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Mortgage Servicing and Loan Modifications: 3.8.7.3 When Does the 120-Day Period Begin?

The 2013 RESPA servicing rule initially contained a definition of “delinquency,” but it was intended to apply to the section 1024.39 early intervention requirements and the section 1024.40(a) continuity of contact requirements, but not to the section 1024.41 loss mitigation requirements or as a general definition for other provisions of subpart C of Regulation X.1235 To ensure that the term “delinquency” is interpreted consistently throughout Regulation X’s mortgage servicing rules, the 2016 mortgage servicing rule added a definition of del

Mortgage Servicing and Loan Modifications: 3.8.7.4 What Is the “First Notice or Filing?”

The “first notice or filing” 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.”1248 Examples of a “first notice” 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.”

Mortgage Servicing and Loan Modifications: 3.8.7.6 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 loss mitigation applications, attempt to finalize incomplete applications, and evaluate complete applications.

Mortgage Servicing and Loan Modifications: 3.8.7.7.1 Overview

With approximately two million mortgage borrowers enrolled in COVID-19-related loan forbearances when foreclosure moratoriums were ending in 2021, the CFPB was concerned that foreclosures would start before borrowers were evaluated for loss mitigation options.1302 While borrowers are not required to make payments when they are in forbearance, the loan nevertheless becomes delinquent if payments are missed based on the definition of delinquency used in determining the 120-day preforeclosure review period under section 1024.41(f)(1).

Mortgage Servicing and Loan Modifications: 3.8.7.7.2 Borrower evaluated based upon a complete application

The first procedural safeguard a servicer may satisfy in order to be permitted to initiate foreclosure between August 31, 2021 and December 31, 2021 applies if (1) the borrower has submitted a complete loss mitigation application, (2) the borrower has remained delinquent at all times since submitting that complete application, and (3) section 1024.41(f)(2) permits the servicer to make the first notice or filing to initiate foreclosure.1309 Section 1024.41(f)(2) provides that after a complete application is received a servicer is permitted t

Mortgage Servicing and Loan Modifications: 3.8.7.7.3 Property is abandoned

The second procedural safeguard that enables a servicer to initiate foreclosure during the protected period applies if the property securing the mortgage is abandoned according to the laws of the state or municipality where the property is located.1312 This is consistent with the CFPB’s longstanding view that abandoned property may no longer be a borrower’s principal residence, thereby making section 1024.41 inapplicable, because that regulation applies only to closed-end mortgage loans on a borrower’s principal residence.

Mortgage Servicing and Loan Modifications: 3.8.7.7.4 Borrower is unresponsive

The final procedural safeguard that would permit a servicer to initiate foreclosure during the covered period applies if the borrower has been unresponsive.1315 This safeguard is satisfied if the servicer has not received any communication from the borrower for at least ninety days prior to making the first notice or filing, and the servicer has complied with several specified early intervention and loss mitigation requirements.

Mortgage Servicing and Loan Modifications: 3.8.8 Determining the Loss Mitigation Timeline

A critical factor in determining the availability of borrower protections under the loss mitigation rules is the timing of when a loss mitigation application is submitted in advance of a 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 compelling evaluation of an application and prohibiting dual tracking become more limited.

Mortgage Servicing and Loan Modifications: 3.8.9.1 Coverage of the Exclusion Before October 19, 2017

The most significant limitation on the borrower’s procedural rights under the loss mitigation rule is that a servicer is not required to comply with section 1024.41 if a borrower has been evaluated previously by that servicer for loss mitigation options for the borrower’s mortgage loan account. This exclusion from the application of section 1024.41 greatly undermines the effectiveness of the CFPB’s loss mitigation rule and presents challenges for borrowers and their advocates. It is referred to colloquially by advocates as the “one bite at the apple” rule.

Mortgage Servicing and Loan Modifications: 3.8.9.3 When Does the Exclusion Not Apply?

As discussed in the previous section, the duplicative request exclusion does not apply if the borrower becomes current on the loan at any time after the prior complete application was fully reviewed. This section discusses additional factors that advocates should consider when a servicer is seeking dismissal of a loss mitigation claim based on the exclusion.

Mortgage Servicing and Loan Modifications: 3.8.10 Small Servicer and Other Exemptions from Coverage

Small servicers1404 are required to comply with the prohibition under section 1024.41(f) on starting the foreclosure process before the borrower is more than 120 days delinquent.1405 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, if the borrower is performing pursuant to the terms of a loss mitigation agreement.

Mortgage Servicing and Loan Modifications: 3.9.4 Exemptions from Coverage

The continuity of contact requirements apply only to a mortgage loan that is secured by a property that is the debtor’s principal residence.1426 In addition, the continuity of contact requirements do not apply to: (1) a servicer that qualifies as a small servicer;1427 (2) a servicer with respect to a reverse mortgage transaction;1428 or (3) a servicer with respect to a mortgage loan for which the servicer is a “qualified lender.”

Mortgage Servicing and Loan Modifications: 3.9.5 No Private Remedy for Violations

In contrast with the early intervention requirements under section 1024.39 and the loss mitigation procedures under section 1024.41, violations of the continuity of contact requirements are not enforceable by the borrower under RESPA’s private remedies.1433 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 co

Mortgage Servicing and Loan Modifications: 3.10.2 Timely and Accurate Information

Servicers are required to have in place policies and procedures reasonably designed to provide the disclosures required by the servicing regulations (subpart C of Regulation X) in an accurate and timely manner, to investigate and make corrections in response to complaints asserted by a borrower (notice of error), and to provide a borrower with accurate and timely information and documents in response to the borrower’s requests for information.1443

Mortgage Servicing and Loan Modifications: 3.10.3 Proper Evaluation of Loss Mitigation Applications

Servicers are to have policies and procedures reasonably designed to provide borrowers with accurate information on loss mitigation options,1449 to identify with specificity all loss mitigation options for which borrowers may be eligible,1450 to ensure that documents and information provided by borrowers in the loss mitigation process are readily available to the servicer personnel assigned to the borrower,1451 to identify documents and infor

Mortgage Servicing and Loan Modifications: 3.10.4 Successors in Interest

The policies and procedures section also has a requirement aimed at addressing the problems faced by successors in interest, non-borrowers who obtain a home through a death or divorce.1455 The 2013 RESPA servicing rule required servicers to have in place policies and procedures reasonably designed to, “upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.”

Mortgage Servicing and Loan Modifications: 3.10.5 Transfer of Servicing

Transferor servicers must have policies and procedures to ensure that documents and information relating to a transferred mortgage loan are transferred to the new servicer in a timely and accurate manner.1468 A transferor servicer’s policies and procedures must be reasonably designed to ensure that the transfer includes information about the current status of discussions with a borrower regarding loss mitigation options and any loss mitigation agreements entered into with a borrower.1469