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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.

Repossessions: 3.2.8 Security Interest Must Not Be Otherwise Prohibited

The UCC sets out minimum standards for a valid security interest. But certain interests meeting these minimum standards are not valid security interests because of the operation of other laws, including state statutes, federal rules, case law, and even UCC Article 9.181 Consumer laws and regulations apply to transactions subject to Article 9, and if there is a conflict, the non-UCC law controls.182

Repossessions: 3.2.9 Perfection of Security Interest Is Not Necessary

A common misunderstanding concerns the relationship between a creditor’s right to repossess and the requirement that a creditor perfect a security interest through a financing statement, motor vehicle certificate of title, or otherwise. Perfection of a security interest is necessary only if the secured party wants to protect itself against the claims of other creditors and retain its special status when the debtor files for bankruptcy.

Repossessions: 3.7.1 Overview

Merchants have three additional ways to accomplish the same result as a future advance clause. They can retain a security interest in all the collateral for a number of extensions of credit until all the extensions have been repaid by:

Repossessions: 3.3.1 Overview

The practice of taking non-purchase-money security interests in items such as household goods that have little resale value but are of great importance to the debtor leads to many abuses.188 The subsections that follow describe these abuses, and then describe the Federal Trade Commission (FTC) rule and state laws that restrict them. It then examines unconscionability and similar theories to challenge non-purchase-money security interests.

Repossessions: 3.3.2 Abuses

Perhaps no category of security interests is so suspect as non-purchase-money security interests in household goods and other consumer goods with minimal resale value. Creditors taking these security interests rarely intend to enforce them. They retain such collateral only for its in terrorem effect and as an excuse to sell credit property insurance. The collateral itself has little economic value to the creditor.190

Repossessions: 3.3.3.1 General Article 9 Definition

The Article 9 definition of “purchase-money security interest” is found in section 9-103.193 In the case of a credit sale, the seller takes a purchase-money security interest if the item being purchased secures all or part of the price of that item.194 In the case of a straight loan, for the security interest to qualify as purchase-money the loan proceeds must enable the debtor to acquire rights in or the use of the collateral, and those proceeds must in fact be used to purchase the loan’s colla

Repossessions: 3.3.3.3 Effect of Refinancing or Payment on Purchase-Money Security Interest

Article 9 provides, for transactions other than consumer-goods transactions,203 that the purchase-money nature of a security interest continues after refinancing.204 If there are multiple items of collateral, Article 9 also allows the parties to agree to any method of allocating payments to determine when the security interest in any given item ceases, and provides for a first-in, first-out method if the parties have not agreed on some other method.205

Repossessions: 3.3.3.4 Who Has Burden of Proving Purchase-Money Nature of Security Interest?

In transactions other than consumer-goods transactions,207 Article 9 places the burden of proof on the secured party to establish the extent to which a security interest is a purchase-money security interest.208 For consumer-goods transactions, the uniform version of Article 9 leaves the burden of proof to the determination of the court,209 but it is unlikely that a court would impose a rule less favorable to borrowers in consumer transactions.