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Mortgage Servicing and Loan Modifications: 4.2.7.5.5 Recording location

Section 1641(g) provides that the notice must disclose “the location of the place where transfer of ownership of the debt is recorded.”361 Regulation Z requires the covered person to disclose where transfer of ownership of the debt to the covered person is or may be recorded, or, alternatively, that the transfer of ownership has not been recorded in public records at the time the disclosure is provided.362 Because the statute refers to debt ownership, and transfers of debt ownership (as opposed

Mortgage Servicing and Loan Modifications: 4.2.7.5.7 Optional disclosures

Section 1641(g) provides that the party acquiring a loan shall notify the borrower of “any other relevant information regarding the creditor.”363 Beyond the partial payment policy for certain loans, Regulation Z does not impose any additional requirements and provides that covered persons may, at their option, include any other information regarding the transaction.364 The official interpretations note that a covered person may provide any information considered relevant or helpful to consumers,

Mortgage Servicing and Loan Modifications: 4.2.9.2 Escrow Accounts on Higher-Priced Mortgage Loans

If a creditor makes a higher-priced mortgage loan,399 it must establish an escrow account in a federally insured depository institution or credit union and administer it in compliance with the Real Estate Settlement Procedures Act and other laws.400 The escrow account must remain in place for the life of the loan, unless cancelled by the consumer. The consumer may cancel the escrow account by sending a written request to the creditor or servicer.

Mortgage Servicing and Loan Modifications: 4.2.10 Prohibition on Arbitration and Restrictions on Court Actions

A Dodd-Frank Act amendment to TILA restricts forced arbitration and federal statutory waivers in connection with residential mortgage loans and open-end consumer credit plans secured by the consumer’s principal dwelling.405 The provision prohibits any terms in a mortgage loan agreement that require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.406 The parties can agree to arbitration at any time af

Mortgage Servicing and Loan Modifications: 4.2.13 TILA Servicing Claims Chart

The chart below lists citations to each obligation imposed by TILA on mortgage holders and servicers involving the servicing of a mortgage loan. The chart indicates whether a specific remedy exists, provides a description of the remedy, and states the applicable statute of limitations.

MORTGAGE SERVICING CLAIMS CHART

TRUTH IN LENDING ACT (TILA)

Mortgage Servicing and Loan Modifications: 4.3.2 FDCPA Coverage

The Fair Debt Collection Practices Act (FDCPA) generally covers the activities of third-party debt collectors.439 The basic definition of “debt collector” is any person whose principal business is debt collection or “who regularly collects or attempts to collect, directly or indirectly, debts owed or due . . . another.”440 Courts must first consider whether “a person qualifies as a debt collector under the threshold definition set forth in 15 U.S.C.

Mortgage Servicing and Loan Modifications: 4.3.4 FDCPA Remedies

The FDCPA is a strict liability statute.498 Claims must generally be brought within one year of the date on which the violation occurred.499 In the case of any violation, the consumer may recover actual damages, statutory damages up to $1000, attorney fees, and costs.500 There are specific provisions for class actions, including factors for courts to use in determining the amount of a statutory damage award in a class action.

Mortgage Servicing and Loan Modifications: 4.3.5 Claims Under State Debt Collection Statutes

Many states have their own debt collection practices statutes that may apply to servicers.504 These statutes are particularly worth investigating because many of them have a broader scope than the FDCPA. For example, in a number of states the state debt collection practices statute covers creditors who are collecting or servicing their own debts. State debt collection practices statutes are discussed in detail in NCLC’s Fair Debt Collection.505

Mortgage Servicing and Loan Modifications: 4.4 Fair Credit Reporting Act

The possibility of a claim under the Fair Credit Reporting Act (FCRA)506 should be explored whenever the servicer is reporting inaccurate or incomplete information regarding the borrower’s account to a consumer reporting agency (CRA), commonly referred to as a credit bureau.507 Such erroneous reporting is not uncommon.508 For example, erroneous reports may result from misapplied payments.509 The servi

Mortgage Servicing and Loan Modifications: 4.5 Telephone Consumer Protection Act

The Telephone Consumer Protection Act of 1991 (TCPA)534 protects consumers from invasions of privacy such as automated and prerecorded telephone calls, junk faxes, and telemarketing calls. The TCPA contains an explicit private right of action for actual monetary loss or $500 damages for each violation, whichever is greater.535 The statutory award can be trebled if the court finds that the defendant willfully or knowingly violated the statute or regulations.

Mortgage Servicing and Loan Modifications: 4.6 Homeowner’s Protection Act of 1998 (Private Mortgage Insurance)

The Homeowners Protection Act of 1998 (HPA) provides for, among other things, cancellation upon request and automatic termination of borrower-paid private mortgage insurance (PMI).541 PMI protects a mortgage holder against loss caused by the borrower’s default and subsequent foreclosure. It is required by lenders and the government sponsored enterprise (GSE) guidelines when the loan-to-value ratio at origination is greater than eighty percent.

Mortgage Servicing and Loan Modifications: 4.7.1 Overview

The Servicemembers Civil Relief Act (SCRA)547 provides special protections for military service personnel on active duty and their dependents. The SCRA was signed into law on December 19, 2003, and is a complete revision of the Soldiers’ and Sailors’ Civil Relief Act (SSCRA) of 1940.548 The law preserves or expands many of the protections available under the original law and restates or clarifies certain key issues.

Mortgage Servicing and Loan Modifications: 4.7.2 Interest Rate Reduction Under the Act

The SCRA requires that a creditor reduce the interest rate to six percent on any loan obligation incurred prior to active duty.553 The loan shall not bear a rate higher than six percent during the period of active duty and one year thereafter,554 unless a court decides, on application by the lender, that the servicemember’s ability to pay the higher interest rate is not materially affected by military service.555 For mortgages, trust deeds, or othe

Mortgage Servicing and Loan Modifications: 4.7.3 2010 Amendments Explicitly Establish Private Right of Action to Enforce SCRA

Federal legislation signed into law on October 13, 2010, amended the SCRA to provide that “[a]ny person aggrieved by a violation of [the SCRA] may in a civil action (1) obtain any appropriate equitable or declaratory relief with respect to the violation; and (2) recover all other appropriate relief, including monetary damages.”565 The amendments expressly authorize courts to award attorney fees and costs to a prevailing servicemember in a private enforcement action.566 These significant amendmen

Mortgage Servicing and Loan Modifications: 4.8.1 Overview

Due-on-sale clauses are common contract provisions which give a mortgage holder the option to immediately call due, or accelerate, a real estate secured loan when the borrower sells or transfers all or part of the security to a third party.568 Almost all consumer mortgage loans contain such a provision in the security instrument. Under the federal Garn-St Germain Act, mortgage holders are prohibited from exercising a due-on-sale clause when the transfer is among a list of enumerated “exempt” transfers.

Mortgage Servicing and Loan Modifications: 4.8.2 Successors Have the Right to Obtain Loan Information

Successors in interest need, and are entitled to, information regarding the mortgage secured by their home. This information is crucial to determining whether the successor wants to stay in the home and keep making the mortgage payments, with or without assuming the debt. Some successors may have fallen only a month or two behind on the mortgage (for example, when the borrower died) and may be able to cure the default if they can obtain an accurate reinstatement quote. Servicers will sometimes refuse to provide any such information regarding the loan.

Mortgage Servicing and Loan Modifications: 4.8.3.1 Garn-Exempt Transfers

The Garn-St Germain Act is broad in its scope. It applies to any lender, which is defined to include individuals, state and federal banks, state and federal credit unions, and finance companies,587 and every loan, mortgage, advance, or credit sale secured by a lien on real property,588 whether consummated before or after the Act’s effective date.589