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Mortgage Servicing and Loan Modifications: 4.2.5.4.1 Introduction

When the CFPB first considered a rule to implement the TILA periodic statement requirements, industry commenters suggested that the rule should not apply to borrowers 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.

Mortgage Servicing and Loan Modifications: 4.2.5.4.2 Interim final rule before April 19, 2018

The version of section 1026.41(e)(5) that was in effect from January 14, 2014 until April 18, 2018, which was implemented by the interim final rule, provided that a creditor or servicer was exempt from the periodic statement requirements for a mortgage loan while the borrower was a debtor in a bankruptcy case.168 The CFPB’s official interpretations for this section provided that the exemption applied not only for a borrower in bankruptcy but also for any portion of the mortgage debt that was discharged in bankruptcy.

Mortgage Servicing and Loan Modifications: 4.2.5.4.3 Final rule after April 19, 2018

Effective April 19, 2018, section 1026.41(e)(5) was amended to limit the scope of the bankruptcy exemption and to provide specific guidance on the rule’s application based on the various types of bankruptcy cases. The CFPB rejected proposals that would have required consumers to affirmatively submit an opt-in request in all situations, which would have made an opt-in request the exclusive means for obtaining statements.

Mortgage Servicing and Loan Modifications: 4.2.5.4.4 Opt-in or opt-out right

The CFPB correctly recognized that events in a consumer bankruptcy case are fluid and that the positions of the consumer and mortgage creditor with respect to a mortgage loan may change significantly during the bankruptcy and after the case is closed. For example, it is not uncommon for a consumer to be provided a home retention loss mitigation option even after the creditor has obtained an order in the consumer’s bankruptcy case providing for relief from the automatic stay or the consumer has filed a statement of intention indicating that the home will be surrendered.

Mortgage Servicing and Loan Modifications: 4.2.5.4.5 Modified statements for consumers in bankruptcy

When periodic statements and coupon books must be provided to consumers who have filed bankruptcy, section 1024.41(f) requires some modification of their content. The requirements for modified periodic statements apply during the period when any consumer on the loan is a debtor in a bankruptcy case, or if any consumer on the loan has discharged personal liability on the mortgage loan in bankruptcy.

Mortgage Servicing and Loan Modifications: 4.2.5.4.6 Modified statements for consumers in chapter 13 cases

In addition to any other requirements under section 1024.41(f) discussed in the previous section that may apply, another set of requirements applies specifically to the modified statements given to consumers in chapter 13 cases (and chapter 12 cases).222 These modifications largely reflect the treatment of mortgages in chapter 13 cases and permit consumers to receive statements that contain account information tailored to the circumstances of a chapter 13 case.

Mortgage Servicing and Loan Modifications: 4.2.5.5 General Exemptions from Coverage

Creditors, assignees, and servicers are not required to provide periodic statements to borrowers with reverse mortgages,251 and timeshare plans.252 The regulation applies only to closed-end mortgage loans, so open-end home loans such as home equity lines of credit (HELOCs) are exempted from coverage of the regulation.253 In addition, mortgage loans that are serviced by small servicers are exempt from the requirements of the periodic statement regul

Mortgage Servicing and Loan Modifications: 4.2.5.6 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.257 However, to qualify for the exemption, the statutory language requires the creditor or servicer to provide a coupon book that includes “substantially the same information” required the statute.258

Mortgage Servicing and Loan Modifications: 5.8.12 Trespass

Unauthorized and unlawful entry onto the private property of another is trespass at common law. One may be liable for trespass by entering land in possession of another or causing a thing or third person to enter such land.263 Trespass may occur even when there is no damage to the property itself.264 Privilege is a defense to trespass.

Mortgage Servicing and Loan Modifications: 5.9.1 Preemption Under RESPA

The general Real Estate Settlement Procedures Act (RESPA) provision relating to preemption expressly provides that state laws are preempted only to the extent of their inconsistency with RESPA.268 State law would be inconsistent with RESPA if it precludes a borrower from exercising rights or obtaining relief under RESPA.

Mortgage Servicing and Loan Modifications: 8.1 Introduction

Congress created the Federal Housing Administration (FHA) in 1934 to help define federal housing policy during the Depression. FHA’s programs further Congress’s stated national housing goal of “a decent home and a suitable living environment for every American family.”1 The FHA’s primary public purpose is now to expand homeownership and rental housing opportunities for people not adequately served by the private mortgage markets.

Mortgage Servicing and Loan Modifications: 9.1 Introduction

The United States Department of Veterans Affairs (VA) and the Rural Housing Service (RHS) (formerly the Farmers Home Administration) make, insure, or guarantee loans, mostly on behalf of low and moderate income individuals. These types of mortgages provide an alternative to consumers unable to access conventional mortgages or looking to access the benefits provided by federally insured loans.

Mortgage Servicing and Loan Modifications: 11.12.1 Introduction

Many potential claims related to mortgage servicing or wrongful foreclosure are based on state statutory or common law, so the question of whether some federal law preempts these claims is important. This section provides an overview of preemption of state servicing and foreclosure laws by the National Bank Act (NBA), the Home Owners’ Loan Act (HOLA), the Federal Credit Union Act (FCUA), and regulations promulgated under those statutes.

Mortgage Servicing and Loan Modifications: 5.2.4 Escrow Requirements

The management of escrow accounts is another area that is typically covered by state servicing statutes. While these statutes often impose requirements for escrow accounts that are similar to those imposed by RESPA,25 it is worth checking whether a state statute may cover matters not addressed by RESPA, or may provide greater rights to the borrower.

Mortgage Servicing and Loan Modifications: 5.9.2 Preemption Under TILA

Similar to RESPA, the federal Truth in Lending Act (TILA) establishes a preemption standard. Generally, TILA does not affect any state law relating to the disclosure of information unless the state law is inconsistent with the federal law, and then only to the extent of the inconsistency.274 This is referred to as “conflict preemption,” as opposed to “field preemption.”275

Mortgage Servicing and Loan Modifications: 5.2.6 Special Servicing Requirements for High-Cost Loans

Some states have enacted statutes that give protections to homeowners at risk of foreclosure of high-cost home mortgages. These anti-predatory lending laws can be powerful tools for challenging unfair lending practices and defending against foreclosure. The scope and content of these state laws vary widely. While many of the provisions of these statutes deal with loan origination issues, some also impose requirements on the servicing of high-cost loans.

Mortgage Servicing and Loan Modifications: 6.5.9.1 Generally

The mortgage holder or servicer generally has forms which it requires for executing a workout agreement. These should be scrutinized carefully to make sure they are consistent with the agreement. If the homeowner has legal claims, an agreement that settles those claims may be appropriate.

Mortgage Servicing and Loan Modifications: 6.5.9.2 Watch Out for Waiver Clauses

Some loan modification agreements, from simple repayment plans to litigation settlements, contain waiver provisions that purpose to release the servicer and holder from any past or future claims that a borrower may have. Often the waiver appears in “legalese” at the end of the agreement or is buried in a long list of acknowledgments made by the borrower.110 The breadth of these waivers is astonishing and not likely understood by the borrower executing the agreement.

Mortgage Servicing and Loan Modifications: 6.5.9.5 Change the Account Number

Most servicers use automated record-keeping systems. Unless a thorough purge of the existing computer records is done, it is likely that, at some point, when the servicer generates a payment statement or history, some of the forgiven fees in the loan modification may get picked up and swept into your client’s current information. Changing the loan’s account number helps give the loan a fresh start, without the history of the fees, charges, and principal that have been forgiven in the loan modification.