September 13, 2016
by Wendy Walter
McCarthy Holthus, LLP – USFN Member (Washington)
The Consumer Financial Protection Bureau (CFPB or Bureau) announced its long-awaited changes to the mortgage servicing rules on August 4, 2016. The Bureau fulfilled its commitment to revisiting the exemptions given for borrowers in bankruptcies, it promulgated protections for successors in interest, and it amended loss mitigation rules to further address borrowers facing foreclosure. Adding icing to this regulatory cake, the Bureau also issued an interpretive rule under the FDCPA and provided an anticipated safe harbor for servicer communication that is required to comply with the mortgage servicing rules. This article focuses on the foreclosure-related provisions of these amendments, summarizing the general servicing policies and the loss mitigation application changes. To view CFPB’s Executive Summary, please visit: http://www.consumerfinance.gov/documents/805/08042016_cfpb_Mortgage_Servicing_Executive_Summary.pdf.
Default servicers and law firms should take note that these rules will not be the sea change of the 2014 rules but, in reviewing feedback, the Bureau took care to further clarify the intersection of loss mitigation and foreclosure. The relevant foreclosure-related rules are effective 12 months from the date they are published on the Federal Register; rules relating to successors in interest and periodic statements for borrowers in bankruptcy are effective 18 months from the date of publication in the Federal Register.
General Servicing Procedures affecting Foreclosure Counsel Communication
The Bureau amended the official interpretation to section 12 CFR 1024.38 to require that servicer policies and procedures “promptly inform servicer provider personnel handling foreclosure proceedings that the servicer has received a complete loss mitigation application and promptly instruct foreclosure counsel to take any step required by 12 CFR 1024.41(g).” The purpose of this amendment is to make it clear that counsel might need time to assist the servicer to comply with the rule prohibiting moving for judgment or order of sale or conducting a foreclosure sale when a complete loss mitigation application has been received. The Bureau’s modification on this piece is far less draconian than the original proposal, and it is here that the work of the USFN’s task force handling comments to the proposed rule should be commended. Earlier versions would have required dismissal of a case as a consequence of failing to properly stop entry of a judgment or order of sale.
Notice of Complete Loss Mitigation Application
To provide clarity and more certainty as to when a servicer determines a loss mitigation application to be complete, the amended rules require that the servicer provide a written notice to the borrower no later than five days after receiving a complete loss mitigation application. The notice must contain the receipt date of the completed application, the list of foreclosure protections to which the borrower is entitled, and whether there might be additional protections under state law. As counsel, it is worth consideration to request a copy of this letter in order to show the court that a case needs to be continued pending the completion of the loss mitigation review and compliance with the federal loss mitigation rules. The CFPB stopped short of requiring that the servicers provide this to counsel but, clearly, it might be good information to have. Notably, the Bureau did not require in the final rule that this notice contain the foreclosure sale date. The original proposal had this data point on the proposed notice, and the USFN task force worked with the CFPB to explain how difficult it would be to get this right and to not create unnecessary confusion to the borrower.
More than One Bite at the Loss Mitigation Apple
Servicers are now required to consider more than one loss mitigation application for the life of the loan. In other words, a borrower’s foreclosure must be stopped for every single complete loss mitigation submission, if prior to the 37 days preceding a foreclosure sale. There is no more exception to the loss mitigation rule for a borrower on his or her second or third loss mitigation application. The ability to obtain a second set of loss mitigation rights only applies, however, to those borrowers who become current on payments anytime between their prior complete loss mitigation application and a subsequent loss mitigation application.
In the winter 2017 edition of the USFN Report, I will further elaborate on the foreclosure- and loss mitigation-related provisions of these rule amendments. Stay tuned to the USFN publications for more details.
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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."