Getting to a Complete Application

Sarah Mancini National Consumer Law Center

Diane Cipollone

Cipollone Legal Consults LLC

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Review Rights Tied to Date of Complete Application Days Complete Application Received Before Foreclosure Sale

≥ 90 ≥ 38 <38

Time to Evaluate(1) 30 days

No requirement but review

investor guidelines

Time to Appeal(2) 14 days No appeal rights No appeal rights

Time to Accept Loan Mod Offer(3) 14 days 7 days No requirement

(1) 12 C.F.R. § 1024.41(c) (2) 12 C.F.R. § 1024.41(h) (3) 12 C.F.R. § 1024(e)(1).

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Duty to Get to Complete App: 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 • 12 CFR 1024.41(b)(2)

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Duty to Get to Complete App: Application Any Time • “A servicer shall exercise reasonable diligence in

obtaining documents and information to complete a loss mitigation application.” • 12 CFR 1024.41(b)(1)

• This applies to any application – even if submitted less than 45 days before sale!

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Duty to Get to Complete App: Application Any Time What is “reasonable diligence”? • A servicer must request information necessary to make the

app complete “promptly” Examples of “reasonable diligence” include: • Servicer requires additional information, such as an address or

telephone number to verify employment, and contacts the applicant promptly to obtain.

• Servicing is transferred and borrower makes an incomplete application to transferee servicer; transferee servicer reviews docs provided by transferor servicer to see if the information required is contained within those docs.

• Servicer puts borrower in forbearance based on incomplete app; servicer may need to contact the borrower near the end of forbearance to see if borrower wishes to complete the app.

OI § 1024.41(b)(1)-4

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Date Triggers

• When do you count the days? • For any triggers based on how far before foreclosure a complete

application is submitted, the determination of protections shall be made as of the date the complete application is received. (As of that date, is a foreclosure sale scheduled within 37 days? Within 90 days?) 1024.41(b)(3)

• If no foreclosure sale is scheduled, treat the complete app as if it was received > 90 days before foreclosure. OI, ¶ 1024.41(b)(3)-1

• Scheduled foreclosure vs. actual foreclosure (what if the sale gets postponed?) • Example: Sally’s application is complete when foreclosure is

scheduled 33 days later. Then Chase postpones the foreclosure sale by a month.

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Date Triggers • Thomas v. Wells Fargo Bank, N.A., 2016 WL 1701878 (S.D. Cal.

Apr. 28, 2016) (when a foreclosure sale actually occurs and the servicer receives a complete loss mitigation application the required amount of days before the actual sale, rather than the initial scheduled date, the servicer must comply with the requirements of §§ 1024.41(b) & (c))

• Dionne v. Fed. Nat. Mortgage Ass'n, 110 F. Supp. 3d 338 (D.N.H. 2015) (servicer’s argument for using the initial scheduled foreclosure date rather than the actual foreclosure sale date is contrary to the plain wording of § 1024.41(g)).

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Complete Application • A complete application is one for 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” 12 C.F.R. §1024.41(b)

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Complete Application • Borrower submits all docs requested in the 1024.41(b)(2)

notice

• If the servicer later discovers additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents.

• See also OI, ¶ 1024.41(b)(2)(i)(B)-1 (additional docs or a corrected version of a doc)

• “A servicer that complies with this paragraph will be deemed to have fulfilled its obligation to provide an accurate notice under paragraph (b)(2)(i)(B).” (5-day notice)

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Dual Tracking

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Dual-Tracking Provisions

• 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 servicer has made first notice or filing, a servicer shall not make first notice or filing to initiate the foreclosure process

• This provision (§ 1024.41(f)(1)) preempts state foreclosure timelines to the extent they allow an earlier commencement of foreclosure

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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 Provisions

• If borrower submits complete application after first notice or filing but more than 37 days before a 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

• Prohibition includes making 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

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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. 12 C.F.R. § 1024.41(c)(1)(iv)

• If servicer later discovers more information is needed or 5-day notice was incorrect, servicer must promptly request missing information

• Servicer must treat application as complete for purposes of dual tracking provisions until borrower given a reasonable opportunity to complete

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Facially Complete App, cont. • If borrower completes application within this period,

application is considered complete as of date it was facially complete for most timelines under rule (for purposes of denial, response deadline, appeal, & dual tracking rules)

• 30-day evaluation clock doesn’t begin to run until actually complete (1024.41(c) )

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Hypothetical: Ernestine Jones

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Timeline Date Event 4/1/15 Application submitted 4/2/15 Application received by CountryStar 4/9/15 CountryStar sends letter acknowledging receipt

of application, asking for Violet’s paystubs to complete the app. Deadline to submit 5/9/15

4/12/15 Ms. Jones receives the 4/9/15 letter 5/4/15 You fax Violet’s paystubs to CountryStar 5/12/15 CountryStar asks for (by 6/12/15):

• a credit authorization form signed by Violet, and

• a letter from the HOA stating it is current

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Timeline

Date Event

5/20/15 You fax the credit authorization form and the letter from HOA

6/8/15 CountryStar requests a letter from the HOA stating it is current, by 6/20/15

6/10/15 CountryStar makes the “first notice or filing” required to initiate foreclosure in your state, scheduling a foreclosure sale for 8/15/15

6/11/15 Call to CountryStar to clarify re HOA letter 6/18/15 You fax revised HOA letter to CountryStar 8/15/15 Scheduled foreclosure sale occurs

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Hypothetical: Part B

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Servicing 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

• Official Interpretations to Reg. X, ¶ 41(i)-1 and 2; 12 C.F.R. § 1024.38(b)(4).

• Dent v. Inv. Corp. of Am., 2015 WL 9694807, at *5 (E.D. Mich. Dec. 23, 2015) (“Mortgage servicers thus may not escape their duty to address loan modification requests by simply noting that such requests were made to a prior servicer.”).

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Examples of Servicer Noncompliance • Incomplete Application Notice – • Servicer instructs borrower to log onto account on

servicer’s website to find out what documentation is missing:

“Refer to the initial package we sent you listing all required documentation, as well as any subsequent correspondence. Go to [your account] to see which documents we have received and check that against the list of items we requested to determine what information we still need from you.

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Examples of Servicer Noncompliance • Incomplete Application Notice – • Servicer includes a chart listing all possible types of

documentation and checks items “not received” but many docs do not apply to this borrower’s situation. Other confusing notations on the chart.

• Incomplete application notice includes the list of all possible types of documentation but servicer fails to indicate what is missing - appears that borrower is expected to compare what was submitted against this general list.

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RECENT CASE LAW UPDATE

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Review of Complete App • Guillermo v. Caliber Home Loans, Inc., 2015 WL 4572398 (N.D.

Cal. July 29, 2015) • Servicer failed to evaluate application “deemed complete” • Did not give notice of documents needed for incomplete

application; • Did not provide decision within 30 days of receipt of

application deemed complete • Servicer allowed 30 days to pass without request for

additional documents after initial app. received

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Review of Complete App Paz v. Seterus, 2015 WL 4389521 (S.D. Fla. July 16, 2015) • Complete application received w/in 45-37 day pre-sale

period. • Servicer Must notify of decision w/in 30 days (§

1024.41(c)(1)(ii)). • Must act with “reasonable diligence” to complete

application or will be deemed “facially complete.” (§ 1024.41(c)(2)(iv))

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Review of Complete App Rouleau v. US Bank, N.A., 2015 WL 1757104 (D. N.H. Apr. 17. 2014) • Complete application to old servicer 45+ days before non-

judicial sale • New servicer conducted sale without decision on application • Dual tracking violation claim against loan owner. • Old and new servicer agents for same principal. • “ordinary rules” of vicarious liability apply – similar to tort

liability

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Duty to Evaluate • Bennett v. Bank of Am., N.A., 126 F. Supp. 3d 871, 884 (E.D. Ky.

2015) (section 1024.41 imposes a duty on a servicer to notify a borrower of all loss mitigation offers).

• Norris v. Bayview Loan Servicing, LLC, 2015 WL 6745048, at

*10 (C.D. Cal. Oct. 26, 2015) (court held that a borrower sufficiently pleaded a violation of section 1024.41(c) by alleging that the servicer did not review the borrower for “all loss mitigation options available to him” because the servicer used an incorrect property value in evaluating his loan modification application) 27

Dual Tracking • Estrada v. Caliber Home Loans, Inc., 2016 WL 1237343 (C.D.

Cal. Mar. 25, 2016) (complaint sufficiently alleged that servicer violated § 1024.41(f)(2) by recording a notice of default on the borrower’s property after receiving a facially complete application, which servicer was required to treat as complete).

• Bennett v. Bank of Am., N.A., 2016 WL 2610238 (M.D. Fla. May 6, 2016) (refusing to dismiss § 1024.41(g) claim where complaint alleged that servicer proceeded with motion for summary judgment and obtained a foreclosure judgment after receiving a facially complete application). 28

Keep your eye on concrete damages…

Actual Damages: • Time, inconvenience, and expense sending and

resending docs to get to “complete” or resending stale docs caused by servicer delay

• Foreclosure fees, late fees • Accrual of interest eventually capitalized in the mod • Loss of home through avoidable foreclosure (can you

allege that Ms. Jones was actually eligible for a modification?)

• Credit damage • Emotional distress (When? How?)

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Keep your eye on concrete damages… • Spokeo v. Robins, __ S. Ct. __, 2016

WL 2842447 (May 16, 2016)

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