On August 4, the CFPB issued Final Rules providing foreclosure protections.  The Rules, consisting of 901 pages, address foreclosure protections, successors in interest, borrowers in bankruptcy, loss mitigation, servicing transfers, and loss mitigation applications.  The Rules consist of a number of amendments to Regulation X and Regulation Z, their respective Official Interpretations, and model forms and clauses.  Along with the Final Rules, the CFPB also issued an Interpretive Rule providing safe harbors from liability under the Fair Debt Collection Practices Act that coincide with the Final Rule.

In conjunction with the Rules, the CFPB prepared a Press Release summarizing the changes that credit unions will need to follow.  Compliance with the majority of the changes will 12 months after the publication in the Federal Register.  Provisions regarding successors in interest and periodic statements for borrowers in bankruptcy will be effective 18 months after publication.

Since the Final Rule encompasses a number of consumer protections, NWCG is breaking them down into multiple blog posts, so you burn out slowly, rather than all at once.   Take a look at the CFPB’s Press Release, and then keep checking back here for our detailed evaluation of the new requirements.  This post will address providing relief to loss mitigation applications and dual tracking –

Requiring servicers to notify borrowers when loss mitigation applications are complete: Whether a borrower is entitled to key foreclosure protections depends in part on the date a borrower completes a loss mitigation application. If consumers do not know the status of their application, they cannot know the status of those foreclosure protections. Today’s final rule requires servicers to notify borrowers promptly and in writing that the application is complete, so that borrowers know the status of the application and have more information about their protections.

Clarifying servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures: The CFPB’s existing rules prohibit servicers from taking certain actions in foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. However, in some cases, borrowers are not receiving this protection, and servicers’ foreclosure counsel may not be taking adequate steps to delay foreclosure proceedings or sales. The CFPB’s new rule clarifies that, if a servicer has already made the first foreclosure notice or filing and receives a timely complete application, servicers and their foreclosure counsel must not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, even if a third party conducts the sale proceedings, unless the borrower’s loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement. The clarifications will aid servicers in complying with, and assist courts in applying, the dual-tracking prohibitions in foreclosure proceedings to prevent wrongful foreclosures.

In short:

• Servicers must affirmatively prevent foreclosure judgments and/or sales while complete loss mitigation applications are pending. A servicer who has received a complete loss mitigation application after making the first notice or filing is responsible for ensuring that the loan does not proceed to foreclosure judgment or sale while the application is pending, and/or the borrower is performing under a loss mitigation option. The servicer must instruct foreclosure counsel accordingly, and is not absolved of responsibility because counsel fails to follow instructions.
• Foreclosure filings by servicers who are subordinate lien holders. The final rule modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer of a subordinate lien to join the existing foreclosure action of a superior lienholder.
• Servicers must notify borrowers when loss mitigation applications are complete. A servicer who receives a completed loss mitigation application must notify the borrower in writing within 5 days that the application is complete. The notice must include, among other things, a statement that the application is complete, the date the application is considered complete, and statements that the servicer will evaluate the application within 30 days of receipt of the completed application and that the borrower is entitled to protections from foreclosure while the application is pending.
• The final rule permits servicers to offer a short-term repayment plan based upon an evaluation of an incomplete loss mitigation application. The servicer must offer the plan in writing, informing the borrower that other loss mitigation options may be available and that the borrower may submit a complete application to be evaluated for those options. The servicer cannot make the first notice or filing if the borrower is performing under the payment plan.
• Servicers are required to use reasonable diligence to obtain third party information and may not deny a borrower solely because such information is lacking unless the servicer is unable to obtain the information for a significant period of time. Under the current rule, servicers are required to use reasonable diligence to obtain information from third parties that is needed to evaluate a loss mitigation application, and generally cannot deny the application solely because such information is lacking. The final rule provides, however, that if the servicer is unable to obtain necessary third party information after exercising reasonable diligence to obtain the information “for a significant period of time,” the servicer may deny the borrower’s application for loss mitigation. Unfortunately, the Bureau does not provide any guidance as to what constitutes “a significant period of time.”
• Servicers must collect information for all loss mitigation options even if the borrower states a preference for a single option. The final rule provides that a servicer cannot stop collecting information for any loss mitigation option based solely on the borrower’s stated preference for a different option. For example, the servicer cannot stop collecting income information related to a loan modification because the borrower informs the servicer that she wishes to sell her home in a short sale. However, a servicer may stop collecting information for an option after learning that the borrower is ineligible for the option.
• Servicers may suspend efforts to complete an application during short term forbearance and repayment plans, but must resume their efforts immediately if the borrower defaults or requests assistance. Servicers are permitted to offer borrowers short term forbearance programs and short term repayment plans on the basis of an incomplete application. Although servicers are required to use reasonable diligence to ensure that an incomplete application is completed, they may suspend such efforts while a borrower is in compliance with a short term payment forbearance program or a short term repayment plan offered based on an incomplete application. However, the servicer must resume its efforts if the borrower fails to comply with the program or requests further assistance. A servicer must contact a borrower near the end of a forbearance program if the borrower is still delinquent to determine if the borrower wishes to complete an application and move forward with a full loss mitigation evaluation.

1024.41 Loss Mitigation Procedures

(c)

(1)  Complete loss mitigation application. Except as provided in paragraph (c)(4)(ii) of this section, if a servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days of receiving the complete loss mitigation application, a servicer shall:

(2)

(iii)  Short-term loss mitigation options. Notwithstanding paragraph (c)(2)(i) of this section, a servicer may offer a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application. Promptly after offering a payment forbearance program or a repayment plan under this paragraph, unless the borrower has rejected the offer, the servicer must provide the borrower a written notice stating the specific payment terms and duration of the program or plan, that the servicer offered the program or plan based on an evaluation of an incomplete application, that other loss mitigation options may be available, and that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the program or plan. 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 pursuant to the terms of a payment forbearance program or repayment plan offered pursuant to this paragraph. A servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment plan pursuant to this paragraph.

(iv)  Facially complete application. A loss mitigation application shall be considered facially complete when a borrower submits all the missing documents and information as stated in the notice required under paragraph (b)(2)(i)(B) of this section, when no additional information is requested in such notice, or once the servicer is required to provide the borrower a written notice pursuant to paragraph (c)(3)(i) of this section. If the servicer later discovers that additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents and treat the application as complete for the purposes of paragraphs (f)(2) and (g) of this section until the borrower is given a reasonable opportunity to complete the application. If the borrower completes the application within this period, the application shall be considered complete as of the date it first became facially complete, for the purposes of paragraphs (d), (e), (f)(2), (g), and (h) of this section, and as of the date the application was actually complete for the purposes of this paragraph (c). A servicer that complies with this paragraph will be deemed to have fulfilled its obligation to provide an accurate notice under paragraph (b)(2)(i)(B) of this section.

(3)  Notice of complete application.

(i)  Except as provided in paragraph (c)(3)(ii) of this section, within 5 days (excluding legal public holidays, Saturdays, and Sundays) after receiving a borrower’s complete loss mitigation application, a servicer shall provide the borrower a written notice that sets forth the following information:

(A)  That the loss mitigation application is complete;

(B)  The date the servicer received the complete application;

(C)  That the servicer expects to complete its evaluation within 30 days of the date it received the complete application;

(D)  That the borrower is entitled to certain foreclosure protections because the servicer has received the complete application, and, as applicable, either:

(1)  If the servicer has not made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer cannot make the first notice or filing required to commence or initiate the foreclosure process under applicable law before evaluating the borrower’s complete application; or

(2)  If the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer has begun the foreclosure process, and that the servicer cannot conduct a foreclosure sale before evaluating the borrower’s complete application;

(E)  That the servicer may need additional information at a later date to evaluate the application, in which case the servicer will request that information from the borrower and give the borrower a reasonable opportunity to submit it, the evaluation process may take longer, and the foreclosure protections could end if the servicer does not receive the information as requested; and

(F)  That the borrower may be entitled to additional protections under State or Federal law.

(ii)  A servicer is not required to provide a notice pursuant to paragraph (c)(3)(i) of this section if:

(A)  The servicer has already provided the borrower a notice under paragraph (b)(2)(i)(B) of this section informing the borrower that the application is complete and the servicer has not subsequently requested additional information or a corrected version of a previously submitted document from the borrower pursuant to paragraph (c)(2)(iv) of this section;

(B)  The application was not complete or facially complete more than 37 days before a foreclosure sale; or

(C)  The servicer has already provided the borrower a notice regarding the application under paragraph (c)(1)(ii) of this section.

(4)  Information not in the borrower’s control—

(i)  Reasonable diligence. If a servicer requires documents or information not in the borrower’s control to determine which loss mitigation options, if any, it will offer to the borrower, the servicer must exercise reasonable diligence in obtaining such documents or information.

(ii)  Effect in case of delay.

(A)

(1)  Except as provided in paragraph (c)(4)(ii)(A)(2) of this section, a servicer must not deny a complete loss mitigation application solely because the servicer lacks required documents or information not in the borrower’s control.

(2)  If a servicer has exercised reasonable diligence to obtain required documents or information from a party other than the borrower or the servicer, but the servicer has been unable to obtain such documents or information for a significant period of time following the 30-day period identified in paragraph (c)(1) of this section, and the servicer, in accordance with applicable requirements established by the owner or assignee of the borrower’s mortgage loan, is unable to determine which loss mitigation options, if any, it will offer the borrower without such documents or information, the servicer may deny the application and provide the borrower with a written notice in accordance with paragraph (c)(1)(ii) of this section. When providing the written notice in accordance with paragraph (c)(1)(ii) of this section, the servicer must also provide the borrower with a copy of the written notice required by paragraph (c)(4)(ii)(B) of this section.

(B)   If a servicer is unable to make a determination within the 30-day period identified in paragraph (c)(1) of this section as to which loss mitigation options, if any, it will offer to the borrower because the servicer lacks required documents or information from a party other than the borrower or the servicer, the servicer must, within such 30-day period or promptly thereafter, provide the borrower a written notice, informing the borrower:

(1)  That the servicer has not received documents or information not in the borrower’s control that the servicer requires to determine which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage;

(2)  Of the specific documents or information that the servicer lacks;

(3)  That the servicer has requested such documents or information; and

(4)  That the servicer will complete its evaluation of the borrower for all available loss mitigation options promptly upon receiving the documents or information.

(C)  If a servicer must provide a notice required by paragraph (c)(4)(ii)(B) of this section, the servicer must not provide the borrower a written notice pursuant to paragraph (c)(1)(ii) of this section until the servicer receives the required documents or information referenced in paragraph (c)(4)(ii)(B)(2) of this section, except as provided in paragraph (c)(4)(ii)(A)(2) of this section. Upon receiving such required documents or information, the servicer must promptly provide the borrower with the written notice pursuant to paragraph (c)(1)(ii) of this section.

(f)

(1)

(iii) The servicer is joining the foreclosure action of a superior or subordinate lienholder.

(i)  Duplicative requests. A servicer must comply with the requirements of this section for a borrower’s loss mitigation application, unless the servicer has previously complied with the requirements of this section for a complete loss mitigation application submitted by the borrower and the borrower has been delinquent at all times since submitting the prior complete application.

(k)   Servicing Transfers.

(1)   In general—

(i)  Timing of compliance. Except as provided in paragraphs (k)(2) through (4) of this section, if a transferee servicer acquires the servicing of a mortgage loan for which a loss mitigation application is pending as of the transfer date, the transferee servicer must comply with the requirements of this section for that loss mitigation application within the timeframes that were applicable to the transferor servicer based on the date the transferor servicer received the loss mitigation application. All rights and protections under paragraphs (c) through (h) of this section to which a borrower was entitled before a transfer continue to apply notwithstanding the transfer.

(ii)  Transfer date defined. For purposes of this paragraph (k), the transfer date is the date on which the transferee servicer will begin accepting payments relating to the mortgage loan, as disclosed on the notice of transfer of loan servicing pursuant to § 1024.33(b)(4)(iv).

(2)   Acknowledgment notices—

(i)  Transferee servicer timeframes. If a transferee servicer acquires the servicing of a mortgage loan for which the period to provide the notice required by paragraph (b)(2)(i)(B) of this section has not expired as of the transfer date and the transferor servicer has not provided such notice, the transferee servicer must provide the notice within 10 days (excluding legal public holidays, Saturdays, and Sundays) of the transfer date.

(ii)  Prohibitions. A transferee servicer that must provide the notice required by paragraph (b)(2)(i)(B) of this section under this paragraph (k)(2):

(A)  Shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until a date that is after the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section, notwithstanding paragraph (f)(1) of this section. For purposes of paragraph (f)(2) of this section, a borrower who submits a complete loss mitigation application on or before the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section shall be treated as having done so during the pre-foreclosure review period set forth in paragraph (f)(1) of this section.

(B)  Shall comply with paragraphs (c), (d), and (g) of this section if the borrower submits a complete loss mitigation application to the transferee or transferor servicer 37 or fewer days before the foreclosure sale but on or before the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section.

(3)  Complete loss mitigation applications pending at transfer. If a transferee servicer acquires the servicing of a mortgage loan for which a complete loss mitigation application is pending as of the transfer date, the transferee servicer must comply with the applicable requirements of paragraphs (c)(1) and (4) of this section within 30 days of the transfer date.

(4)  Applications subject to appeal process. If a transferee servicer acquires the servicing of a mortgage loan for which an appeal of a transferor servicer’s determination pursuant to paragraph (h) of this section has not been resolved by the transferor servicer as of the transfer date or is timely filed after the transfer date, the transferee servicer must make a determination on the appeal if it is able to do so or, if it is unable to do so, must treat the appeal as a pending complete loss mitigation application.

(i)  Determining appeal. If a transferee servicer is required under this paragraph (k)(4) to make a determination on an appeal, the transferee servicer must complete the determination and provide the notice required by paragraph (h)(4) of this section within 30 days of the transfer date or 30 days of the date the borrower made the appeal, whichever is later.

(ii)  Servicer unable to determine appeal. A transferee servicer that is required to treat a borrower’s appeal as a pending complete loss mitigation application under this paragraph (k)(4) must comply with the requirements of this section for such application, including evaluating the borrower for all loss mitigation options available to the borrower from the transferee servicer.

For purposes of paragraph (c) or (k)(3) of this section, as applicable, such a pending complete loss mitigation application shall be considered complete as of the date the appeal was received by the transferor servicer or the transferee servicer, whichever occurs first. For purposes of paragraphs (e) through (h) of this section, the transferee servicer must treat such a pending complete loss mitigation application as facially complete under paragraph (c)(2)(iv) as of the date it was first facially complete or complete, as applicable, with respect to the transferor servicer.

(5)  Pending loss mitigation offers. A transfer does not affect a borrower’s ability to accept or reject a loss mitigation option offered under paragraph (c) or (h) of this section. If a transferee servicer acquires the servicing of a mortgage loan for which the borrower’s time period under paragraph (e) or (h) of this section for accepting or rejecting a loss mitigation option offered by the transferor servicer has not expired as of the transfer date, the transferee servicer must allow the borrower to accept or reject the offer during the unexpired balance of the applicable time period.

The Final Rule also includes updates to model forms and clauses along with updates to Official Bureau Interpretations, which are not included in these posts.  (If they were, you would have quit reading long ago.)  Refer to the Final Rule for these changes.