Third Circuit Holds that an Account Number for a Consumer's Debt May Not Appear on the Debt Collector's Envelope Mailed to the Consumer
by Bob Hobbs NCLC eReports, Sept. 2014, No. 1 Debt Collection
In Douglass v. Convergent Outsourcing,[1] the Third Circuit has just issued an important interpretation as to the FDCPA prohibition in 15 U.S.C. § 1692f(8) against using any language or symbol other than the debt collector's address on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.[2]
One would think that it would be difficult to find a clearer, more specific rule about what debt collectors could put on the envelopes they mail to consumers. Nevertheless, Convergent, a contingent fee debt collector sent the consumer a collection letter where showing through the transparent envelope window was the consumer's name, address, the debt collector's account number for the consumer's debt, and the "QR code."
The QR code or quick response code, when scanned by a smart phone or similar device, reveals the consumer's information, including the amount owed. The debt collector included the QR code on every debt collection letter to aid it in sorting returned envelopes. This is believed to be a common practice in the industry. The consumer did not press the argument before the Third Circuit that the QR code violated the FDCPA[3] and focused on the debt collector's account number for the consumer's debt appearing on the envelope.
The lower court followed the majority of case law holding that there is a "benign language" exception to the FDCPA prohibition on extra information visible on the envelope, and that the account number and QR code fell within that exception. The Third Circuit disagreed and reversed, holding that the account number was not "benign language." The consumer argued that the "benign language" exception adopted by two circuits, FTC staff, and lower courts[4] did not respect the clear Congressional language and that the clear language should be followed unless the result was "absurd." The consumer argued that the debt collector was publishing millions of account numbers on envelopes sent to consumers when the Third's Circuit's own rules prohibited counsel from including unredacted account numbers even in their briefs.
The Third Circuit found that the publication of the account number on the posted envelope was not benign and that it did not have to address whether that exception crafted by earlier decisions was appropriate. "The account number is a core piece of information pertaining to Douglass's status as a debtor and Convergent's debt collection effort. Disclosed to the public, it could be used to expose her financial predicament."[5]
The debt collector had argued that a literal application of the FDCPA's prohibition would create an absurdity. No debt collector could ever send a letter through the mail — the envelope could not display the recipient's name and address or even a stamp. Convergent thus argued for a "benign language" exception that would allow for markings on an envelope so long as they do not suggest the letter's purpose of debt collection or humiliate or threaten the debtor.[6]
NCLC e-Reports
Important Fair Debt Collection Decision, Sept. 2014
The Third Circuit rejected that argument, finding that the account number involved the display of core information about the debt collection and raised privacy concerns that the FDCPA was intended to protect. Those concerns were not raised by including on the envelope the phrases considered as benign in the earlier cases, such as "priority letter," "PERSONAL AND CONFIDENTIAL," or "IMMEDIATE REPLY REQUESTED."
New RESPA Rules Change Qualified Written Request Procedure by John Rao NCLC eReports, Dec. 2013, No. 4 Foreclosures and Servicing
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 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 non-judicial 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.
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 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 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 questionz 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 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;
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.
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 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 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 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.
[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."
[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.
[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.).
[28] 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 alsoCWCapital 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").
[38] See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(ii)-1 (effective Jan. 10, 2014).
[39] 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.").
New RESPA Rules Change Qualified Written Request Procedure by John Rao NCLC eReports, Dec. 2013, No. 6 Foreclosures and Servicing
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 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, NCLCeReports, 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 covered 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. 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 standards[15] 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 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 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 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 consider avoiding a general request for the entire PSA.[32] Rather, the borrower's request might 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 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
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 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 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]
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 § 1024.35(h) for notices of error and § 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.
[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. SeeForeclosures, § 9.2.2.2.1 (4th ed. and 2013 Supp.).
[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."
[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.).
[32] 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).
[45] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 35(f)(1)(iv)-1 (effective Jan. 10, 2014).
[46] 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.").
New RESPA Early Intervention Requirements for Borrowers in Default by John Rao NCLC eReports, Jan. 2014, No. 5 Foreclosures and Servicing
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.
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 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]
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 toll-free 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 MS-4(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 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]
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 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]
[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).
[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.
[26] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(b)(2)-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.
New RESPA "Continuity of Contact" Requirements for Borrowers in Default
by John Rao NCLC eReports, Jan. 2014, No. 8 Foreclosures and Servicing
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 § 1024.39[1] that were discussed in an earlier eReports article and the loss mitigation procedures in § 1024.41[2] 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 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 appeal[8] 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]
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 "objectives-based 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]
[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 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.").
New RESPA Loss Mitigation Procedures by John Rao[1] NCLC eReports, Feb. 2014, No. 3 Foreclosures and Servicing
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. Part 1 of 2.
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.[2] 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.[3] The CFPB leaves to the servicer the discretion to approve or disapprove an option.[4] Instead, the CFPB has mandated a procedural framework within which the evaluation of loss mitigation options must take place.[5]
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.[6] 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.[7]
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.[8] 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.[9]
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."[10] 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.[11] The application may be verbal.[12]
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.[13]
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.[14] In addition, a servicer is permitted to offer a loss
mitigation option to a borrower who has submitted an incomplete loss mitigation application where the offer is not based on any evaluation of information submitted by the borrower in connection with the application.[15]
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.[16] 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."[17] 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.[18] 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.[19] 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.[20] 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."
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.[21]These obligations extend over the post-default period up to forty-five days before a scheduled foreclosure sale date.[22]
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.[23] 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.[24]
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.[25] Second, the regulation mandates that the servicer provide a written notice to the borrower describing the documents and information needed to complete the application.[26] This notice must include a "reasonable date" by which the borrower should submit the missing documents and information.[27] The servicer must send the notice within five business days of receipt of an application it deems incomplete.[28]
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.[29] 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;
the date that is 38 days before a foreclosure sale.[30]
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.[31]
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 borrowermust make the loss mitigation application complete."[32]
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 five-day 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."[33] 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.[34]
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).
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.[35]The CFPB considered and rejected the option to have the requirement for the five-day notice of application status apply only to incomplete applications.[36]
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.[37] The evaluation of the borrower for all loss mitigation options must be completed within thirty days of receipt of a complete application.[38] 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.[39]
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.[40] 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.[41] 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.[42]
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.[43] 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 treatment of applications under the loss mitigation rule:
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,[44] 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."[45]
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.[46] 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."[47]
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. [48] 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.[49] A servicer may consider the timing of the foreclosure process in determining whether an application is incomplete for a significant period of time.[50]
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."[51] 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.[52]
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.[53] 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.[54] 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.[55]
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 a full evaluation.[56] 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.[57] 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."[58] 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.[59] 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.[60] 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.[61]
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.[62] 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).
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.[63] 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.[64]
WHEN WRITTEN NOTICE OF DENIAL OF LOAN MODIFICATION OPTIONS NOT REQUIRED
There are several limitations on when a servicer must include the specific denial notification within the § 1024.41(c)(1)(ii) evaluation notice. First, the servicer must provide a written evaluation notice only for complete applications. Second, the written notice must provide the required denial language only if the servicer denies a borrower's application for any loan modification option available to the borrower.[65] The notice does not have to provide detailed information for decisions on non-modification loss mitigation options for which the borrower was evaluated.[66] Finally, due to the temporal limit on the duty to evaluate loss mitigation applications under § 1024.41(c)(1)(i), servicers must comply with this written denial notice requirement for all complete loss mitigation applications submitted more than thirty-seven days before a scheduled foreclosure sale.[67]
DISCLOSURE OF REASONS FOR DENIAL OF LOAN MODIFICATION OPTIONS
When written notice does apply, 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.[68] 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.[69] The CFPB's Official Bureau Interpretation makes clear that a servicer is required to disclose the actual reason or reasons for the denial.[70] 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.[71] 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.[72] 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.[73] 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.[74]
If the servicer denies any loan modification option because of a net present value calculation,[75] the notice must state this reason and include the inputs used for the calculation.[76] 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.
APPEAL RIGHTS AND RIGHTS WHERE NOTICE OF DENIAL NOT COMPLIANT
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.[77] 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.[78]
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.[79] If costs and fees were incurred or, more significantly, if the borrower lost a home while the servicer ignored available alternatives to foreclosure, the borrower can hold the servicer accountable through recourse to the remedies allowed under RESPA.[80]
[4] 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.").
[5] 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.").
[6] 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).
[8] 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.
[9] See NCLC eReports, Dec. 2013, No. 4; NCLC Foreclosures, § 9.2.2.2.2.3 (4th ed. and 2013 Supp.).
[10] 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.").
[11] 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.").
[12] See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013).
[13] 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."
[14] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(i)-1 (effective Jan. 10, 2014).
[18] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-5 (effective Jan. 10, 2014).
[19] 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."
[20] See NCLC Foreclosures, § 2.10 (4th ed. and 2013 Supp.).
[44] See NCLC Foreclosures, § 9.4 (4th ed. and 2013 Supp.).
[45] See also Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013).
[46] 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.).
[64] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)-3 (effective Jan. 10, 2014).
[65] The servicer is required, however, to provide written notice to the borrower under section 1024.41(c)(1)(ii) of any loss mitigation options offered to the borrower.
[66] The error resolution procedures (12 C.F.R. § 1024.35) and the information request rules (12 C.F.R. § 1024.36) provide some recourse for borrowers to obtain information about and potentially to remedy evaluation errors that did not involve requests for loan modifications. See NCLC Foreclosures, § 9.2.2 (4th ed. and 2013 Supp.).
[67] Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014). See also NCLC Foreclosures, § 9.2.8.2.3 (4th ed. and 2013 Supp.).
New RESPA Loss Mitigation Procedures (Part 2) by John Rao[1] NCLC eReports, Mar. 2014, No. 4 Foreclosures and Servicing
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.
This article covers the following topics:
New restrictions on foreclosure actions during the first 120 days of delinquency
New restrictions on foreclosure actions after that 120 day period if the homeowner has submitted a complete loss mitigation application
Borrower right for time to respond to loss mitigation offer
Borrower's new appeal rights for loan modification denials
Exclusion to the above requirements for "duplicative" applications and when the duplicative application exclusion does not apply
The small servicer and other exemptions
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.[2] 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."[3] 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.[4] 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.[5]
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 flexibility in referring a case to foreclosure during the initial 120 days of delinquency.[6] 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.[7] 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."[8]
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."[9] 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."[10] The question of whether a document is the first notice or filing is determined by the foreclosure procedure under applicable state law.[11]
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.[12] In response to questions from the mortgage 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.[13] 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.[14]
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.[15] 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."[16]
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.[17] In other words, the 120-day time period 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
nder 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.[18] 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)[19] stating that the borrower is not eligible for any loss mitigation option and the appeal process under § 1024.41(h)[20] 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.[21]
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.[22] The servicer may have erred in failing to treat as complete an application that qualified as complete under ascertainable non-RESPA 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.[23] 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 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.[24] These include acknowledging receipt of the notice of error within five business days.[25] The servicer must then comply with the response options within thirty business days or prior to any foreclosure sale, whichever is earlier.[26] 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.[27]
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.[28] 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)[29] stating that the borrower is not eligible for any loss mitigation option and the appeal process under § 1024.41(h)[30] 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.[31]
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.[32] 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.[33] 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).[34] This may include instructing counsel to move for a continuance with respect to the deadline for filing a dispositive motion.[35]
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.[36]
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 and a scheduled foreclosure sale remain in effect even if a foreclosure sale is later scheduled or rescheduled.[37]
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;[38]
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;[39]
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;[40]
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;[41]
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.[42]
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.[43]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.
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.[44] 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.[45]
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.[46] 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.[47]
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.[48] 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.[49] 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.[50]
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.[51] However, this right to appeal a loan modification denial applies only if the servicer receives a 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.[52] 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.[53]
The notice of denial, which is included as part of the notice sent to the borrower under § 1024.41(c)(1)(ii),[54] 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.[55]
The "appeal" is a review by "different personnel than those responsible for evaluating the borrower's complete loss mitigation application."[56] 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.[57] 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.[58] A servicer's determination is not subject to any further appeal.[59] 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.[60] 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."[61] This exclusion from the application of § 1024.41 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."[62] 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."[63] The word "renew" describes an attempt to "resume (an activity) after an interruption."[64] 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.[65] 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."[66]
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, six-month 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 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.[67]
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,[68] 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, [69] and 2) when the servicer offers a borrower a short-term payment forbearance program based on an incomplete loss mitigation application.[70] 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.[71]
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.[72] 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.[73]
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,[74] and the continuity of contact requirements under § 1024.39,[75] 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.[76]
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."[77] 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. [78]
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,[79] 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.[80] 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.[81]
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."[82] 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.[83]
SMALL SERVICER AND OTHER EXEMPTIONS FROM COVERAGE
Small servicers[84] 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.[85] 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.[86]
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.[87]
A servicer with respect to a reverse mortgage loan transaction is also exempt from all of the § 1024.41 requirements.[88] 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.[89] There is no exemption from the Regulation X loss mitigation procedures when a borrower is in a bankruptcy proceeding.
[1] NCLC attorney Geoff Walsh assisted in preparing this article.
[2] 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.").
[5] 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.
[6] 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 state-specific 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.
[7] 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.").
[9] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)(1)-1 (effective Jan. 10, 2014).
[10] Id.
[11] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014).
[12] 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 90-day 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 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).
[14] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014).
[15] 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).
[16] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1.iv (effective Jan. 10, 2014).
[17] 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 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.).
[22] See NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.).
[23] 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.).
[27] 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.).
[43] 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 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).
[44] 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).
[67] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014).
[68] See "New RESPA Loss Mitigation Procedures," NCLC eReports, Feb. 2014, No. 3.
[69] 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).
[80] See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014).
[81] Id.
[82] 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).
[83] Id.
[84] 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).
[88] 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).
[89] 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."
Checklist for Reviewing RESPA Loss Mitigation Notices to Borrowers by John Rao NCLC eReports, Mar. 2014, No. 9 Foreclosures and Servicing
REMEDIES FOR NOTICE VIOLATIONS
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.
CHECKLIST FOR NOTICE VIOLATIONS
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" Notice[2]
□ 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]
2. Five-Day Application Status Notice[9]
□ 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 forty-five 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 Notice[14]
□ 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]
□ 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 option[20] and the borrower's complete application was received at least ninety days before a scheduled foreclosure sale)?[21]
4. Appeal Decision Notice[22]
□ 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]
Sample RESPA Notice of Error for Dual Tracking Violations by John Rao NCLC eReports, Apr. 2014, No. 1 Foreclosures and Servicing
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 a servicer error with respect to the borrower's mortgage loan is referred to as a "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)[2]or
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.).
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:
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."].
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]
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].
[2] 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).
[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.).
[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.).
Sample RESPA Request for Information About a Loss Mitigation Application
by John Rao[1] NCLC eReports, May 2014, No. 3 Foreclosures and Servicing
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.[2]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."[3] 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."[4] 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.[5] 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."[6]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."[7] 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."[8]
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. [9] 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.[10] Appropriate alterations based on your client's situation must be made before sending the following sample request.[11] 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.[12]
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; 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. 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]
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].
[1] Thanks to NCLC's Diane Thompson and Sarah Bolling Mancini of Atlanta Legal Aid Society, Inc. for assistance in preparing the sample request.
[2] See, e.g., 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.).
[3] 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. SeeForeclosures, § 9.2.2.2.1 (4th ed. and 2013 Supp.).
[5] 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."
[9] 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.
[10] 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.).
[11] 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.).
[12] 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.).
New TILA Periodic Mortgage Statement Rule by John Rao NCLC eReports, July 2014, No. 3 Foreclosures and Servicing
An important TILA regulation that requires consumers to receive periodic mortgage statements went into effect on January 10, 2014. If prepared in accordance with the regulation, these periodic statements will give consumers helpful information about their mortgage accounts. The disclosures will also provide a treasure trove of information for advocates that will help them figure out whether an account is actually in default and whether a servicer has properly applied payments or improperly charged unauthorized fees. Violations may lead to TILA claims for actual damages and attorney fees.
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.
APPLICATION OF PERIODIC STATEMENT REQUIREMENT
The monthly statement 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]
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. 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 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.
(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 needed to bring the account current; and (vii) reference to the homeownership counselor information disclosed in the above account information category. Although not expressly stated in the regulation or commentary, the disclosure of the "total payment amount needed to bring the account current" should include all monetary amounts owed by the consumer to cure the delinquency, including amounts paid to third-party providers that are being assessed to the mortgage account, such as attorneys fees and fees for property inspections or broker price opinions. This amount to bring the account current also should be consistent with any notices stating a cure amount that are required to be sent to the consumer under the mortgage documents or state law, assuming the same time period is reflected in the statement and notice. 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 § 1026.41(d)(1);
a coupon book that includes anywhere in the coupon book: (i) the account information listed in § 1026.41(d)(7);[33] (ii) the contact information for the servicer required by § 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 § 1026.41(d)(2) though (5);[34]
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 § 1026.41(d)(2) though (5); and
the delinquency information required by § 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 consumers who are having payment problems. If the coupon book exclusion otherwise applies, but the consumer is more than forty-five days delinquent, the 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.
OTHER EXEMPTIONS
Servicers are not required to provide periodic statements to consumers 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 consumer in default.
INTERIM FINAL RULE ADDS BANKRUPTCY EXEMPTION
Industry commenters suggested during the rulemaking proceeding that the periodic statement rule should not apply to consumers in bankruptcy because accounting issues related to the treatment of prepetition arrearages were problematic. The CFPB's initial response was practical — complexity alone does not justify a complete exemption, but may warrant certain adjustments. In fact, the CFPB noted that 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
stated 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 as initially promulgated allowed servicers to make changes to the statement as they believe necessary when a consumer 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]
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 consumer 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 § 524(j) of the Bankruptcy Code that permits the mortgage holder to accept payments and service the loan in the ordinary course.[47] Thus, the CFPB's commentary is inconsistent with this bankruptcy policy, 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 obligors 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."[48] 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 periodic statements even if the husband filed a chapter 7 case years after the couple were separated or divorced and it is the wife who is making the ongoing mortgage payments.
PRIVATE REMEDIES FOR VIOLATION OF THE TILA SERVICING REQUIREMENTS
The Dodd-Frank Act's mortgage servicing provisions are within Part B of TILA.[49] Part B violations generally lead to TILA private remedies of actual and statutory damages and attorney fees, in both individual and class actions.[50] While § 1640 of TILA lists certain TILA violations for which statutory damages are not available, Congress did not add any of the new mortgage servicing requirements to this list of claims not entitled to statutory damages. However, § 1638(f) of TILA is not listed in § 1640 as one of the § 1638 violations leading to statutory damages, so recovery of statutory damages is not permitted for violations of the periodic statement requirements. In addition, TILA liability involving servicer violations (as opposed to creditor violations) leads to complexities examined in NCLC's Truth in Lending § 11.6.9 (8th ed. 2012 and 2013 Supp.).
[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).
[5] Id. See also Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-2 ("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).
[7] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(b)-1.
[8] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-1.
[9] Reg. Z, 12 C.F.R. § 1026.41(a)(2).
[10] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-3.
[11] Id.
[12] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-3.
[13] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-4.
[14] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-4.
[15] Reg. Z, 12 C.F.R. § 1026.41(c).
[16] These sample forms are reprinted in NCLC's Foreclosures, Appx. C.3.
[17] Reg. Z, 12 C.F.R. § 1026.41(c).
[18] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-1.
[19] Reg. Z, 12 C.F.R. § 1026.41(d). See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)-1
("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).
[21] Reg. Z, 12 C.F.R. § 1026.41(d)(2).
[22] Reg. Z, 12 C.F.R. § 1026.41(d).
[23] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-1.
[24] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-2.
[25] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-3.
[26] Reg. Z, 12 C.F.R. § 1026.41(d)(4).
[27] Reg. Z, 12 C.F.R. § 1026.41(d)(6).
[28] Reg. Z, 12 C.F.R. § 1026.41(d)(7).
[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).
[31] 15 U.S.C. § 1638(f)(3).
[32] 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.
[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).
[36] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(3)-2.
[37] Reg. Z, 12 C.F.R. § 1026.41(e)(1). 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).
[39] Reg. Z, 12 C.F.R. § 1026.41(a).
[40] Reg. Z, 12 C.F.R. § 1026.41(e)(4). A "small servicer" is defined as an entity that "services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee" or is a "Housing Finance Agency, as defined in 24 CFR 266.5." The definition of small servicer is discussed in NCLC Foreclosures, § 9.1.4.3.
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.' ").
[44] See 78 Fed. Reg. 62,993 (Oct. 23, 2013).
[45] 12 C.F.R. § 1026.41(e)(5).
[46] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(5) - 2(ii).
[47] 11 U.S.C. § 524(j); see also § 10.11.2.1, infra.
[48] See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(5) - 3.
[49] TILA Part B encompasses 15 U.S.C. §§ 1631 through 1649.
[50] 15 U.S.C. § 1640(a). See generally NCLC, Truth in Lending § 11.6, (8th ed. 2010)(discussing availability of statutory damages under Part B).
