, a CLMP means that the servicer has received all information requested from the borrower that is within the borrower’s control. If documents are requested from the borrower that are not in the borrower’s control, the application should be considered complete even if these documents are omitted. While the servicer is not required to supplement the loss mitigation package sent by the borrower, the servicer should exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application.
What to do with a CLMP?
If a servicer receives a CLMP 45 days or more prior to the scheduled foreclosure sale, the servicer must notify the borrower in writing within five business days after receiving the CLMP that the loss mitigation package is complete. The notice must also contain 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 CLMP is received more than 37 days prior to the scheduled foreclosure sale, the servicer must evaluate the borrower for all loss mitigation options available to the borrower, and provide the borrower with notice in writing stating the servicer’s determination of which loss mitigation options, if any, it will offer to the borrower. This evaluation and response must be completed within 30 days of receiving a borrower’s CLMP. If a CLMP is received less than 37 days prior to the scheduled foreclosure sale, the servicer is not required to comply with the loss mitigation rules.
What to not do once a CLMP is received?
If a borrower submits a CLMP prior to the first notice or filing required by applicable law, the servicer must not commence the foreclosure process unless: (1) the servicer notifies the borrower that the borrower is not eligible for any loss mitigation option and the appeal process has been exhausted. [The appeals process can be exhausted if the appeals process is not applicable, the borrower has not timely requested an appeal, or the borrower’s appeal has been denied.]; (2) a borrower rejects all loss mitigation options; or (3) a borrower fails to comply with the terms of a loss mitigation option. If the borrower submits a CLMP after the first notice or the first filing required by law but more than 37 days prior to the scheduled foreclosure sale, a servicer may not move for foreclosure judgment or order of sale, or conduct a foreclosure sale unless one of the above-referenced exceptions is satisfied.
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. 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. The comments to the rule indicate that nothing in the rules prohibit a servicer from proceeding with the foreclosure process, including any publication, arbitration, or mediation requirements when the first notice or filing for a foreclosure proceeding occurred before a servicer receives a CLMP so long as any such steps do not cause or directly result in the issuance of a foreclosure judgment or order of sale, or the conducting of a foreclosure sale.
The comments to the rule also state “[t]he prohibition on a servicer moving for judgment or order of sale includes making dispositive motion for foreclosure judgment, such as a motion for default, judgment on the pleadings, or summary judgment, which may directly result in a judgment of foreclosure or order of sale. A servicer that has made any such motion before receiving a CLMP has not moved for a foreclosure judgment or order of sale if the servicer takes reasonable steps to avoid a ruling on such motion or issuance of such order prior to completing the procedures required by Section 1024.41, notwithstanding whether any such action successfully avoids a ruling on a dispositive motion or issuance of an order of sale.”
What if borrower is offered a loss mitigation option?
The rules set forth specific timing requirements with respect to how long borrowers have to accept loss mitigation options. If a CLMP is received 90 days or more prior to the scheduled foreclosure sale, a servicer must allow the borrower at least 14 days to accept or reject the offer. If a CLMP is received less than 90 days but more than 37 days prior to the scheduled foreclosure sale, a servicer must allow the borrower at least seven days to accept or reject the offer. Except as discussed in the paragraph below, if the borrower doesn’t respond within the deadline, the servicer may deem the borrower’s non-responsiveness as a rejection of the offer.
If the borrower does not timely respond to a loss mitigation offer or fails to satisfy the servicer’s requirements for accepting a modification offer, but submits payments required by the modification offer within the deadline, the servicer must give the borrower a reasonable period of time to fulfill any remaining requirements. In addition, if an appeal is available and the borrower timely appeals the decision, the servicer must extend the deadline for accepting a loss mitigation option until 14 days after the servicer provides notice regarding how the appeal was resolved.
What if borrower is denied loss mitigation options?
The servicer must send a notice to the borrower outlining the reasons why each loss mitigation option was denied. For instance, if the servicer reviews a borrower for three loss mitigation options and two of those options are denied, the notice must contain specific reasons as to why the borrower was denied the two options. If the borrower has a right to appeal the decision, the notice must also state that the borrower may appeal the servicer’s determination for any denial, the deadline for the borrower to make an appeal, and any requirements for making an appeal. If a denial is based on a net present value calculation, the notice must include specific inputs used in the net present value calculation. Note also that, in most cases, if a denial is based upon a requirement of an owner or assignee of the loan, the notice must identify the owner or assignee of the loan and the requirement upon which the denial is based.
Borrower’s Appeal Rights
If a CLMP is received 90 days or more prior to the scheduled foreclosure sale or before a foreclosure sale is scheduled, a borrower is permitted to make an appeal within 14 days after the servicer provides notification of any loss mitigation decisions. The appeal must be reviewed by different personnel than those who reviewed the borrower’s initial CLMP. Supervisors who are responsible for oversight of the personnel that conduct the initial review are permitted to review an appeal so long as they were not directly involved with the initial evaluation of the borrower’s CLMP.
The servicer must notify the borrower, stating the servicer’s determination of whether the servicer will offer the borrower a loss mitigation option based upon the appeal, within 30 days of the borrower making the appeal. The servicer may require the borrower to accept or reject an offer after an appeal no earlier than 14 days after the servicer provides notice to the borrower. A servicer’s determination of an appeal is not subject to any further appeal.
What about a loan service transfer?
The new servicer must obtain documents and information related to the CLMP from the prior servicer and must continue the loss mitigation process to the extent possible. For purposes of compliance with loss mitigation timing requirements, the new servicer must consider the CLMP to have been submitted by the date when the prior servicer received the CLMP. The borrower must not lose the protection of the timing requirements due to a service transfer of a loan.
Private Right of Action
Borrowers have a private right of action to enforce compliance with the loss mitigation procedures. Borrowers may seek any actual damages as well as any additional damages in a case of a pattern or practice of noncompliance in an amount not to exceed $2,000. Damages awarded in class actions may not exceed the lesser of $1,000,000 or 1 percent of the net worth of the servicer. Borrowers may recover reasonable attorneys’ fees.
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Summer 2014 USFN Report