Foreclosure Defense Training

Transcription

1 Foreclosure Defense Training February 5-6, 2014 Chicago, Illinois Trainers: Diane E. Thompson, Tara Twomey & Daniel P. Lindsey National Consumer Law Center and Legal Assistance Foundation

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3 ABOUT THE NATIONAL CONSUMER LAW CENTER Since 1969, the nonprofit National Consumer Law Center (NCLC ) has worked for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training. ACKNOWLEDGMENTS Thanks to the Office of the Illinois Attorney General for making the funding available. Thanks to Legal Assistance Foundation for sponsoring this training. Thanks to Daniel Lindsey of the Legal Assistance Foundation for organizing the training, handling registration and other logistics, and helping develop the agenda. Thanks to McDermott, Will & Emery, LLP for providing the space for the training and arranging the logistics. Thanks to Illinois Legal Aid Online and especially Stephanie Villinski for arranging for online availability of the training. Thanks also to Illinois Legal Aid Online for assistance with registration. Thanks to National Consumer Law Center staff members Jessica Hiemenz for coordinating the event and Beverlie Sopiep for compiling and formatting the materials National Consumer Law Center - Materials included in this book cannot be copied or reproduced in any way without the express written permission of NCLC.

4 Speakers Bio Diane E. Thompson has represented low-income homeowners since She is currently of counsel with the National Consumer Law Center, where she is the co-author of the NCLC treatise Truth in Lending and a contributing author to Mortgage Lending. She is a co-author of NCLC s report, At a Crossroads: Lessons from the Home Affordable Modification Program (HAMP), a co-author of The Truth, the Whole Truth, and Nothing But the Truth: Fulfilling the Promise of Truth In Lending, 25 Yale J. Reg. 181 (2008), and the author of Foreclosing Modifications, 86 Wash. L. Rev. 755 (2011). From 1994 to 2007, Ms. Thompson represented individual low-income homeowners in East St. Louis at Land of Lincoln Legal Assistance Foundation. While there, Ms. Thompson served as the Homeownership Specialist, providing assistance to casehandlers representing homeowners in 65 counties in downstate Illinois, and the Supervising Attorney of the Housing and Consumer Unit of the East St. Louis office. She has served on national and local boards, including the National Community Reinvestment Coalition's Board and the Metropolitan St. Louis Equal Housing Opportunity Council's Board. She was a member of the Consumer Advisory Council of the Federal Reserve Board from Between 1995 and 2001, Ms. Thompson served as corporate counsel to the largest private nonprofit affordable housing provider in the East St. Louis metropolitan area. She received her B.A. from Cornell University and her J.D. from New York University. Tara Twomey is currently Of Counsel to the National Consumer Law Center and the Amicus Project Director for the National Association of Consumer Bankruptcy Attorneys. She is currently a Lecturer in Law at Stanford, and has previously lectured at Harvard and Boston College Law Schools. Ms. Twomey is a former Clinical Instructor at the Hale and Dorr Legal Services Center of Harvard Law School where her practice focused, in part, on sustainable homeownership for low- and moderate-income homeowners. She is a contributing author of several books published by the National Consumer Law Center including, Foreclosures: Defenses, Workouts and Mortgage Servicing and Bankruptcy Basics. Ms. Twomey is also a coprincipal investigator, along with Professor Katherine M. Porter of the University of Iowa, for a national study examining mortgage claims in consumer bankruptcy cases. Daniel P. Lindsey is a Supervisory Attorney in the Consumer Practice Group at LAF (f/k/a Legal Assistance Foundation of Metropolitan Chicago). Mr. Lindsey has practiced housing and consumer litigation for over 20 years. For the past 13 years, he has specialized in assisting homeowners victimized by predatory lending, foreclosure rescue fraud, and other forms of mortgage lending and servicing abuse. He also practices in bankruptcy court and seeks to enforce homeowner protections under the Home Affordable Modification Program and other loss mitigation programs. Mr. Lindsey has been active in seeking better policies and laws to protect homeowners, including testifying before local, state, and federal policymakers. A 1985 graduate of Davidson College and a 1990 graduate of Harvard Law School, Mr. Lindsey has taught law school courses on housing law and predatory lending, and in 2011 worked for the National Consumer Law Center. He has recently served on a state legislative task force and Illinois Supreme Court rules committee, both focusing on foreclosure issues, and he is a member of the Illinois Residential Mortgage Board.

5 Table of Contents Agenda 1 Telling One Loan Mod from Another 5 The New CFPB Mortgage Servicing Rules 18 NCLC e-report: New RESPA Rules Change Qualified Written Request Procedure 24 NCLC e-report: New CFPB Servicing Regulations 46 NCLC e-report: New RESPA Early Intervention Requirements for Borrowers in Default 53 NCLC e-reports: New RESPA Continuity of Contact Requirements for Borrowers in Default 59 Using Bankruptcy to Save Homes in Foreclosure Update Bankruptcy Code Sections 72 Case Citations 79 What s New in Loan Modifications 80 New CFPB Mortgage Loan Origination Rules 98 Tenants in Foreclosure 121 Illnois Homeowner (and Tenant) Civil Procedure Statutory Protections 127 Keep Chicago Renting Ordinance 134 New Supreme Court Foreclosure Rules PowerPoint 142 Sample Rule 114 Affidavits 155

6 National Consumer Law Center Foreclosure Defense Training Chicago, Illinois February 5-6, 2014 Day 1 8:30 9:45 Welcome, Introductions, and Reports from the Programs (Global perspective) 9:45 10:45 Telling One Loan Mod from Another Non-GSE HAMP 1 & 2 Fannie Mae HAMP & Standard Mod Freddie Mac HAMP & Standard Mod FHA-HAMP 10:45-11:00 Break 11:00 12:30 The New CFPB Servicing Rules Background What they are/what is changing 12:30 1:30 Lunch 1:30 2:15 Using the New CFPB Servicing Rules Tips/brainstorming on how we can use them 2:15-2:30 Break 2:30-3:30 Mediation Panel Overview of what s out there now Experiences/what s working/tips/strategies Discussion establishing new or modifying existing programs 3:30 3:45 Break 3:45 5:00 Program Case Review 1

7 Day 2 8:30-9:30 Bankruptcy 102 Stripping mortgage liens Avoiding judicial liens Avoiding tax deeds 9:30-10:30 What s New in Loan Modifications Heirs Capitalization of arrears under FHA-HAMP LEP guidance Tax issues Chase & Ocwen settlement 10:30-10:45 Break 10:45-12:30 New Loan Origination Rules QM or Not Loan Originator Compensation Escrow Appraisals 12:30-1:30 Lunch 1:30-1:45 Discussion: Working with Housing Counselors What Housing Counselors Can OfferExperiences? How Can We Make This Work Better? Best Practices? 1:45 2:15 Tenants in Foreclosure Updates/issues/experiences 2:15-2:30 Break 2:30 3:15 New Illinois Supreme Court Foreclosure Rules Overview of rules Issues raised Monitoring are they being followed, what are people s experiences Strategizing how can we use them 3:15 4:00 Case Study/ Case Review Hypothetical Issue Spotting Claims Discovery issues 2

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10 Telling One Loan Mod from Another Diane E. Thompson February 2014 National Consumer Law Center 2014 What We ll Cover Non-GSE HAMP 1 & 2 Fannie Mae HAMP & Standard Mod Freddie Mac HAMP & Standard Mod FHA-HAMP Brief review of programs, then side-byside comparison 5

11 HAMP 2 HAMP 2 allows second bite at the apple Formulaic restructuring of payments, not driven by affordability target Landlords can get HAMP 2, not just homeowners Fannie & Freddie Under FHFA s, moving towards Servicing Alignment Still some divergences Standard & streamlined mod New changes effective April 1,

12 GSE Standard Modification Like HAMP Tier 2, formulaic restructuring of mortgage GSE Standard Modification freddiemac.com/singlefamily/service/sta ndard_modification.html efanniemae.com/sf/servicing/fmmod/ind ex.jsp 5 FHFA Streamlined Modification Required for loss mit reviews as of July 1, 2013 Automatic offer to borrowers 90 days delinquent Income documentation not required Borrower Assistance Form/Application not required Borrowers who send in application must be reviewed for HAMP FICO must be <720 Most modification terms similar to FHFA standard mod TPP must be in place by Dec. 1,

13 FHFA New Streamlined Modification Terms Modification need not lower payment No affordability target Uniform interest rate, loan term Limited principal forbearance Can receive HAMP modification if default GSE Foreclosure Timelines/ Foreclosure Postponements Borrower submits application within 30 days of post-referral solicitation letter Borrower submits > 30 days after post-referral solicitation letter > 37 days before sale days before sale <15 days before sale 35 days after referral, no mandatory stops unless loss mitigation option offered, no stops for review or escalations 8 8

14 Foreclosure Timelines/ Foreclosure Postponements Servicers face penalties for delaying completion of sales 120/150 day from onset of delinquency must refer to foreclosure Must complete foreclosure within time frame set for specific state; limited exceptions State-by-State time frames, penalties IL days from last installment due to foreclosure sale (Tex. & Miss. 300 days; NY 820 days) Standard allowable attorney s Fee: IL - $ Where to Find Fannie s Rules Fannie Mae 2012 Servicing Guide, Parts VII & VIII efanniemae.com/; allregs.com 10 9

15 Where to Find Freddie s Rules Freddie Mac Single Family Seller/Servicer Guide, Vol. 2, Chs Freddiemac.com; allregs.com 11 FHA Loss mitigation hierarchy Forbearance Loan modification FHA-HAMP If none of these work, then the servicer is supposed to consider non-home retention options 10

16 FHA-HAMP Basic program description in HUD Mortgagee Letter (July 30, 2009) FHA-HAMP substantially revised in HUD Mortgagee Letter (Nov. 16, 2012) And again in HUD Mortgagee Letter FHA-HAMP: The Basic Concept If standard FHA modification does not reduce the payment by at least 10%, then FHA-HAMP allows for a deeper loan modification or a partial claim, or a loan mod The total partial claim, including arrearages of up to 12 months principal, interest, taxes, and insurance (PITI) plus legal fees and costs related to a canceled foreclosure action, and deferred principal, may not exceed 30 percent of the unpaid principal balance as of the default date. No formal NPV test. HUD Mortgage Letter pages 1 and 2 11

17 Who Is Eligible? Second Bite at the Apple? Hardship Required Borrowers in Bankruptcy Eligible? Imminent default Borrower Eligibility HAMP Tier 1 Only homeowners No No Yes HAMP Tier 2 Small landords and homeowners Yes (but only on Tier 1, not Tier 2) Yes, if mortgage on rental property Yes, servicer defined GSE HAMP Homeowners with GSE loans No GSE Standard Mod GSE loans Yes, after 12 months Yes Yes Yes Yes for Freddie Mac, no for Fannie Mae Yes, GSE defined, must involve death, divorce, or disability unless indicator is 1 FHA-HAMP Homeowners with FHAinsured mortgages Yes, after 24 months & change in circumstances Yes Yes, ML Loan and Property Eligibility HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Loan originated Before January 1, 2009 Before January 1, months before default 12 months before default MTM-LTV No limit, though NPV will forbid significant equity No limit, though NPV will forbid significant equity 80%, until April 1, 2014 No limit 12

18 Mod Application Application Form Where Rules Are When Does the Program End? In Active Litigation? HAMP Tier 1 HAMP Tier 2 GSE HAMP hmpadmin.com, MHA Handbook, Chapter II GSE Standard Mod FHA-HAMP RMA Form 710 No standard form Applications have to be received by Dec. 31, 2015 Yes, although escalations may be limited Seller-Servicer Guide, available through web sites TPP by 3/1/2016 Yes Never (Streamlined mods end 12/1/15) No, except CCPA claims Mortgagee Letters, available at HUD s website Never Yes Mod Solicitation Solicitation Required? Time for Solicitation HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod Yes No Yes Yes Within 61 days of missed payment None days after missed payment FHA-HAMP Within 32 days of missed payment 13

19 Investor Restrictions Evaluation HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod Yes, but must seek waiver No No No NPV Test Yes Yes No No FHA-HAMP Order of Evaluation Back-end DTI HAMP Tier 1 first HAMP first Only after other loss mitigation options evaluated & rejected No cap No cap >55% still requires credit counseling No cap No cap Mod Terms HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP How mod terms are set Capitalize arrears Interest rate Term Extended Driven by payment Rigid application of formula Driven by payment Rigid application of formula Yes Yes Yes Yes Yes Can go as low as 2% Up to 480 months PMMS + 50 basis points (4.875%, as of 1/20/13) Can go as low as 2% 480 months Up to 480 months 4.625%, as of 1/20/13 Driven by payment PMMS + 25 basis points (4.625%, as of 1/20/13) 480 months 360 months 14

20 HAMP Tier 1 PITIA Target Payments HAMP Tier 2 PITIA GSE HAMP GSE Standard Mod FHA-HAMP PITI Current Payment Minimum payment reduction Target payment Payment Cap > 31% DTI >25% DTI >31% >10% >25% Any amount 10% Any amount 31% DTI 25% -55% DTI None 31% DTI 10%-55% DTI Greater of 10% or $100 (for regular FHA loan mods); 20% for FHA-HAMP 25% - 31% DTI 31% DTI 55% DTI 31% DTI 55% DTI 40% DTI Principal Reduction & Forbearance HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA- HAMP Principal Reductions Principal forbearance caps Yes Yes Not yet Not yet No, just deferment Greater of MTM LTV 100% or 30% of postcapitalization UPB Lesser of MTM LTV 115% or 30% of postcapitalization UPB Greater of MTM LTV 100% or 30% of postcapitalization UPB Lesser of MTM LTV 115% or 30% of postcapitalization UPB 30% of UPB, before default Borrower pay for performance incentives Yes, up to $5,000 No Yes No No 15

21 Late fees capitalized? Caps on foreclosure fees capitalized? Waiver of legal claims? Charges for loan modification? HAMP Tier 1 Limits on Abuse HAMP Tier 2 GSE HAMP GSE Standard Mod No No No No No No No Yes Yes ($1,800 Freddie Mac) No No No No?? No No No No No FHA-HAMP Yes ($1850) Enforcement & Incentives HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Rules Privately Enforceable Yes, see Wigod Probably, following Wigod Probably, following Wigod?? Yes, see Bankers Life v. Denton Escalations Internal; [email protected] borrower_outreach@freddi emac.com Phone: FREDDIE resource_center@fanniema e.com Phone: FANNIE Internal; NSC at (877) Incentives to Servicers $800-$2,000, plus $1,000/year for 3 years $800-$2,000 $400- $1,600 $400-$1,600 $750 for executed loan mod 16

22 Dual Tracking and Foreclosure Evaluation Before Foreclosure? HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod Yes Not required Yes Yes Yes FHA-HAMP Foreclosure Sale Suspended If Application Received Foreclosure proceedings suspended Foreclosure Proceedings Terminated >7 business days before scheduled sale During trial plan Upon permanent mod? > 37 days before scheduled sale, for 14 days after mod offered During trial plan Upon permanent mod? > 37 days before scheduled sale, for 14 days after mod offered During trial plan Upon permanent mod? > 37 days before scheduled sale During trial plan Upon permanent mod 17

23 1/19/14 CFPB Mortgage Rule Changes Tara Twomey National Consumer Bankruptcy Rights Center RESPA Reg X TILA Reg Z RESPA 18 1

24 1/19/14 Notice of Error Request For Information Force-Placed Insurance Notice of Error Request For Information 19 2

25 1/19/14 Request for Information n with respect to borrower s mortgage loan n Not limited to related to the servicing What Where When Servicer s Obligations 20 3

26 1/19/14 Force-Placed Insurance Procedural Notice Substantive Pay existing policy; limitation on FPI charges LOSS MITIGATION RULES 21 4

27 1/19/14 Early Intervention Continuity OF Contact Loss Mit Procedures Early Intervention Continuity OF Contact 22 5

28 1/19/14 Loss Mit Procedures TILA Promptly Credit Payments Periodic Billing Statements Payment Change Notices Payoff Statements Ownership Transfer Notices 23 6

29 This article is part of a series of NCLC ereports covering the CFPB s new 2013 RESPA and TILA Servicing Rules that go into effect on January 10, This article (Part 1) focuses on the final rule dealing with new requirements as to a servicer s duty to respond to borrower notices of error. Part 2 will focus on the new requirements regarding borrower requests for information. New RESPA Rules Change Qualified Written Request Procedure (Part 1 of 2) by John Rao RESPA provides mortgage borrowers with the right to dispute servicer errors and to obtain account information by sending a qualified written request. 1 The Consumer Financial Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure. New regulations that take effect on January 10, 2014 create two separate processes: one for resolving errors on a borrower s account and the other for requesting information regarding the account. The final 2013 RESPA Servicing Rule expands the scope of these borrower inquiries, effectively overruling several court decisions that had limited the application of qualified written requests. Is It a QWR, NOE or RFI (or All Three)? The Regulation X provisions that implement RESPA section 2605(e) no longer refer to a qualified written request. 2 Rather, the Regulation X amendments establish separate qualifications and procedures depending upon whether a written inquiry is a notice of error sent under Regulation X or a request for information sent under Regulation X As under the prior regulation, the same written inquiry from the borrower can both dispute a servicer action and seek information, and therefore a request for information and a notice of error can be combined in the same writing or sent as separate writings. 3 Despite the new changes and in recognition that RESPA itself still refers to a qualified written request, the CFPB has indicated that a qualified written request that properly asserts an error under or seeks information under is a notice of error or request for information for purposes of these respective regulations. However, the CFPB s Official 1 12 U.S.C. 2605(e)(1)(B). A borrower inquiry made under section 2605(e) is referred to as a qualified written request, which includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower. 2 Reg. X, 12 C.F.R (a) and 36(a) (effective Jan. 10, 2014). 3 See Amini v. Bank of Am. Corp., 2012 WL (W.D. Wash. Feb. 7, 2012); Luciw v. Bank of Am., 2010 WL (N.D. Cal. Oct. 7, 2010) (statute is drafted in the disjunctive so that request for account information alone, without statement that account is in error, is a valid qualified written request); Goldman v. Aurora Loan Servs., L.L.C., 2010 WL (N.D. Ga. Sept. 24, 2010) (same); Rodeback v. Utah Fin., 2010 WL (D. Utah July 13, 2010) (same). 24

30 Interpretations to Regulation X makes clear that a qualified written request is just one form that a written notice of error or information request may take. 4 Thus, the requirements for compliance with a notice of error or request for information apply irrespective of whether a servicer receives a qualified written request. In other words, a written inquiry can be a notice of error or request for information even if it is not a qualified written request. What is less clear under the CFPB regime is whether a written correspondence can be a qualified written request requiring compliance under RESPA section 2605(e) if it does not satisfy the requirements for being either a notice of error under section or a request for information under section Requirements for Notice of Error A servicer is required to respond to any written notice it receives from a borrower that asserts an error covered by section A covered error must fall within one of the following categories: Failing to accept a payment that conforms to the servicer s written requirements for making payments; Failing to apply an accepted payment under the terms of the mortgage loan and applicable law; Failing to credit a borrower s payment as of the date of receipt in violation of 12 C.F.R (c)(1); 6 Failing to pay taxes, insurance, and other escrow items in a timely manner as required by 12 C.F.R (a), 7 or to refund an escrow account balance upon loan payoff as required by 12 C.F.R (b); 8 Imposing a fee or charge that the servicer lacks a reasonable basis to impose upon the borrower; Failing to provide an accurate payoff balance amount upon a borrower s request in violation of 12 C.F.R (c)(3); 9 Failing to provide accurate information to a borrower regarding loss mitigation options and foreclosure, as required by 12 C.F.R ; 10 Failing to transfer accurately and timely information relating to the servicing of a borrower s mortgage loan account to a transferee servicer; Making the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process in violation of 12 C.F.R (f) or (j); 11 4 Official Interpretation, Supplement 1 to Part 1024, 30(b)-(Qualified written request)-1, effective Jan. 10, 2014). 5 Reg. X, 12 C.F.R (b) (effective Jan. 10, 2014). 6 See NCLC Foreclosures, (4th ed. and 2013 Supp.). 7 Id. at Id. at Id. at Id. at Id. at

31 Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of 12 C.F.R (g) or (j); 12 or Any other error relating to the servicing of a borrower s mortgage loan. 13 Many of the covered errors relate to duties imposed on servicers by other RESPA or Regulation X provisions. Thus, a determination of whether a notice of error is appropriate or whether a servicer has adequately responded to a notice will be guided by these other provisions. One error category that is not addressed directly by other regulations is a servicer s imposition of unreasonable fees on the borrower. The CFPB s Official Interpretations for this rule provides some examples of unreasonable fees. A servicer lacks a reasonable basis to impose fees that are not bona fide, such as (1) a late fee for a payment that was not late; (2) a charge imposed by a service provider for a service that was not actually rendered; (3) a default property management fee for borrowers that are not in a delinquency status that would justify the charge; or (4) a charge for force-placed insurance in a circumstance not permitted by Regulation X section In the analysis provided when issuing the final rule, the CFPB discussed the borrowers right to assert a notice of error based on a servicer s failure to provide accurate information about available loss mitigation options. The CFPB stated that it is critical for borrowers to have information regarding available loss mitigation options, and that that this access should include accurate information about the loss mitigation options available to the borrower, the requirements for receiving an evaluation for any such loss mitigation option, and the applicable timelines relating to both the evaluation of the borrower for the loss mitigation options and any potential foreclosure process. 15 The CFPB also noted that servicers are typically required to provide borrowers with information about loss mitigation options and foreclosure under the National Mortgage Settlement and servicer participation agreements with the Department of the Treasury, HUD, Fannie Mae, and Freddie Mac, and that providing such information to borrowers is a standard servicer duty. 16 Importantly, the new notice of error rule permits the borrower to dispute errors related to the transfer of servicing. The final 2013 RESPA Servicing Rule imposes a general obligation on transferor and transferee servicers to have the capacity to accurately transfer information and download data for transferred mortgage loans from and onto their servicing platforms. 17 The CFPB describes the accurate and timely transfer of information on a borrower s mortgage account as a standard servicer duty. 18 This general requirement is found in Regulation X , which is one of the few new regulations that is not privately enforceable. However, it is enforceable under the error resolution procedure. If the borrower believes that information has 12 Id. 13 Reg. X, 12 C.F.R (b) (effective Jan. 10, 2014). 14 See Official Interpretations, Supplement 1 to Part 1024, 35(b)-2 (effective Jan. 10, 2014). 15 See Section-by-Section Analysis, (b)(7), 78 Fed. Reg (Feb. 14, 2013). 16 Id. 17 Reg. X, 12 C.F.R (b)(4) (effective Jan. 10, 2014); 9.4, infra. 18 See Section-by-Section Analysis, (b)(8), 78 Fed. Reg. 10,743 (Feb. 14, 2013). 26

32 not been accurately transferred, a servicer s failure to correct the error can lead to liability under RESPA. The CFPB s analysis of this provision notes that by defining an error in this way, a borrower will have a remedy to ensure that a transferor servicer provides information to a transferee servicer that accurately reflects the borrower s account consistent with the obligations applicable to a servicer s general servicing policies and procedures. 19 Non-Covered Errors The CFPB s Official Bureau Interpretation provides examples of noncovered errors that are consistent with matters generally not considered to be related to the servicing of a mortgage loan. A servicer is not compelled to respond to a written notice sent by the borrower that asserts an error relating to the origination, underwriting, and subsequent sale or securitization of a mortgage loan. 20 Additionally, an asserted error relating to the determination to sell, assign, or transfer the servicing of a mortgage loan is not a covered error. In contrast, the failure to transfer accurately and timely information relating to the servicing of a borrower s mortgage loan account to a transferee servicer as discussed above is a covered error. 21 General Catchall for Errors Relating to Servicing of Loan When the CFPB initially proposed the error resolution rule, it contained an exclusive list of nine covered errors. 22 The list of specific covered errors did not include a general category for errors related to the servicing of the borrower s loan. NCLC and other consumer organizations submitted comments noting that RESPA section 2605(e) is drafted broadly and does not contain a finite list of potential errors, and that the Dodd-Frank Act amendment adding subsection 2605(k)(1)(C) requires servicers to correct errors relating to standard servicer duties. It was also pointed out that the proposed rule would fail to address future servicing problems as standard servicer s duties change over time. In response to these comments, the CFPB added to the final rule a catch-all category for any other error relating to the servicing of a borrower s mortgage loan. 23 The CFPB agreed with consumer advocacy commenters that the mortgage market is fluid and constantly changing and that it is impossible to anticipate with certainty the precise nature of the issues that borrowers will encounter. 24 Servicers will likely argue that a notice of error asserting an error under the catch-all provision is ineffective unless it pertains to a servicing duty set out in the definition of servicing provided in RESPA section 2605(i)(3), 25 relying on court opinions from cases 19 Id. 20 See Official Interpretations, Supplement 1 to Part 1024, 35(b)-1 (effective Jan. 10, 2014). 21 Id. 22 See Section-by-Section Analysis, (b)(11), 78 Fed. Reg. 10,743/-/44 (Feb. 14, 2013). 23 Reg. X, 12 C.F.R (b)(11) (effective Jan. 10, 2014). 24 See Section-by-Section Analysis, (b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 25 The term servicing is defined in section 2605(i)(3) to mean receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for 27

33 concerning qualified written requests decided before the 2013 amendments to Regulation X became effective. 26 These pre-january 10, 2014 court opinions no longer have precedential value based on the substantial changes made to Regulation X by the 2013 amendments. Although the CFPB retained the statutory definition of servicing in Regulation X section , amendments to regulations under both Regulation X and Regulation Z recognize that standard servicer duties have greatly expanded since the 1990 Servicer Act amendments to RESPA. For example, Subpart C of Regulation X now includes regulations dealing with servicing operations not contemplated by the definition of servicing in RESPA section 2605(i)(3), such as force-placed insurance, disclosure of mortgage owners, foreclosure avoidance, and loss mitigation. Regulation X also now includes a separate section that describes general servicing policies, procedures, and requirements, based on the CFPB s analysis of servicing industry practices. 27 These significant regulatory changes and developing industry practices must be considered when determining whether an error asserted under the catch-all provision in section (b)(11) is related to the servicing of a borrower s mortgage loan. Notice of Error for Failure to Correctly Evaluate Loss Mitigation Options This leads to the question of whether a borrower can assert as an error under the catch-all provision in section (b)(11) a servicer s failure to correctly evaluate a borrower for a loss mitigation option? Although the final 2013 RESPA Servicing Rule focuses only on a servicer s duty to follow standard loss mitigation procedures and does not compel a servicer to offer loan modifications or any particular loss mitigation option, it does establish loss mitigation activities as a standard servicer duty. 28 In addition, Congress has specifically stated that the loan modification analysis required by the HAMP program is the standard of the residential mortgage servicing industry under both federal and state law. 29 As the CFPB correctly noted, any error escrow accounts... and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan. 26 See, e.g., Bilek v. Bank of Am., 2011 WL (N.D. Ill. Mar. 3, 2011) (letter sent when borrower was in foreclosure is not a qualified written request because servicer is no longer receiving any scheduled periodic payments) ); Moore v. Fed. Deposit Ins. Corp., 2009 WL (N.D. Ill. Nov. 30, 2009) (borrower inquiry seeking information about amounts claimed as due on a mortgage account is not related to servicing). See also NCLC Foreclosures, (4th ed. and 2013 Supp.). 27 Reg. X, 12 C.F.R (effective Jan. 10, 2014). 28 See Reg. X, 12 C.F.R (effective Jan. 10, 2014) (loss mitigation procedures); NCLC Foreclosures, (4th ed. and 2013 Supp.). See also CWCapital Asset Mgmt., L.L.C. v. Chicago Properties, L.L.C., 610 F.3d 497, 500 (7th Cir. 2010) (describing common duties of a servicer of loans in a securitized trust, including modifying the mortgage to make its terms less onerous to the borrower ). 29 See Helping Families Save Their Homes Act of 2009, Pub. L. No , 123 Stat (2009) ( The qualified loss mitigation plan guidelines issued by the Secretary of the Treasury under the Emergency Economic Stabilization Act of 2008 shall constitute standard industry practice for purposes of all Federal and State laws ). 28

34 related to the servicing of a borrower s mortgage loan also relates to standard servicer duties. 30 It would thus seem appropriate for a notice of error to be used by a borrower to seek correction of a servicer s improper denial of a loan modification application by asserting, for example, that the servicer failed to follow HAMP or GSE guidelines, or erroneously applied the net present value test. In discussing its reasoning for not including a servicer s failure to correctly evaluate a borrower for a loss mitigation option as a specific covered error in section (b), the CFPB stated that the appeals process set forth in (h) provides an effective procedural means for borrowers to address issues relating to a servicer s evaluation of a borrower for a loan modification program. 31 Significantly, though, the CFPB went on to state in this same discussion that it was adding the catch-all provision to the error resolution procedure under section (b) so as to encompass the myriad and diverse types of errors that borrowers may encounter with respect to their mortgage loans. 32 In doing so, the CFPB did not foreclose arguments that a notice of error for a servicer s failure to correctly evaluate a borrower for a loss mitigation option may be proper. Such a notice of error may be particularly appropriate when the procedural means for seeking redress under the appeal process are ineffective or inapplicable. It is also significant that while the CFPB did not include loss mitigation evaluation as a covered error, it also did not exclude it or indicate that it was a noncovered error. Although section includes express exclusions and limitations on the use of error notices as discussed above, nothing in section or its commentary prohibits a borrower from asserting an error under the catch-all provision in section (b)(11) based on a servicer s failure to correctly evaluate a loss mitigation application. In fact, RESPA itself requires servicers, through amendments made by the Dodd-Frank Act, to take timely action to correct errors relating to avoiding foreclosure, suggesting that borrowers should be able to assert under RESPA errors related to loss mitigation. 33 Duplicative and Overbroad Notice of Error The pre-january 10, 2014 version of Regulation X did not include an exclusion from compliance for a dispute notice sent as a qualified written request that was duplicative or overbroad. The 2013 amendments to Regulation X change this by permitting a servicer to reject certain error notices. A servicer is not required to comply with the response requirements if the servicer reasonably determines that the asserted error is substantially the same as an error previously asserted by the borrower for which the servicer has previously complied, unless the borrower provides new and material information to support the asserted error. 34 New and material information means information the servicer did not previously review in connection with investigating a prior notice and is reasonably likely to change the servicer s prior 30 See Section-by-Section Analysis, (b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 31 See Section-by-Section Analysis, (b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 32 Id U.S.C. 2605(k)(1)(C). 34 Reg. X, 12 C.F.R (g)(1)(i) (effective Jan. 10, 2014). 29

35 determination about the error. A dispute over whether information was previously reviewed by a servicer or whether a servicer properly determined that information reviewed was not material to its prior determination does not itself constitute new and material information. 35 A servicer may also refuse to comply with an overbroad notice of error. A notice of error is overbroad if the servicer cannot reasonably determine from the notice the specific error that the borrower asserts has occurred on the account. 36 A servicer is nevertheless required to comply with an otherwise overbroad notice of error to the extent that the servicer reasonably identifies some valid assertion of an error within the notice. 37 The Official Interpretations provide the following examples of an overbroad notice of error: Assertions of errors regarding substantially all aspects of a mortgage loan, including errors relating to all aspects of mortgage origination, mortgage servicing, and foreclosure, as well as errors relating to the crediting of substantially every borrower payment and escrow account transaction; Assertions of errors in the form of a judicial action complaint, subpoena, or discovery request that purports to require servicers to respond to each numbered paragraph; and Assertions of errors in a form that is not reasonably understandable or is included with voluminous tangential discussion or requests for information, such that a servicer cannot reasonably identify from the notice of error any error for which requires a response. 38 The exclusion for duplicative or overbroad error notices appears intended by the CFPB as a response to servicer complaints about boilerplate qualified written requests available on the internet that have been used by pro se homeowners and some attorneys in foreclosure litigation. 39 These forms often contain numbered paragraphs that resemble discovery requests and have numerous assertions that may not be relevant to the homeowner s dispute. To avoid any potential servicer defense in litigation over violations of RESPA section 2605(e) and Regulation X section , an attorney who drafts a notice of error should ensure that it is concise and tailored to the facts of the particular case. 35 See Official Interpretations, Supplement 1 to Part 1024, 35(g)(1)(i)-1 (effective Jan. 10, 2014). 36 Reg. X, 12 C.F.R (g)(1)(ii) (effective Jan. 10, 2014). 37 Id. 38 See Official Interpretations, Supplement 1 to Part 1024, 35(g)(1)(ii)-1 (effective Jan. 10, 2014). 39 See Section-by-Section Analysis, (f)(1)(iv), 78 Fed. Reg. 10,760 (Feb. 14, 2013) ( During the Small Business Review Panel outreach, small entity representatives expressed that typically qualified written requests received from borrowers were vague forms found online or forms used by advocates as a form of pre-litigation discovery. ). 30

36 If the servicer determines that a notice of error is duplicative or overbroad, the servicer must notify the borrower in writing within five business days after making its determination. 40 The notice must set forth the basis for the servicer s determination. The failure to provide such notice to the borrower should preclude a servicer from having a defense to liability for noncompliance in subsequent litigation based on an argument that the requirements were not applicable. Compliance with Notices of Error The final 2013 RESPA Servicing Rule makes the dispute rights under RESPA more effective by shortening the response periods. The servicer must acknowledge receipt of a notice of error within five days (excluding holidays, Saturdays, and Sundays) after receiving the notice, rather than the twenty business day period under the former law. 41 Alternatively, the servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements if it corrects the error or errors asserted by the borrower, and notifies the borrower in writing of the correction, within the five business day period. 42 Except for certain notices of error that have different response periods as discussed below, a servicer must respond to a notice of error from the borrower within thirty days (excluding holidays, Saturdays, and Sundays) after receiving the notice. 43 This is significantly shorter than the prior sixty business day response period. A servicer adequately responds by taking action to either: Correct the error or errors asserted by the borrower and provide the borrower with a written notification of the correction, the effective date of the correction, and contact information, including a telephone number, for further assistance; or Conduct a reasonable investigation and provide the borrower with a written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower s right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can request such documents, and contact information, including a telephone number, for further assistance. 44 Additionally, if during a reasonable investigation of a notice of error, a servicer determines that there were errors other than or in addition to the error asserted by the borrower, the servicer must correct these additional errors and provide the borrower with a written notification that describes the errors, the action taken to correct the errors, the effective date of 40 Reg. X, 12 C.F.R (g)(2) (effective Jan. 10, 2014). 41 Reg. X, 12 C.F.R (d) (effective Jan. 10, 2014). 42 Reg. X, 12 C.F.R (f) (effective Jan. 10, 2014). 43 Reg. X, 12 C.F.R (e)(3) (effective Jan. 10, 2014). 44 Reg. X, 12 C.F.R (e)(1) (effective Jan. 10, 2014). 31

37 the correction, and contact information, including a telephone number, for further assistance. 45 A servicer may provide the response for different or additional errors it identifies in the same notice that responds to errors asserted by the borrower or in a separate response that addresses these different or additional errors. 46 Shorter Time Deadlines for Certain Notices of Error Different time limitations apply to certain notices of error. If the borrower sends a notice of error under section (b)(6) asserting that the servicer has failed to provide an accurate loan payoff balance following a request made under Regulation Z section (c)(3), 47 the servicer must respond within seven days (excluding holidays, Saturdays, and Sundays) after receiving the notice. 48 For a notice of error asserting certain violations of the Regulation X loss mitigation procedures, either under section (b)(9) that the servicer initiated a foreclosure before the 120th day of delinquency in violation of section (f) or (j), or under section (b)(10) that the servicer moved for foreclosure judgment or conducted a foreclosure sale in violation of section (g) or (j), 49 the servicer must respond prior to the date of a foreclosure sale or within thirty days (excluding holidays, Saturdays, and Sundays), whichever is earlier, after the servicer receives the notice of error. 50 However, a servicer is not required to comply with such an error notice if the servicer receives it seven or less days before a scheduled foreclosure sale. 51 In this situation a servicer shall make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state the reason it believes no error has occurred. 52 Extension of Response Period A servicer may extend the thirty-day time period for responding to an notice of error by an additional fifteen days (excluding legal public holidays, Saturdays, and Sundays) if, before the end of the thirty-day period, the servicer notifies the borrower in writing of the extension and the reasons for the extension. 53 Although the borrower notification must state the reasons for the extension, RESPA and Regulation X do not require that the servicer have a valid or justifiable reason for extending the time period. 45 Reg. X, 12 C.F.R (e)(1)(ii) (effective Jan. 10, 2014). 46 See Official Interpretations, Supplement 1 to Part 1024, 35(e)(1)(ii)-1 (effective Jan. 10, 2014). 47 See NCLC Foreclosures, (4th ed. and 2013 Supp.) and NCLC ereports, Nov. 2013, No Reg. X, 12 C.F.R (e)(3)(i)(A) (effective Jan. 10, 2014). 49 See NCLC Foreclosures, (4th ed. and 2013 Supp.). The loss mitigation rule will be covered in a future ereports article. 50 Reg. X, 12 C.F.R (e)(3)(i)(B) (effective Jan. 10, 2014). 51 Reg. X, 12 C.F.R (f)(2) (effective Jan. 10, 2014). 52 Id U.S.C. 12 C.F.R. 2605(e)(4); Reg. X, (e)(3)(ii) (effective Jan. 10, 2014). 32

38 However, a servicer s right to a fifteen-day extension does not apply to all notices of error. A servicer may not extend the seven-day time period for responding to a notice of error under section (b)(6) asserting that the servicer failed to provide an accurate loan payoff balance. 54 Similarly, no extension of time for compliance is permitted for a notice of error under either section (b)(9) or (b)(10) asserting violations of the applicable loss mitigation procedures. 55 If a servicer cannot comply by the earlier of the foreclosure sale or thirty days after receipt of the notice of error, it may cancel or postpone a foreclosure sale. 56 A servicer in this situation would comply with the time limit by responding before the earlier of the date of the rescheduled foreclosure sale or thirty business days after receipt of the notice of error. If the borrower sends a notice of error that asserts multiple errors, the CFPB s Official Bureau Interpretation advises that the servicer may respond through either a single response or separate responses that address each error. 57 It may also treat such a notice of error as separate notices of error and may extend the time period for responding to each asserted error for which an extension is permissible. 58 Borrower Right to Request Documentation Supporting Response Regulation X imposes several additional requirements upon servicers in responding to a notice of error. If the borrower requests copies of documents and information relied upon by the servicer in making a determination that no error occurred, a servicer shall provide to the borrower, at no charge, the documents and information within fifteen business days of receiving the borrower s request for such documents. 59 Only those documents actually relied upon by the servicer in finding that no error occurred are required to be produced. This may include documents reflecting information entered in a servicer s collection system, such as a copy of a screen shot of the servicer s system showing amounts credited to the borrower s loan if the asserted error involves payment allocation. 60 A servicer is not required to provide documents relied upon that it determines contain confidential, proprietary, or privileged information. If a servicer withholds documents on this basis, the servicer must notify the borrower of its determination in writing within fifteen business days of receipt of the borrower s request for such documents Id. 55 Id. 56 See Official Interpretations, Supplement 1 to Part 1024, 35(e)(3)(i)(B)-1 (effective Jan. 10, 2014). 57 See Official Interpretations, Supplement 1 to Part 1024, 35(e)(1)(i)-1 (effective Jan. 10, 2014). 58 See Official Interpretations, Supplement 1 to Part 1024, 35(e)(3)(ii)-1 (effective Jan. 10, 2014). 59 Reg. X, 12 C.F.R (e)(4) (effective Jan. 10, 2014). 60 See Official Interpretations, Supplement 1 to Part 1024, 35(e)(4)-1 (effective Jan. 10, 2014). 61 Id. 33

39 Regulation X permits a servicer to request that the borrower provide supporting documentation in connection with the investigation of an asserted error. However, a servicer may not (1) require a borrower to provide such information as a condition of investigating an error; or (2) determine that no error occurred because the borrower failed to provide any requested information without conducting a reasonable investigation. 62 Ban on Charging Response Fees The Dodd-Frank Act clarifies that a servicer shall not charge a fee for responding to a valid qualified written request. 63 This provision is implemented by Regulation X section (h) for notices of error and section (g) for requests for information. 64 A servicer is prohibited from charging a fee as a condition of responding to a notice of error or request for information. The final 2013 RESPA Servicing Rule also clarifies that a servicer shall not require a borrower to make any payment that may be owed on a borrower s account as a condition of responding to a notice of error. 65 The Official Interpretations instruct that this borrower protection does not alter the borrower s obligation to make payments owed under the terms of the mortgage loan. 66 For example, if a borrower sends a notice of error asserting that the servicer failed to accept the borrower s monthly payment made in February, the borrower is still obligated to make the March monthly payment. However, the servicer may not require that a borrower make the March payment as a condition for complying with its obligations under section with respect to the notice of error on the February payment. 62 Reg. X, 12 C.F.R (e)(2) (effective Jan. 10, 2014). 63 Pub. L. No , 124 Stat. 1376, tit. XIV, 1463(a) (July 21, 2010). 64 Reg. X, 12 C.F.R (h) and (g) (effective Jan. 10, 2014). 65 Reg. X, 12 C.F.R (h) (effective Jan. 10, 2014). 66 See Official Interpretations, Supplement 1 to Part 1024, 35(h)-1 (effective Jan. 10, 2014). 34

40 This article is part of a series of NCLC ereports covering the CFPB s new 2013 RESPA and TILA Servicing Rules that go into effect on January 10, This article (Part 2) focuses on the final rule dealing with new requirements as to a servicer s duty to respond to borrower requests for information. Part 1 focused on the new requirements regarding borrower notices of error. New RESPA Rules Change Qualified Written Request Procedure (Part 2 of 2) by John Rao RESPA provides mortgage borrowers with the right to dispute servicer errors and to obtain account information by sending a "qualified written request." The Consumer Financial Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure. New regulations that take effect on January 10, 2014 create two separate processes: one for resolving errors on a borrower's account (discussed in Part 1) and the other for requesting information about the account. The final 2013 RESPA Servicing Rule expands the scope of information requests by no longer limiting them to the servicing of the loan. As under the current law, a borrower may recover actual damages, statutory damages, costs, and reasonable attorney fees for violations of the new request for information and notice of error procedures. 1 Requirements for a Request for Information A servicer is required to respond to any written request for information from a borrower that states the information the borrower is requesting with respect to the borrower s mortgage loan. 2 Unlike the earlier version of this regulation that applied to qualified written requests, the scope of an information request under Regulation X is no longer tied solely to the concept of information that is related to the servicing of the loan. 3 Rather, requests are effective if they seek any information concerning the borrower s mortgage loan, which would include, but would not be limited to, the servicing of the loan. Thus, the question as to whether the borrower has sent a valid information request no longer turns on the narrow definition of servicing found in RESPA. 4 Prior court decisions that had found certain requests to be 1 12 U.S.C. 2605(f). Foreclosures, (4th ed. and 2013 Supp.). 2 Reg. X, 12 C.F.R (a) (effective Jan. 10, 2014). The request for information must also comply with the general requirements for borrower inquiries, such as by including the name of the borrower and information that enables the servicer to identify the borrower s mortgage loan account. See Foreclosures, (4th ed. and 2013 Supp.). 3 Reg. X, 12 C.F.R (e)(2)(i)(effective until Jan. 10, 2014). 4 See Section-by-Section Analysis, (f)(1)(iv), 78 Fed. Reg. 10,761 (Feb. 14, 2013) ( the final rule... does not limit information requests to those related to servicing ). The term servicing is defined in RESPA 2605(i)(3) to mean receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts... and making the payments of principal and interest and such other payments 35

41 ineffective because of this definition, as discussed below, are effectively abrogated by Regulation X To accommodate the new regime in which qualified written requests continue to coexist with requests for information, Regulation X provides that a qualified written request that requests information relating to the servicing of the mortgage loan is a request for information for purposes of , and a servicer must comply with all requirements applicable to a request for information with respect to such qualified written request. 5 However, a written inquiry can be a request for information even if it is not a qualified written request, and so may seek information beyond that of a qualified written request. The one express limitation in Regulation X on requests for information is that they may not seek the payoff balance of a mortgage loan. 6 If the borrower sends such a request for a payoff balance statement, the servicer need not treat it as a request for information under Regulation X, but instead should treat it as a request under Regulation Z. 7 However, a borrower may use a notice of error under Regulation X to seek correction of an inaccurate statement of a mortgage payoff balance. 8 A more detailed discussion of requests for a payoff balance statement was provided in an earlier article in this series, NCLC ereports, Nov. 2013, No Request for Information About a Loan Modification Application Several courts in cases decided before the 2013 RESPA Servicing Rule held that a request for information about a loan modification application was not related to the servicing of a loan and therefore could not be a valid qualified written request. 10 Such requests are now covered under Regulation X In discussing the borrowers right to assert a notice of error for a servicer s failure to provide accurate information to a borrower with respect to available loss mitigation options, the CFPB stated that it is critical for borrowers to have information regarding available loss mitigation options, and that this access should include accurate information about the loss mitigation options available to the borrower, the requirements for receiving an evaluation for any such loss mitigation option, and the applicable timelines relating to both the evaluation of the with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan. 5 Reg. X, 12 C.F.R (a) (effective Jan. 10, 2014). 6 Id. 7 Reg. X, 12 C.F.R (c)(3) (effective Jan. 10, 2014). 8 See Foreclosures, (4th ed. and 2013 Supp.). 9 See also Foreclosures, (4th ed. and 2013 Supp.). 10 See, e.g., Mitchell v. Reg l Trust Serv. Corp., 2013 WL (N.D. Cal. Feb. 12, 2013); Van Egmond v. Wells Fargo Home Mortg., 2012 WL (C.D. Cal. Mar. 21, 2012); Saucedo v. Bank of Am., 2011 WL , (D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011). See also Foreclosures, (4th ed. and 2013 Supp.). 36

42 borrower for the loss mitigation options and any potential foreclosure process. 11 The CFPB also noted that servicers are typically required to provide borrowers with information about loss mitigation options and foreclosure under the National Mortgage Settlement and servicer participation agreements with the Department of the Treasury, HUD, Fannie Mae and Freddie Mac, and that providing such information to borrowers is a standard servicer duty. 12 Request for Loan Servicing File In response to the expanded scope of information requests as proposed by the CFPB, mortgage industry commenters raised the concern that a borrower could request the entire servicing file for the borrower s mortgage loan. 13 In promulgating the final 2013 RESPA Servicing Rule, the CFPB refused to adopt a per se rule that such requests would be invalid. Rather, the CFPB concluded that, if a borrower requests a servicing file, the servicer shall provide the borrower with a copy of the information contained in the file subject only to the limitations set forth in Regulation X (f) that deal with duplicative, overbroad, or unduly burdensome requests, which are discussed below. 14 The CFPB provided additional explanation on this issue in discussing its refusal to adopt the National Mortgage Settlement s standards 15 in another section of Regulation X, , which deals with general servicing requirements. 16 Consumer organizations submitted comments suggesting that servicers who are initiating a foreclosure should be required to provide borrowers with documentation of their authority to foreclose, and that strict standards to ensure the accuracy and validity of foreclosure documentation should be adopted as included in the National Mortgage Settlement. The CFPB concluded that such requirements were unnecessary because the information request process set out in provides borrowers in foreclosure with access to foreclosure-related documentation. The CFPB stated specifically that requires servicers to provide to borrowers upon their request information about their mortgage loan accounts, including their servicing files, which includes a complete payment history, a copy of their security instrument, collection notes, and other valuable information about their accounts. 17 Consistent with this analysis of , the CFPB noted in the Official Staff Interpretation for the servicing file provision that (c)(2) does not provide the borrower with an independent right to access information contained in the servicing file. 18 In other words, a borrower s right to the servicing file information derives only under Upon receipt of a borrower request for information asking for a servicing file, a servicer shall provide a 11 See Section-by-Section Analysis, (b)(7), 78 Fed. Reg. 10,742 (Feb. 14, 2013). 12 Id. 13 See Section-by-Section Analysis, (a), 78 Fed. Reg. 10,754 (Feb. 14, 2013). 14 Id. See also Foreclosures, (4th ed. and 2013 Supp.). 15 See Foreclosures, 2.9 (4th ed. and 2013 Supp.). 16 See Section-by-Section Analysis, (b)(1)(v), 78 Fed. Reg. 10,781 (Feb. 14, 2013). 17 Id. 18 See Official Bureau Interpretation, Supplement 1 to Part 1024, 38(c)(2)-2 (effective Jan. 10, 2014). 37

43 copy of the information contained in the servicing file, subject only to the limitations set forth in What constitutes the servicing file that the borrower may obtain through a request for information is addressed in the general servicing requirements of Regulation X, at Although the general servicing requirements found in are not privately enforceable, they help to define the scope of a permissible request for information under (which is enforceable by the borrower). Section (c)(2) provides that a servicer is required to maintain the following documents and data on each mortgage loan account it services in a manner that facilitates compiling such documents and data into a servicing file within five days: (1) a schedule of all transactions credited or debited to the mortgage loan account, including any escrow account and any suspense account; (2) a copy of the security instrument that establishes the lien securing the mortgage loan; (3) any notes created by servicer personnel reflecting communications with the borrower about the mortgage loan account; (4) a report of the data fields relating to the borrower s mortgage loan account, to the extent applicable, created by the servicer s electronic servicing systems; and (5) copies of any information or documents provided by the borrower to the servicer in accordance with the notices of error procedures under or the loss mitigation procedures under Thus, the servicing file appears to be a subset of the entire loan file for a borrower. Significantly, a servicing file includes a schedule of all transactions credited or debited to the account. Since this provision refers to all transactions and no time limitation is placed on the reporting period, a borrower may request a life-of-loan payment history. While (c)(2) requires a servicer to produce the servicing file within five days, this timeline is established in the general servicing requirements for compliance reviews by the CFPB rather than for responses to borrower requests for information under Thus, the customary timeline for compliance with requests for information as discussed below would apply to a request for the servicing file. Requests for Loan Origination Documents A number of court decisions under the former law had held that a qualified written request could not be used to obtain loan origination documents because such documents are not 19 Id. 20 See Foreclosures, 9.4 (4th ed. and 2013 Supp.). 21 Reg. X, 12 C.F.R (c)(2) (effective Jan. 10, 2014). 38

44 related to the servicing of the loan. 22 By expanding the scope of borrower inquiries to include information concerning the borrower s mortgage loan, Regulation X now permits a borrower to obtain loan origination documents by sending a request for information under However, as discussed below, the servicer may claim that such documents are not available, or that the request is overbroad or unduly burdensome. A request for the entire loan origination file will likely generate such a response from the servicer. To avoid this response, the request should ask for the particular documents that may be needed, such as a copy of the loan note, mortgage or deed of trust, HUD-1 settlement statement, or TILA disclosure and rescission notice. Exclusions from Compliance Similar to the treatment of notices of error, 23 a servicer may reject certain information requests it deems to be duplicative or overbroad. Regulation X expands the list of exclusions from compliance for requests for information to include requests that are unduly burdensome, or that seek information that is irrelevant, confidential, proprietary, or privileged. However, a servicer s decision to ignore a borrower s request comes with certain risks. If the servicer makes an unreasonable determination that any of the listed exclusions apply, it would be liable to the borrower for its failure to comply with If a servicer determines that it is not required to comply with a request for information because one of the exclusions applies, it must notify the borrower in writing within five business days after making its determination. 25 The notice must set forth the basis for the servicer s determination. The failure to provide such notice to the borrower should preclude a servicer from having a defense to liability for noncompliance in subsequent litigation based on an argument that the requirements were not applicable. Duplicative Request for Information A servicer is not required to comply with a request for information if the servicer reasonably determines that it is duplicative in that the information requested is substantially the same as information the borrower previously requested and for which the servicer has previously complied. 26 A borrower s request for a type of information that can change over time is not substantially the same as a previous information request for the same type of information if the subsequent request covers a different time period than the prior request. 27 Request Asking for Confidential, Proprietary, or Privileged Information 22 E.g., Liebelt v. Quality Loan Serv. Corp., 2011 WL (N.D. Cal. Feb. 24, 2011); Aniel v. Litton Loan Servicing, L.P., 2011 WL (N.D. Cal. Feb. 11, 2011); Taggart v. Wells Fargo Home Mortg., Inc., 2010 WL (E.D. Pa. Sept. 27, 2010). 23 See Foreclosures, (4th ed. and 2013 Supp.). 24 See Section-by-Section Analysis, (f)(1), 78 Fed. Reg. 10,759 (Feb. 14, 2013). 25 Reg. X, 12 C.F.R (f)(2) (effective Jan. 10, 2014) C.F.R (f)(1)(i) (effective Jan. 10, 2014). 27 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(f)(1)(i)-1 (effective Jan. 10, 2014). 39

45 Compliance with a request for information is not required if the servicer reasonably determines that the information requested is confidential, proprietary, or privileged. 28 The Official Bureau Interpretation to Regulation X provides the following examples of confidential, proprietary, or privileged information: (1) information regarding management or profitability of a servicer, including information provided to investors in the servicer; (2) compensation, bonuses, or personnel actions relating to servicer personnel, including personnel responsible for servicing a borrower s mortgage loan account; (3) records of examination reports, compliance audits, borrower complaints, and internal investigations or external investigations; or (4) information protected by the attorney-client privilege. 29 The CFPB s initial proposed rule included a reference to general corporation information of a servicer as part of the confidential, proprietary or privileged exclusion. 30 Industry commenters supported the CFPB s listing in the proposed Official Bureau Interpretation of a pooling and servicing agreement (PSA) between the servicer and the owner of the mortgage as an example of this general corporate information exclusion. Consumer organizations commented that PSAs are not typically confidential or proprietary, and are important as a subject for information requests because servicers rely on such agreements to make erroneous claims that they are not authorized to offer loan modifications or other loss mitigation options. In issuing the final rule, the CFPB removed the reference to general corporate information. The CFPB also agreed that PSAs are not typically kept confidential, and therefore deleted from the final Official Bureau Interpretation a PSA as an example of a confidential, proprietary or privileged request item. Although the final rule does not have an explicit exclusion for a borrowers request for a PSA, the CFPB noted that a servicer may not be required to comply with such a request if it reasonably determines that any of the exclusions set forth in (f) apply. 31 To avoid the possibility of these other exclusions being applicable, such as requests that are irrelevant, overbroad, or unduly burdensome, the borrower should consider avoiding a general request for the entire PSA. 32 Rather, the borrower s request might be limited to the portions of the PSA that are relevant to the borrowers specific inquiry or dispute with the servicer. For example, if a servicer denies a loan modification request by claiming that a modification is prohibited by the terms of the PSA for a particular securitization transaction, a request for the relevant sections or provisions of the agreement that address any restrictions on the servicer in negotiating, offering, processing, or approving loss mitigation options should be treated as a valid request for C.F.R (f)(1)(ii) (effective Jan. 10, 2014). 29 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(f)(1)(ii)-1 (effective Jan. 10, 2014). 30 See Section-by-Section Analysis, (f)(1)(ii), 78 Fed. Reg. 10,759/-/60 (Feb. 14, 2013). 31 Id. 32 See In re Ginn, 465 B.R. 84 (Bankr. D.S.C. 2012) (in pre- Jan. 10, 2014, case, general request for copy of pooling and service agreement did not fall within the meaning of servicing for purposes of qualified written request); In re Griffin, 2010 WL (Bankr. S.D.N.Y. Aug. 31, 2010) (same). 40

46 information. As another example, if an attorney is attempting to determine if a client s mortgage loan was included in the pool of loans covered by a particular PSA, a request for the exhibit to the PSA (e.g., Exhibit A - Mortgage Loan Schedule) that lists the covered loans for the pool should be a valid request. Request Asking for Irrelevant Information No response is required by a servicer to a request that seeks irrelevant information. 33 In adopting this exclusion for information that it is not directly related to a borrower s mortgage loan account, the CFPB noted that it does not intend to impose an obligation on borrowers to identify with specificity the precise document or data point the borrower is seeking. 34 Rather, the purpose of this exclusion is to ensure that servicers are not expending resources on irrelevant requests, so that they may focus on providing relevant information to borrowers. The Official Bureau Interpretation to Regulation X provides the following examples of irrelevant information: (1) information that relates to the servicing of mortgage loans other than a borrower s mortgage loan, including information reported to the owner of a mortgage loan regarding individual or aggregate collections for mortgage loans owned by that entity; (2) the servicer s training program for servicing personnel; (3) the servicer s servicing program guide; or (4) investor instructions or requirements for servicers regarding criteria for negotiating or approving any program with a borrower, including any loss mitigation option. 35 The fourth example of irrelevant information given in the Official Bureau Interpretation raises concerns by referring to investor instructions or requirements for servicers regarding criteria for negotiating or approving any program with a borrower. 36 This appears to be inconsistent with the CFPB s general position that borrowers should have full access to information about loss mitigation options. 37 However, this example is apparently referring to general investor requirements and not those pertaining to an individual borrower s evaluation for loss mitigation options. This is made clear by the treatment of denial notices for loan modifications under Regulation X s loss mitigation rule. 38 If the reason for denial of a loan modification option was a requirement set by an owner or assignee of the loan, the rule requires that the denial notice must identify the owner or assignee and the specific requirement that was the basis for the denial C.F.R (f)(1)(iii) (effective Jan. 10, 2014). 34 See Section-by-Section Analysis, (f)(1)(iii), 78 Fed. Reg. 10,760 (Feb. 14, 2013). 35 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(f)(1)(iii)-1 (effective Jan. 10, 2014). 36 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(f)(1)(iii)-1 (effective Jan. 10, 2014). 37 See Foreclosures, (4th ed. and 2013 Supp.). 38 See Foreclosures, (4th ed. and 2013 Supp.). 39 See Official Bureau Interpretation, Supplement 1 to Part 1024, 41(d)(1)-1 (effective Jan. 10, 2014). 41

47 A mere statement that a loan modification option is denied based on an investor requirement, without additional information specifically identifying the relevant investor or guarantor and the specific applicable requirement, is insufficient. 40 Thus, a borrower should be permitted to obtain this information through a request for information if it is not provided in the denial notice. Overbroad or Unduly Burdensome Request for Information A servicer may reject a request for information request it deems to be overbroad or unduly burdensome. 41 An information request is overbroad if a borrower requests that the servicer provide an unreasonable volume of documents or information. 42 Regulation X elaborates on this point by stating that an information request is unduly burdensome if a diligent servicer could not respond to the request without either exceeding the maximum time limits under (d)(2) for responding to the request or incurring costs or dedicating resources that would be unreasonable in light of the circumstances. 43 If a servicer can reasonably identify a valid information request in a writing that is otherwise overbroad or unduly burdensome, the servicer is required to comply with respect to the validly requested information. 44 The Official Bureau Interpretation to Regulation X provides the following examples of an overbroad or unduly burdensome request for information: Requests that seek documents regarding substantially all aspects of mortgage origination, mortgage servicing, mortgage sale or securitization, and foreclosure, including, for example, requests for all mortgage loan file documents, recorded mortgage instruments, servicing information and documents, and sale or securitization information and documents; Requests in a form that is not reasonably understandable or are included with voluminous tangential discussion or assertions of errors; Requests that purport to require servicers to provide information in specific formats, such as in a transcript, letter form in a columnar format, or spreadsheet, when such information is not ordinarily stored in such format; and Requests that are not reasonably likely to assist a borrower with the borrower s account, including, for example, a request for copies of the front and back of all physical payment instruments (such as checks, drafts, or wire transfer confirmations) that show payments made by the borrower to the servicer and payments made by a servicer to an owner or assignee of a mortgage loan Id C.F.R (f)(1)(iv) (effective Jan. 10, 2014). 42 Id. 43 Id. 44 Id. 45 See Official Bureau Interpretation, Supplement 1 to Part 1024, 35(f)(1)(iv)-1 (effective Jan. 10, 2014). 42

48 The exclusion for overbroad or unduly burdensome information requests appears intended by the CFPB as a response to servicer complaints about boilerplate qualified written requests available on the internet that have been used by pro se homeowners and some attorneys in foreclosure litigation. 46 These forms often contain numbered paragraphs that resemble litigation discovery requests and have numerous assertions that may not be relevant to the homeowner s dispute. To avoid any potential servicer defense in litigation over violations of RESPA 2605(e) and Regulation X , an attorney who drafts a request for information should ensure that it is concise and tailored to the facts of the particular case. Compliance with Requests for Information A servicer must acknowledge receipt of a request for information within five days (excluding holidays, Saturdays, and Sundays) after receiving the request. 47 Alternatively, the servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements if it provides the borrower with the information requested, and notifies the borrower in writing of contact information (including a telephone number) for further assistance, within the five business day period. 48 Within thirty days (excluding holidays, Saturdays, and Sundays) of receipt of a request for information from the borrower, the servicer must either: provide the borrower with the requested information and contact information, including a telephone number, for further assistance in writing; or conduct a reasonable search for the requested information and provide the borrower with a written notification that states that the servicer has determined that the requested information is not available to the servicer, states the basis for the servicer s determination, and contains contact information, including a telephone number, for further assistance. 49 A shorter timeframe for response is set for a request for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan. 50 A servicer is required to respond to such a request within ten days (excluding holidays, Saturdays, and 46 See Section-by-Section Analysis, (f)(1)(iv), 78 Fed. Reg. 10,760 (Feb. 14, 2013) ( During the Small Business Review Panel outreach, small entity representatives expressed that typically qualified written requests received from borrowers were vague forms found online or forms used by advocates as a form of pre-litigation discovery. Servicers and servicing industry representatives indicated that these types of qualified written requests are unreasonable and unduly burdensome. ). 47 Reg. X, 12 C.F.R (c) (effective Jan. 10, 2014). 48 Reg. X, 12 C.F.R (e) (effective Jan. 10, 2014). 49 Reg. X, 12 C.F.R (d) (effective Jan. 10, 2014). 50 See Foreclosures, (4th ed. and 2013 Supp.). 43

49 Sundays) of receipt. 51 Requests for the identity of a mortgage owner were previously discussed in another article is this series, NCLC ereports, Sept. 2013, No. 1. Extension of Response Period A servicer may extend the time period for responding by an additional fifteen days (excluding legal public holidays, Saturdays, and Sundays) if, before the end of the thirty-day period, the servicer notifies the borrower in writing of the extension and the reasons for the extension. 52 Although the borrower notification must state the reasons for the extension, RESPA and Regulation X do not require that the servicer have a valid or justifiable reason for extending the time period. A servicer may not extend the ten-day time period for responding to requests for identity of the owner or assignee of a mortgage loan. 53 Information Not Available A servicer must conduct a reasonable investigation before concluding that information requested is not available. The Official Bureau Interpretation to Regulation X provides that information is not available if the information is (1) not in the servicer s control or possession, or (2) cannot be retrieved in the ordinary course of business through reasonable efforts. 54 The Official Bureau Interpretation provides the following examples to illustrate when information is or is not available: A borrower requests a copy of a telephonic communication with a servicer. Audio files with recordings or transcripts of borrower telephone calls are accessible to the servicer in the ordinary course of business, and the requested communication can be identified through reasonable business efforts. The information requested is available to the servicer. A borrower requests information stored on electronic back-up media. Information on electronic back-up media is not accessible by the servicer s personnel in the ordinary course of business without undertaking extraordinary efforts to identify and restore the information from the electronic back-up media. The information requested is not available to the servicer. A borrower requests information stored at an offsite document storage facility. The servicer has a right to access documents at the offsite document storage facility and servicer personnel can access those documents through reasonable efforts in the ordinary course of business. The information requested is available to the servicer assuming that the information can be found within the 51 Reg. X, 12 C.F.R (d)(2)(i)(A) (effective Jan. 10, 2014) U.S.C. 2605(e)(4); Reg. X, 12 C.F.R (d)(2)(ii) (effective Jan. 10, 2014). 53 Id. 54 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(d)-1 (effective Jan. 10, 2014). 44

50 offsite documents with reasonable efforts. 55 Ban on Charging Response Fees As discussed in Part 1 of this article, the Dodd-Frank Act clarifies that a servicer shall not charge a fee for responding to a valid qualified written request. 56 This provision is implemented by Regulation X (h) for notices of error and (g) for requests for information. 57 A servicer is prohibited from charging a fee, or requiring the borrower to make any payment owed on the account, as a condition of responding to a notice of error or request for information. 55 See Official Bureau Interpretation, Supplement 1 to Part 1024, 36(d)-2 (effective Jan. 10, 2014). 56 Pub. L. No , 124 Stat. 1376, tit. XIV, 1463(a) (July 21, 2010). 57 Reg. X, 12 C.F.R (h) and (g) (effective Jan. 10, 2014). 45

51 New CFPB Servicing Regulations John Rao National Consumer Law Center The Consumer Financial Protection Bureau (CFPB) was created by the Dodd- Frank Wall Street Reform and Consumer Protection Act of Rulemaking authority over the two key federal statutes that apply to mortgage servicing, the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), was transferred to the CFPB. Following an extensive notice and comment period, the CFPB issued new mortgage servicing rules under these statutes affecting a wide variety of servicer duties. 1 These regulations, incorporated into Regulation Z for TILA and Regulation X for RESPA, will become effective January 10, This article provides an overview of the TILA changes and force-placed insurance requirements, and a more detailed analysis of these provisions is provided in chapter 9 of NCLC s Foreclosures (4 th edit. and 2013 supp.). All of the servicer obligations discussed here are privately enforceable through the respective statute s remedy provision Periodic mortgage statements Mortgage servicers, except for servicers of subprime mortgage loans, have typically provided consumers with either monthly statements or preprinted coupon books containing payment information. However, federal law has never required such statements or regulated their content. Even when servicers do provide monthly statements, they often stop providing them when the borrower is in default or in a bankruptcy proceeding, times when the information is potentially most needed. 3 Information that would assist a borrower in discovering account errors and avoiding default, such as the assessment of fees or diversion of payments into suspense accounts, also generally has not been provided by servicers on monthly statements. An amendment to the Truth in Lending Act and related regulations, effective on January 10, 2014, change this by requiring that periodic statements be sent to borrowers on most residential mortgage loans. 4 Periodic statements that are prepared under the new regulation will give homeowners significant information about their mortgage accounts. The disclosures provided on the statements may also assist attorneys in determining whether an account is actually in default and whether a servicer has properly applied payments or improperly 1 78 Federal Register (Feb. 14, 2013)(TILA) and 78 Federal Register (Feb. 14, 2013)(RESPA) U.S.C. 2605(f)(RESPA) and 15 U.S.C. 1640(a)(TILA) (both provisions permitting recovery of actual damages, statutory damages, costs and attorney s fees). 3 See In re Monroy, 650 F.3d 1300 (9th Cir.2011)(approving local form plan language requiring secured creditors to continue sending periodic statements to debtors if they were provided pre-petition) U.S.C. 1638(f); Reg. Z, 12 C.F.R (effective Jan. 10, 2014). 46

52 charged unauthorized fees. The regulation requires that the statements contain information in the following categories: amount due for the billing period, explanation of amount due on the account including fees imposed, past payment breakdown, transaction activity, partial payment information, contact and account information, and delinquency information if applicable. Several of these categories include disclosure of a partial payment that is sent to a suspense or unapplied funds account. If the consumer is more than forty-five days delinquent, the statement must include: (i) date when the consumer became delinquent; (ii) notification of possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not cured; (iii) account history for the previous six months or the period since the last time the account was current showing the amount remaining past due from each billing cycle; (iv) notice indicating any loss mitigation program to which the consumer has agreed, if applicable; (v) notice of whether the servicer has initiated foreclosure by making the first notice or filing required by state law; (vi) total payment amount needed to bring the account current; and (vii) either the CFPB list or the HUD list of homeownership counselors and counseling organizations and the HUD toll-free telephone number to obtain contact information for homeownership counselors or counseling organizations. The regulation does not require that periodic statements be provided if the mortgage is a fixed rate loan and the servicer gives the borrower a coupon book that contains information substantially similar to that required by the regulation. Even if this coupon book exclusion applies, if the borrower is more than forty-five days delinquent, the servicer must still provide the required delinquency information separately in writing, including an account history for the delinquency period. Servicers are also not required to provide periodic statements to borrowers with reverse mortgages, and timeshare plans. The regulation applies only to closed-end mortgage loans, so open-end home loans such as HELOCs are exempted from coverage of the regulation. In addition, mortgage loans that are serviced by small servicers (servicers that service 5,000 or fewer mortgage loans) and state housing finance agencies are exempt from the periodic statement requirements. Industry commenters suggested that the periodic statement rule should not apply to borrowers in bankruptcy because accounting issues related to the treatment of prepetition arrearages were problematic. The CFPB s response was practical complexity alone does not justify a complete exemption, but may warrant certain adjustments. In fact, it is the complexities of the bankruptcy scenario that necessitate the periodic statement information be provided to consumers. 5 Applying a conflict analysis similar to that set out in Randolph v. IMBS, Inc., 6 the CFPB noted that while certain laws such as the Bankruptcy Code and the Fair Debt Collection Practices Act may prevent the collection of a debt, these laws do not prevent a servicer from sending a periodic statement that is tailored to the particular circumstances of the bankruptcy case. 5 See Section-by-Section Analysis, (d)(2), 78 Fed. Reg (Feb. 14, 2013) F.3d 726 (7th Cir. 2004). 47

53 The final rule allows servicers to make changes to the statement as they believe are necessary when a borrower is in bankruptcy, so as to reflect the payment obligations of the debtor in the bankruptcy proceeding. The CFPB even provided a sample message servicers may add to the statement to avoid conflict with the automatic stay and discharge injunction Payment change notices Many of the borrowers caught up in the recent foreclosure crisis had adjustable rate mortgages (ARM). Often these loans included initial teaser interest rates set lower than market rates, and elaborate and incomprehensible payment option terms. Another type of loan made during this period, a hybrid ARM, has a fixed interest rate for an introductory period that resets to an adjustable interest rate at the end of a specified period. The Dodd-Frank Act sought to address a variety of problems related to these loans, including consumers misapprehension of the risks associated with the payment change features of these loans. The Act amended TILA to require that notice be provided six months before the initial rate reset on a hybrid, closed-end ARM, and gave the CFPB authority to adopt further disclosures for other ARM products. 8 Under the final rule issued by the CFPB, a consumer with an ARM must be provided with a notice between 210 and 240 days before the first payment is due after the first rate adjustment. 9 Notice also must be sent between 60 and 120 days before payment at a new amount is due when the payment change is caused by a rate adjustment. 3. Prompt crediting of payments Mortgage servicers are typically responsible for collecting and processing mortgage payments from borrowers. Servicers delays in processing payments can result in unwarranted late fees and unjustified claims of borrower default. Complaints about slow payment processing led the Federal Reserve Board in 2008 to promulgate a rule that requires mortgage servicers to credit payments to consumers accounts as of the date of receipt. 10 The Dodd-Frank Act essentially codified the FRB rule, 11 and the CFPB final regulation implements this provision of the Act See Section-by-Section Analysis, (d)(2), 78 Fed. Reg , note 125 (Feb. 14, 2013) ( For example, servicers may include a statement such as: To the extent your original obligation was discharged, or is subject to an automatic stay of bankruptcy under Title 11 of the United States Code, this statement is for compliance and/or informational purposes only and does not constitute an attempt to collect a debt or to impose personal liability for such obligation. However, Creditor retains rights under its security instrument, including the right to foreclose its lien. ) U.S.C. 1638a. 9 Reg. Z, 12 C.F.R (c), effective Jan. 10, Reg. Z, 12 C.F.R (c)(1)(i) [ (c)(1)(i)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008); see National Consumer Law Center, Truth In Lending (8th ed and Supp.). 48

54 A servicer must credit a periodic payment received from the borrower as of the date of receipt, except when a delay in crediting the payment will not result in a charge to the borrower or negative credit reporting. 13 A periodic payment is defined as the amount sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle. 14 If a servicer receives a payment that is less than a full periodic payment, this partial payment may be held in a suspense account. However, suspense accounts may be used only if authorized by the contract and permitted by state law. 15 Funds must be applied from the suspense account when the amount in suspense in equal to or greater than a periodic payment. 16 If the servicer elects to hold funds in suspense rather than crediting the partial payment or returning it to the consumer, the servicer must disclose the amount of funds held in suspense on the periodic statement, if such a statement is required. 17 Non-conforming payments are payments that have been accepted by the servicer and are distinguished from partial payments that are placed in suspense, which are considered not to have been accepted. 18 Any non-conforming payment must be credited within five days of receipt. The servicer may specify reasonable requirements for making payments in writing. 19 Failure to comply with these written payment instructions may result in a non-conforming payment. 4. Payoff statements The Dodd-Frank Act amended TILA to require that accurate payoff statements be provided to consumers. 20 For any loan secured by the consumer s dwelling, the creditor, assignee or servicer must provide an accurate statement of the total outstanding balance U.S.C. 1639f, as amended by Pub. L. N , 1464, 124 Stat (July 21, 2010). 12 Reg. Z, 12 C.F. R (c)(1), effective Jan. 10, Id. 14 Id. 15 Official Interpretations (c)(1)(ii)-1; 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). 16 Reg. Z, 12 C.F.R (c)(1)(ii)(B) (effective Jan. 10, 2014); Official Interpretations (c)(1)(ii)-1(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). 17 Reg. Z, 12 C.F.R (c)(1)(ii)(A), (d)(3)(i), (ii) (effective Jan. 10, 2014); Official Interpretations (c)(1)(ii)-1(iii), (d)(3)-1; 78 Fed. Reg. 10,902, 11, (Feb. 14, 2013). Servicers not required to send periodic statements are exempt from this provision. See 78 Fed. Reg. 10,902, 10,955 (Feb. 14, 2013). 18 See 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013). 19 Official Interpretations (c)(1)(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013) U.S.C. 1639g, as amended by Pub. L. No , 1464, 124 Stat (July 21, 2010); see also National Consumer Law Center, Truth In Lending (8th ed. 2012). 49

55 required to pay the obligation in full if a request is made in writing by the consumer or someone acting on behalf of the consumer. 21 The statement must provide the payoff amount as of a specified date. Subject to several limited exceptions, the payoff statement must be provided within a reasonable time, but no later than seven business days after receiving a written request from the consumer or the consumer s agent. The Dodd-Frank Act amendment provides that the requirement is applicable to all home loans, a term not defined by the Act that is presumably broader than residential mortgage loans. 22 The final regulation implements the statutory language by providing that the requirement applies to any consumer credit transaction secured by a consumer s dwelling. 23 Thus, the rule applies to open-end, home-secured loans such as HELOCs. By not limiting application to mortgage loans on the consumer s principal dwelling, the rule also covers loans secured by vacation homes. The written request for a payoff statement may be sent by a person acting on behalf of the consumer. However, the CFPB indicated in its analysis of the final rule that the seven-day response period does not begin until a request is received from a verified party. 24 Thus, if a creditor, assignee or servicer must verify authorization that a third party is acting on behalf of the consumer, they will have seven days from when a verified request is received to provide the payoff statement. The failure to provide an accurate payoff statement based on a TILA request is subject to error resolution under RESPA (discussed below). If the borrower sends a notice of error disputing the accuracy of a payoff statement, the servicer must respond within seven business days, rather than the longer thirty day response period for other error notices. 25 Servicers, however, need not treat a borrower s request for payoff balances as a request for information under RESPA. 26 If a servicer receives a request for information seeking a payoff statement that is labeled as a RESPA request, the servicer may ignore the requirements under Regulation X and instead handle the request under the Regulation Z requirements. One effect of this treatment is that there is no prohibition under federal law for charging the borrower a fee to provide a payoff statement. If the CFPB had permitted a RESPA request for information to be used to obtain a payoff statement, the rule prohibiting the charging of fees for responding to information requests would have applied Reg. Z, 12 C.F. R (c)(3), effective Jan. 10, See 15 U.S.C. 1602(cc)(5), as amended by Dodd-Frank (defining residential mortgage loan to exclude open-end, home-secured credit) C.F. R (c)(3) (effective Jan. 10, 2014). 24 See 78 Fed. Reg. 10,957 (Feb. 14, 2013) C.F.R (e)(3)(a) (effective Jan. 10, 2014). For a discussion of error notices under RESPA, see 9.2.2, supra. 26 See 12 C.F.R (a) (effective Jan. 10, 2014). Prior to the effective date of these rules, a payoff statement may still be obtained using a qualified written request under RESPA. 27 See 12 C.F. R (g) (effective Jan. 10, 2014); , supra. 50

56 Numerous industry commenters stated that they needed more time than seven days to provide payoff statements for loans in delinquency status, foreclosure, or bankruptcy. The CFPB refused to create a blanket exemption but agreed that it may not be feasible in some situations for servicers to prepare the statement within seven days. 28 The final rule thus provides that when a servicer is unable to provide a payoff statement within seven days because a loan is in bankruptcy or foreclosure, or because the loan is a reverse mortgage, or because of natural disasters, the payoff statement must be provided within a reasonable time. 29 No definition of reasonable time is provided. Unlike many other servicing requirements, the CFPB did not include in the final rule an exemption for community banks, credit unions, and small servicers. Many states have enacted laws dealing with payoff statements. In issuing the final rule, the CFPB acknowledged that many of these state laws have longer or shorter timelines for compliance, allowing from three to twenty-one days. 30 Consistent with general preemption guidelines in which a conflict analysis is applied, the CFPB concluded that there was no need for the final rule to preempt state law. Regulation Z sets the maximum time period for compliance, but does not prevent creditors, assignees, or servicers from complying with a state law that would require a payoff statement to be provided sooner than seven days. They can comply with both the state law and Regulation Z deadlines by providing the payoff statement within the shorter of the two deadlines. State laws that allow a longer time period also do not prohibit the creditor, assignee, or servicer from providing a payoff statement within seven business days, and so there is no direct conflict between state law and the Regulation Z requirement. 5. Force-placed insurance In response to numerous problems with insurance obtained by a servicer when a borrower s policy lapses or is canceled, Congress created in the Dodd-Frank Act new restrictions on force-placed insurance (FPI). 31 In addition to implementing the Act s notice requirements, a significant consumer protection was added by the CFPB to the final rule. Servicers are prohibited from obtaining FPI, and instead must pay the borrower s existing insurance policy, if there is an escrow account on the mortgage. 32 This duty to disburse funds from the escrow account to pay the borrower s policy exists even if there are not sufficient funds in the account, except if the servicer has a reasonable basis to believe that the borrowers insurance is being canceled for reasons other than nonpayment or the property is vacant. 33 The servicer may seek repayment 28 See Section-by-Section Analysis, (c)(3), 78 Fed. Reg (Feb. 14, 2013). 29 Reg. Z, 12 C.F. R (c)(3), effective Jan. 10, See 78 Fed. Reg. 10,957 (Feb. 14, 2013) U.S.C. 2605(l) and (m). 32 Reg. X, 12 CFR (k)(5), effective Jan. 10, Reg. X, 12 CFR (k)(5)(ii), effective Jan. 10,

57 from the borrower for any of its own funds that are advanced to pay the borrower s policy. The CFPB s final rule also requires that before charging a borrower for FPI, the servicer must send two notices to the borrower indicating that the servicer does not have evidence of hazard insurance coverage, specifying the procedures by which the borrower may demonstrate coverage, and advising the borrower that insurance may be force-placed if proof of coverage is not provided. 34 The first notice must be sent at least 45 days before charging the borrower, and a second reminder notice must be sent no earlier than 30 days after the first notice and at least 15 days before charging the borrower. Servicers must terminate FPI coverage within 15 days of receiving evidence of coverage and any premiums charged for periods when both policies were in effect must be refunded. 35 All charges related to FPI, other than charges subject to state regulation, must be for a service that was actually performed and have a reasonable relationship to the cost of providing the service. 36 The force-placed insurance requirements do not apply to flood insurance. The CFPB was asked during the rulemaking comment period to exempt from coverage certain borrowers who might be unresponsive to the force-placed insurance notices, such as borrowers in bankruptcy, borrowers whom the servicer has referred to foreclosure, or borrowers who have made no payment for more than six months and the servicer has determined have vacated the property. 37 The CFPB concluded that this would be inconsistent with the intent of Congress, and no bankruptcy, default or foreclosure exemptions were included in the final force-placed insurance rule. A partial exemption has been provided to small servicers from the duty to disburse funds from escrow to pay premiums on existing borrower insurance policies. 38 Small servicers are exempted from this requirement only if any force-placed insurance that is purchased by the small servicer and charged to the borrower is less than the amount the small servicer would need to disburse out of the borrower s escrow account to ensure that the borrower s hazard insurance premium charges were paid in a timely manner. In other words, if repayment by the borrower of the charges for force-placed insurance obtained by the small servicer would be less costly than repayment by the borrower of the funds needed to be advanced by the servicer to maintain the borrower s insurance, the small servicer can force place insurance. Small servicers are required to comply the notice requirements. 34 Reg. X, 12 CFR (c), effective Jan. 10, Reg. X, 12 CFR (g), effective Jan. 10, Reg. X, 12 CFR (h), effective Jan. 10, See Section-by-Section Analysis, (c)(1), 78 Fed. Reg (Feb. 14, 2013). 38 This provision uses the definition of small servicer provided in Regulation Z. A small servicer is a servicer that either (1) services less than 5000 mortgage loans and these mortgage loans are all owned or originated by the servicer or an affiliate or (2) is a Housing Finance Agency, as defined in 24 C.F.R See 12 C.F.R (e)(4). See also , supra. 52

58 This article is part of a series of NCLC ereports covering the CFPB s new 2013 RESPA and TILA Servicing Rules that go into effect on January 10, This article focuses on the early intervention requirements. New RESPA Early Intervention Requirements for Borrowers in Default by John Rao The 2013 RESPA Servicing Rule amendments to CFPB Regulation X, effective January 10, 2014, include provisions dealing with foreclosure avoidance and loss mitigation. The early intervention requirements found in Regulation X focus on the period soon after a borrower becomes delinquent. The regulation requires a servicer to attempt to establish contact with the borrower at this early stage in order inform the borrower about available options to avoid foreclosure--a live contact within thirty-six days and a written notice within forty-five days of delinquency. Another Regulation X provision, , requires the servicer to maintain a continuity of contact with the borrower if the borrower requests loss mitigation assistance, and establishes procedures for handling loss mitigation applications. This article focuses on the early intervention requirements, and future ereports articles will cover the continuity of contact and loss mitigation requirements. Live Contact with Borrower A servicer is required to make good faith efforts to establish live contact with a delinquent borrower not later than the thirty-sixth day of the borrower s delinquency. 1 The purpose of the live contact requirement is to provide servicers an opportunity to discuss with a borrower the circumstances of a borrower s delinquency. 2 Live contact includes telephoning or conducting an in-person meeting with the borrower, but not leaving a recorded phone message. Good faith efforts to establish live contact consist of reasonable steps under the circumstances to reach a borrower and may include telephoning the borrower on more than one occasion or sending written or electronic communication encouraging the borrower to establish live contact with the servicer. 3 Promptly after establishing live contact, the servicer is to inform the borrower, or the borrower s authorized agent, about the availability of loss mitigation options, if appropriate. 4 If 1 12 C.F.R (a) (effective Jan. 10, 2014). 2 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-2 (effective Jan. 10, 2014). 3 Id. 4 Id. 53

59 the borrower makes a payment in full before the end of the thirty-six day period, the servicer need not establish live contact with the borrower. 5 A servicer is given discretion to determine whether informing the borrower about the availability of loss mitigation options is appropriate under the circumstances. 6 If the servicer determines it is appropriate and establishes live contact with the borrower, it must promptly provide information about the availability of applicable loss mitigation options. 7 The information can be provided orally, in writing, or through an electronic communication. A servicer need not notify a borrower about any particular loss mitigation options it may simply state that loss mitigation options may be available. The CFPB s Official Bureau Interpretation to Regulation X defines delinquency as beginning on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee. 8 For example, if a borrower s monthly payment for January is due on January 1 and the payment is not fully paid during the 36-day period after January 1, the servicer must make good faith efforts to establish live contact not later than February 6 (which is 36 days after January 1). A borrower who is performing as agreed under a loss mitigation option intended to cure a default is not delinquent for purposes of Pre-Foreclosure Written Notice Regarding Loss Mitigation Section (b) mandates that servicers give borrowers who are in default a specific form of notice informing them how to contact servicer staff for loss mitigation reviews. 10 The regulation designates this as an early intervention notice, and its purpose is to encourage communication between the borrower and the servicer as soon as possible after a default has occurred. The servicer must give this written notice no later than the forty-fifth day of the borrower s delinquency. 11 The same definition for delinquency as used for the live contact 5 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a) - 1.iv (effective Jan. 10, 2014). 6 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-3.i (effective Jan. 10, 2014). 7 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-3.ii (effective Jan. 10, 2014). 8 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-1 and 39(b)-1 (effective Jan. 10, 2014). 9 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-1.ii (effective Jan. 10, 2014) C.F.R (b) (effective Jan. 10, 2014) C.F.R (b)(1) (effective Jan. 10, 2014). 54

60 requirement applies here. 12 Servicers are not required to give this notice to a borrower more than once during any 180-day period. 13 The written notice must be provided even if the servicer provided information about loss mitigation and foreclosure previously during a live contact with the borrower under (a). 14 The notice must include the following information: a statement encouraging the borrower to contact the servicer; 15 the telephone number to access the servicer s loss mitigation personnel assigned to the borrower under the continuity of contact rule ( (a)), and the servicer s mailing address; 16 if applicable, a statement providing a brief description of examples of loss mitigation options that may be available from the servicer; 17 either application instructions or information on how the borrower may obtain more information about the application process; 18 and the website address the borrower may use to access either the CFPB s list or HUD s list of homeownership counselors or organizations, and the HUD tollfree phone number. 19 The rule does not require that the notice list extensive details about loss mitigation options. The if applicable limitation with regard to available loss mitigation options would apply in the unlikely instance where a servicer was prohibited from offering any type of loss mitigation. In the overwhelming majority of cases, the servicer will be able to, and therefore must, describe some examples of loss mitigation options available for the borrower. The Official Bureau Interpretation to Regulation X indicates that the rule does not mandate that the servicer list a specific number of loss mitigation options. 20 The explanation of 12 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(a)-1 (effective Jan. 10, 2014). 13 Id. 14 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(1)-4 (effective Jan. 10, 2014) C.F.R (b)(2)(i)(effective Jan. 10, 2014) C.F.R (b)(2)(ii) (effective Jan. 10, 2014) C.F.R (b)(2)(iii) (effective Jan. 10, 2014) C.F.R (b)(2)(iv) (effective Jan. 10, 2014). The servicer can provide detailed application instructions or can simply include a general statement such as, contact us for instructions on how to apply. See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)(iv)-1 (effective Jan. 10, 2014) C.F.R (b)(2)(v) (effective Jan. 10, 2014). 20 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)(iii)-1 (effective Jan. 10, 2014) ( Section (b)(iii) does not require that a specific number of examples be disclosed, but borrowers are likely to benefit from examples of options that would permit them to retain ownership of their home and examples of options that may require borrowers to end their ownership to avoid foreclosure. ). 55

61 options may be a generic list of options that the servicer offers to borrowers. 21 An example of an option may be described in one or more sentences. 22 However, the notice must contain some accurate content that meets this requirement, otherwise the notice is ineffective. Additional information that the servicer determines would be helpful can be included in the notice. 23 A servicer may provide the written notice by combining it with other notices in a single mailing, but only if each of the statements required by (b)(2) meets the clear and conspicuous standard in (a)(1). 24 The CFPB has made available to servicers model clauses MS-4(A), MS-4(B), and MS- 4(C) that may be used to comply with the requirements of (a). 25 But the servicer may use any format for the written notice, including any size and type of print, number of pages, size and quality of paper, provided again that each of the required statements in the notice satisfies the clear and conspicuous standard in (a)(1). 26 Servicers can supplement the notice with a loss mitigation application form. 27 Once the type of loan is identified, the borrower s advocate should be able to determine whether the description of available loss mitigation options is accurate. The failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure, as required by the early intervention notice under , is expressly covered by the error resolution procedures. 28 In addition, violations of the early intervention requirements are actionable under the RESPA s remedy provision. 29 Scope of the Rule The early intervention requirements, as well as the continuity of contact and loss mitigation requirements, apply only to a mortgage loan that is secured by a property that is the debtor s principal residence. 30 In addition, these requirements do not apply to: 1) a servicer that 21 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)(iii)-2 (effective Jan. 10, 2014). 22 Id. 23 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)-1 (effective Jan. 10, 2014). 24 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)-3 (effective Jan. 10, 2014). 25 See Appendix MS-4 to Subpart C of Regulation X, reprinted in Appx. C.3, infra. 26 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)-2 (effective Jan. 10, 2014). 27 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(b)(2)(iv)-1 (effective Jan. 10, 2014) C.F.R (b)(7). See NCLC Foreclosures, (4th ed. and 2013 Supp.) U.S.C. 2605(f); NCLC Foreclosures, (4th ed. and 2013 Supp.). 30 Reg. X, 12 C.F.R (c)(2) (effective Jan. 10, 2014). 56

62 qualifies as a small servicer; 31 2) a servicer with respect to a reverse mortgage transaction; 32 and 3) a servicer with respect to a mortgage loan for which the servicer is a qualified lender. 33 Borrowers in Bankruptcy Extensive comments were submitted by mortgage industry representatives during the rulemaking process seeking bankruptcy exemptions to the loss mitigation requirements, including the early intervention requirement. The CFPB initially declined requests to create blanket exemptions, noting that a borrower could have filed for bankruptcy but still be eligible for loss mitigation assistance. 34 Instead, the CFPB added a provision to the early intervention rule and commentary intended to demonstrate that compliance with both RESPA and the Bankruptcy Code is feasible. However, after the final rule was published and without using the advance notice and comment procedure, the CFPB issued an Interim Final Rule that granted a bankruptcy exemption that applies to the early intervention requirements. 35 Fortunately, bankruptcy exemptions were not adopted for the continuity of contact and loss mitigation requirements. Section (d)(1) provides that a servicer is exempt from the early intervention requirements for a mortgage loan while the borrower is a debtor in a bankruptcy case. 36 The Official Bureau Interpretation for this section provides that the exemption applies for any portion of the mortgage debt that is discharged in bankruptcy. 37 This fails to recognize that many consumers file chapter 7 for non-mortgage related reasons, continue to maintain payments after receiving a discharge, and do not reaffirm discharged mortgage debts because of the discharge injunction exception provided in 524(j) of the Bankruptcy Code. In addition, all of the government sponsored loan modification programs require that a borrower who has received a chapter 7 discharge and not reaffirmed the mortgage debt must still be considered for loss mitigation options. Thus, the CFPB s Interpretation is inconsistent with the policies of these loss mitigation programs and the Bankruptcy Code, and hopefully will be reconsidered by the CFPB. 31 Reg. X, 12 C.F.R (b)(1). A small servicer, as defined by Regulation Z section (e)(4), is a servicer that services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee. Reg. Z, 12 C.F.R (e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also includes Housing Finance Agencies, as defined in 24 C.F.R , without regard to the number of mortgage loans serviced by such agencies. Reg. Z, 12 C.F.R (e)(4)(ii)(B) (effective Jan. 10, 2014). 32 Reg. X, 12 C.F.R (b)(2) (effective Jan. 10, 2014).. A reverse mortgage transaction is defined at 12 C.F.R (a). 33 Reg. X, 12 C.F.R (b)(3) (effective Jan. 10, 2014). A qualified lender is defined at 12 C.F.R , which covers mortgage loans made under the Farm Credit System. 34 See Section-by-Section Analysis, (b), 78 Fed. Reg. 10,807 (Feb. 14, 2013). 35 See 78 Fed. Reg. 62,993 (Oct. 23, 2013) C.F.R (d)(1) (effective Jan. 10, 2014). 37 See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(d)(1) - 2(ii) (effective Jan. 10, 2014). 57

63 In addition, the Official Bureau Interpretation provides that if there are joint obligors on a mortgage, the exemption applies if any of the borrowers is in bankruptcy. An example is given of a husband and wife who jointly own a home, stating that if the husband files for bankruptcy, the servicer is exempt from complying with as to both the husband and the wife. 38 If the husband in this example filed a chapter 7 bankruptcy case, the automatic stay in his case does not apply to his spouse or any other joint obligors as there is no co-obligor stay in chapter 7. The Interpretation would appear to prevent the wife in the example provided by the Bureau from receiving information about loss mitigation options even if the husband filed a chapter 7 case years after the couple were separated or divorced and the husband s participation is not required to complete the loss mitigation application. Borrowers Who Have Sent an FDCPA Cease Communication Letter Another exemption from the early intervention requirements was added to Regulation X by the Interim Final Rule for a servicer subject to the FDCPA with respect to a mortgage loan for which the borrower has sent a cease communication notice to the servicer pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. 1692c(c) See Official Bureau Interpretation, Supplement 1 to Part 1024, 39(d)(1) - 3 (effective Jan. 10, 2014) C.F.R (d)(2) (effective Jan. 10, 2014). 58

64 This article is part of a series of NCLC ereports covering the CFPB s new 2013 RESPA and TILA Servicing Rules that went into effect on January 10, This article focuses on the servicer requirement to maintain a continuity of contact with a borrower in default. New RESPA Continuity of Contact Requirements for Borrowers in Default by John Rao Regulation X contains three sections that became effective January 10, 2014, and that address how a servicer should attempt to assist a borrower in default. In addition to the early intervention notification requirements in that were discussed in an earlier ereports article and the loss mitigation procedures in that will be covered in a future article, is intended to maintain for a borrower who seeks assistance after falling into default a continuity of contact with the servicer. 3 The requirement is similar to the single point of contact that is a feature of many government sponsored loan modification programs. In general, it is intended to avoid the frustration many borrowers face when they are forced to repeatedly contact a servicer and speak with personnel who are unfamiliar with their situation, requiring borrowers to have the same conversations over and over again. Although the requirement had been generally referred to before the CFPB rule as a single point of contact, the practice of servicers had not been to assign a single person to assist the borrower. The CFPB regulation is consistent with this practice by providing that a servicer is given discretion to determine whether to assign a single person or a team of personnel to respond to a delinquent borrower. 4 Duty to Assign Personnel to Borrower The regulation requires that a servicer maintain policies and procedures that are reasonably designed to achieve the following: Assign personnel to a delinquent borrower by the time the servicer provides the borrower with the early intervention notice required by (b), but in any event, not later than the forty-fifth day of the borrower s delinquency; Make available to a delinquent borrower, via telephone, the assigned personnel to respond to the borrower s inquiries, and as applicable, assist the borrower with available loss mitigation options until the borrower has made, without incurring a late charge, two consecutive mortgage payments under a 1 See NCLC ereports, Jan. 2014, No. 5; NCLC Foreclosures, (4th ed. and 2013 Supp.). 2 See NCLC Foreclosures, (4th ed. and 2013 Supp.). 3 Reg. X, 12 C.F.R (effective Jan. 10, 2014). 4 See Official Bureau Interpretation, Supplement 1 to Part 1024, 40(a) 2 (effective Jan. 10, 2014). 59

65 permanent loss mitigation agreement; If a borrower contacts the assigned personnel and does not immediately receive a live response from such personnel, ensure that the servicer can provide a live response in a timely manner. 5 The servicer is also required to maintain policies and procedures reasonably designed to ensure that the servicer personnel assigned to a delinquent borrower provide the borrower with accurate information about available loss mitigation options. 6 This includes actions the borrower must take to be evaluated for these loss mitigation options, to submit a complete loss mitigation application, 7 and, if applicable, to appeal 8 the servicer s denial of the borrower s loss mitigation application. 9 The assigned personnel are also required to provide the borrower with accurate information about the status of the borrower s loss mitigation application, the circumstances under which the servicer may make a referral to foreclosure, and any applicable loss mitigation deadlines established by an owner or assignee of the borrower s mortgage loan or under section Assistance in Completing the Loss Mitigation Application The continuity of contact regulation also requires that the personnel assigned to the borrower obtain the information needed to properly evaluate the borrower for loss mitigation options. The assigned personnel are required to retrieve, in a timely manner, a complete record of the borrower s payment history, and all written information the borrower has provided to the servicer, and prior servicers if applicable, in connection with a loss mitigation application. 11 This information is to be provided by the assigned personnel to the other servicer personnel who are required to evaluate a borrower for loss mitigation options. 12 The assigned personnel are also required to provide a delinquent borrower with information about the procedures for submitting a notice of error under or an information request under For purposes of responding to a borrower s inquiries and assisting a borrower with loss mitigation options, the term borrower includes a person authorized by the borrower to act on the borrower s behalf, such as a housing counselor or the borrower s attorney. 14 A servicer may adopt reasonable procedures to determine if the person that claims to be the borrower s agent has 5 Reg. X, 12 C.F.R (a) (effective Jan. 10, 2014). 6 Reg. X, 12 C.F.R (b)(1)(i) (effective Jan. 10, 2014). 7 See NCLC Foreclosures, (4th ed. and 2013 Supp.) (discussing loss mitigation applications). 8 See NCLC Foreclosures, (4th ed. and 2013 Supp.) (discussing appeal rights). 9 Reg. X, 12 C.F.R (b)(1)(ii) (effective Jan. 10, 2014). 10 Reg. X, 12 C.F.R (b)(1)(iii), (iv), and (v) (effective Jan. 10, 2014). 11 Reg. X, 12 C.F.R (b)(2)(i) and (ii) (effective Jan. 10, 2014). 12 Reg. X, 12 C.F.R (b)(3) (effective Jan. 10, 2014). 13 Reg. X, 12 C.F.R (b)(4) (effective Jan. 10, 2014). 14 See Official Bureau Interpretation, Supplement 1 to Part 1024, 40(a) 1 (effective Jan. 10, 2014). 60

66 authority to act on behalf of the borrower, such as by requiring an authorization from the borrower or other documentation. Scope of the Rule The continuity of contact requirements, as well as the early intervention and loss mitigation requirements, apply only to a mortgage loan that is secured by a property that is the debtor s principal residence. 15 In addition, these requirements do not apply to: 1) a servicer that qualifies as a small servicer; 16 2) a servicer with respect to a reverse mortgage transaction; 17 and 3) a servicer with respect to a mortgage loan for which the servicer is a qualified lender. 18 Borrowers in Bankruptcy The CFPB s Official Bureau Interpretation to Regulation X explains that if the continuity of contact requirement would otherwise apply to a borrower who has filed bankruptcy, a servicer may assign personnel with specialized knowledge in bankruptcy law to assist the borrower. 19 A servicer is given discretion to assign a single person or a team of personnel, and they may be single-purpose or multi-purpose personnel. 20 Thus, the rule may be complied with even if a servicer transfers the borrower s file to a separate bankruptcy unit with personnel who are not part of the servicer s loss mitigation unit or to outside bankruptcy counsel. 21 No Private Remedy for Violations 15 Reg. X, 12 C.F.R (c)(2) (effective Jan. 10, 2014). 16 Reg. X, 12 C.F.R (b)(1). A small servicer, as defined by Regulation Z section (e)(4), is a servicer that services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee. Reg. Z, 12 C.F.R (e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also includes Housing Finance Agencies, as defined in 24 C.F.R , without regard to the number of mortgage loans serviced by such agencies. Reg. Z, 12 C.F.R (e)(4)(ii)(B) (effective Jan. 10, 2014). 17 Reg. X, 12 C.F.R (b)(2) (effective Jan. 10, 2014). A reverse mortgage transaction is defined at 12 C.F.R (a). 18 Reg. X, 12 C.F.R (b)(3) (effective Jan. 10, 2014). A qualified lender is defined at 12 C.F.R , which covers mortgage loans made under the Farm Credit System. 19 See Official Bureau Interpretation, Supplement 1 to Part 1024, 40(a) 2 (effective Jan. 10, 2014). 20 Id. ( Single-purpose personnel are personnel whose primary responsibility is to respond to a delinquent borrower s inquiries, and as applicable, assist the borrower with available loss mitigation options. Multi-purpose personnel can be personnel that do not have a primary responsibility at all, or personnel for whom responding to a delinquent borrower s inquiries, and as applicable, assisting the borrower with available loss mitigation options is not the personnel s primary responsibility. ). 21 See Section-by-Section Analysis, (b), 78 Fed. Reg. 10,811 (Feb. 14, 2013). 61

67 In contrast with the early intervention requirements under and the loss mitigation procedures under , violations of the continuity of contact requirements are not enforceable by the borrower under RESPA s private remedies. 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 objectivesbased policies and procedures requirement and that private liability is not compatible with such requirements. 22 Consistent with this approach, merely requires servicers to maintain policies and procedures that are reasonably designed to achieve the objectives or functions imposed on servicers by the section. 23 Asserting a failure to comply with the regulation, however, could help to bolster claims for violations of and , or possibly could be pursued together with other servicing abuses as a state UDAP statute violation See Section-by-Section Analysis, , 78 Fed. Reg. 10,808 (Feb. 14, 2013). 23 Reg. X, 12 C.F.R (a) and (b) (effective Jan. 10, 2014). 24 See NCLC Foreclosures, 8.2 (4th ed. and 2013 Supp.). 62

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70 1/20/14 Using Bankruptcy To Save Homes In Foreclosure Update 2014 Tara Twomey, National Consumer Law Center Chicago, IL Feb 6, 2013 National Consumer Law Center 2013 Cure And maintain Remove or reduce! lien Modify terms & Pay In Full Do Nothing Cure and Maintain 1325(b)(5) 65 1

71 1/20/14 Stripping Off Mortgages 506(a), 506(d), 1322(b)(2) Anti-modification Provision Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims Underwater Homes Value of Home: $120,000 Amount due on First Mortgage: $125,000 Amount due on Second Mortgage: $15,000 Total Amount of debt: $140,

72 1/20/14 Underwater Mortgages Value of home $120,000 Underwater Mortgages Undersecured by $5,000 Value of home $120,000 Amount owed on first mortgage $125,000 Underwater Mortgage Amount owed on second mortgage - $15,000 Undersecured by $5,000 Value of home $120,000 Amount owed on first mortgage $125,

73 1/20/14 Determination of Secured Status Section 506(a) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, is a secured claim to the extent of the value of such creditor s interest in the estate s interest in such property and is an unsecured claim to the extent that the value of such creditor s interest is less than the amount of such allowed claim. Determination of Secured Status Section 506(d) To the extent that a lien secured a claim against the debtor that is not an allowed secured claim, such lien is void, unless (1) such claim was disallowed only under section (502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of claim under section 501 of this title. Dewsnup Nobelman Ryan Palomar 68 4

74 1/20/14 Parsing the Language Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims Multi-family Buildings Modification permitted when other real property, such as rental units, is part of security interest Parsing the Language Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims 69 5

75 1/20/14 Mobile Homes Loans on mobile homes that are considered personal property under state law are not subject to the antimodification provision Parsing the Language Section 1322(b)(2) The plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims Property Tax Sales in Bankruptcy 70 6

76 1/20/14 Bates Murray LaMont 71 7

77 101 Definitions *** (5) The term claim means (A) right to payment,whether or not such right is reduced tojudgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured, or secured; (13A) The term debtor s principal residence (A) means a residential structure if used as the principal residence by the debtor, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer if used as the principal residence by the debtor. * * * (27B) The term incidental property means, with respect to a debtor s principal residence (A) property commonly conveyed with a principal residence in the area where the real property is located; (B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and (C) all replacements or additions. 102 Rules of Construction *** (2) claim against the debtor includes claim against property of the debtor; 506 Determination of secured status (a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor s interest in the estate s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor s interest. (2) If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would 72

78 charge for property of that kind considering the age and condition of the property at the time value is determined. (b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose. (c) The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property. (d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless (1) such claim was disallowed only under section 502 (b)(5) or 502 (e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title. 524 Effect of discharge * * * (i) The willful failure of a creditor to credit payments received under a plan confirmed under this title, unless the order confirming the plan is revoked, the plan is in default, or the creditor has not received payments required to be made under the plan in the manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection (a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor. * * * (j) Subsection (a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if (1) such creditor retains a security interest in real property that is the principal residence of the debtor; (2) such act is in the ordinary course of business between the creditor and the debtor; and (3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien Contents of plan (a) The plan 73

79 (1) shall provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan; (2) shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim; (3) if the plan classifies claims, shall provide the same treatment for each claim within a particular class; and (4) notwithstanding any other provision of this section, may provide for less than full payment of all amounts owed for a claim entitled to priority under section 507 (a)(1)(b)only if the plan provides that all of the debtor s projected disposable income for a 5-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan. (b) Subject to subsections (a) and (c) of this section, the plan may (1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims; (2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims; (3) provide for the curing or waiving of any default; (4) provide for payments on any unsecured claim to be made concurrently with payments on any secured claim or any other unsecured claim; (5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due; (6) provide for the payment of all or any part of any claim allowed under section 1305of this title; (7) subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section; (8) provide for the payment of all or part of a claim against the debtor from property of the estate or property of the debtor; (9) provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity; (10) provide for the payment of interest accruing after the date of the filing of the petition on unsecured claims that are nondischargeable under section 1328 (a), except that such 74

80 interest may be paid only to the extent that the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims; and (11) include any other appropriate provision not inconsistent with this title. (c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law (1) a default with respect to, or that gave rise to, a lien on the debtor s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law; and (2) in a case in which the last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor s principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to section 1325 (a)(5) of this title. (d)(1) If the current monthly income of the debtor and the debtor s spouse combined, when multiplied by 12, is not less than (A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4, the plan may not provide for payments over a period that is longer than 5 years. (2) If the current monthly income of the debtor and the debtor s spouse combined, when multiplied by 12, is less than (A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4, the plan may not provide for payments over a period that is longer than 3 years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than 5 years. (e) Notwithstanding subsection (b)(2) of this section and sections 506 (b) and 1325 (a)(5)of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law. 75

81 (f) A plan may not materially alter the terms of a loan described in section 362 (b)(19) and any amounts required to repay such loan shall not constitute disposable income under section Confirmation of plan (a) Except as provided in subsection (b), the court shall confirm a plan if (1) The plan complies with the provisions of this chapter and with the other applicable provisions of this title; (2) any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid; (3) the plan has been proposed in good faith and not by any means forbidden by law; (4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7of this title on such date; (5) with respect to each allowed secured claim provided for by the plan (A) the holder of such claim has accepted the plan; (B) (i) the plan provides that (I) the holder of such claim retain the lien securing such claim until the earlier of (aa) the payment of the underlying debt determined under nonbankruptcy law; or (bb) discharge under section 1328; and (II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and (iii) if (I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and (II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or (C) the debtor surrenders the property securing such claim to such holder; (6) the debtor will be able to make all payments under the plan and to comply with the plan; (7) the action of the debtor in filing the petition was in good faith; (8) the debtor has paid all amounts that are required to be paid under a domestic support obligation and that first become payable after the date of the filing of the petition if the 76

82 debtor is required by a judicial or administrative order, or by statute, to pay such domestic support obligation; and (9) the debtor has filed all applicable Federal, State, and local tax returns as required by section For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day period preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing. (b) (1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan (A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or (B) the plan provides that all of the debtor s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan. (2) For purposes of this subsection, the term disposable income means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable nonbankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended (A) (i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed; and (ii) for charitable contributions (that meet the definition of charitable contribution under section 548 (d)(3)) to a qualified religious or charitable entity or organization (as defined in section 548 (d)(4)) in an amount not to exceed 15 percent of gross income of the debtor for the year in which the contributions are made; and (B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business. (3) Amounts reasonably necessary to be expended under paragraph (2), other than subparagraph (A)(ii) of paragraph (2), shall be determined in accordance with subparagraphs (A) and (B) of section 707 (b)(2), if the debtor has current monthly income, when multiplied by 12, greater than 77

83 (A) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (B) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (C) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4. (4) For purposes of this subsection, the applicable commitment period (A) subject to subparagraph (B), shall be (i) 3 years; or (ii) not less than 5 years, if the current monthly income of the debtor and the debtor s spouse combined, when multiplied by 12, is not less than (I) in the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner; (II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or (III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $525 per month for each individual in excess of 4; and (B) may be less than 3 or 5 years, whichever is applicable under subparagraph (A), but only if the plan provides for payment in full of all allowed unsecured claims over a shorter period. (c) After confirmation of a plan, the court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee Effect of confirmation (a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan. (b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor. (c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan. 78

84 Cases Dewsnup v. Timm, 502 U.S. 410 (1992). Nobelman v. American Sav. Bank, 508 U.S. 324 (1993). Palomar v. First American Bank (In re Palomar), 722 F.3d 992 (7th Cir. 2013). Ryan v. United States (In re Ryan), 2013 WL (7th Cir. July 8, 2013). In re Benafel, 461 B.R. 581, 589 (B.A.P. 9th Cir. 2011). In re Bates, 270 B.R. 455 (Bankr. N.D. Ill. 2001). In re Murray, 276 B.R. 869 (N.D. Ill. 2002). In re LaMont, No (7th Cir. Jan. 7, 2014). 79

85 What s New In Loan Mods Diane E. Thompson, February 2014 National Consumer Law Center 2014 What We ll Cover New FHA Mortgagee Letters New Freddie Mac Guidance HECMs Chase & Ocwen settlements LEP Guidance Guidance on heirs Tax Issues 80

86 NEW FHA Loss Mitigation Review Protocol (March 2013) Mortgagee Letter No more back-end DTI No more 12-mos. arrears barrier for FHA-HAMP Deeper payment reductions for FHA-HAMP (down to 25% of gross income) Non-earnings income treatment under review New FHA Loss Mitigation Home Retention Option Priority Order Waterfall FHA Partial Claims Not limited to 12 months Lesser of: Arrearages + Legal fees from foreclosure action + Principal deferment 30% of UPB at the time of default All existing partial claims are included in measuring the cap at 30% of UPB 81

87 New FHA Attorney Fees In the event a legal action is stopped for a loss mitigation option, a reinstatement, or a payment in full, the attorney fees to be paid by the mortgagor must be commensurate with the work actually performed to that point. Additionally, the amount charged may not be in excess of the fee that HUD has established as reasonable and customary for claim purposes. Approved fees in Illinois: Deed-in-lieu Judicial Foreclosure Summary Judgment $400 $ $100 Mortgagee Letter New FHA Communication Protcols FHA Mortgagee Letter Requires internal escalation team; strongly encourages written escalation policies Timeline of contacts; face-to-face meeting should happen no later than 60 days after payment is due 82

88 New FHA Loss Mitigation Protocol Mortgagee Letter Requires servicers to comply with Reg. X Emphasizes that loss mitigation is mandatory, not optional Reasons for proceeding to foreclosure without loss mit must be documented Foreclosure must be suspended when enter into trial mod, terminated when permanent mod executed Freddie Mac Borrowers with equity in their homes may be evaluated for a standard mod (MTM LTV < 80%), must be offered TPPs based on a 480-month amortization, if PI < current PI, and based on a 360-month amortization, if 20% reduction in current PI Forceplaced insurance restrictions Nobody affiliated with the servicer can receive any compensation from an insurer in connection with forceplaced insurance Servicers cannot use an affiliate to place or reinsure forceplaced insurance Waivers of legal rights explicitly banned 83

89 HECM Regs Conflict with Statute HECM statute: HUD reverse mortgages must protect spouse from displacement, even if not on the mortgage. 12 U.S.C. 1715z- 20(j). But HUD regulations & HECM documents terminate mortgage upon death of mortgagor 24 C.F.R (c); Trigger foreclosures on-borrowing spouses Bennett v. Donovan 2013 WL (D. D.C. Sept. 30, 2013) HUD s regulation terminating mortgage upon death of borrower violated plain statutory protection for homeowners, including non-borrowing spouses HUD erred in insuring mortgages in reliance on this illegal regulation Remanded to HUD to determine relief consistent with decision 84

90 Post-Bennett Mortgages give 3 rd party lenders right to foreclose upon death of borrower HUD must act to protect spouses & lenders While HUD is deciding what relief means, what happens to the surviving spouses who are being foreclosed on, regardless of illegal rule? Chase Settlement Nov US Department of Justice FHFA (Fannie & Freddie) NCUA FDIC California, Delaware, Illinois, Massachusetts, New York JPM Chase, Bear Stearns, Washington Mutual Only about packaging, marketing, sale, issuance of RMBS html 85

91 Settlement Amount $9 billion $2 billion FIERRA fine Payments to FHFA, FDIC, NCUA Payments to the states $4 billion in consumer relief At least $7 billion eligible for tax writeoffs Consumer Relief Annex 2 Principal reduction First liens Second liens Principal forbearance Interest rate reduction Cross-servicer HARP LMI Lending Anti-blight 86

92 Principal Reduction $1.5 billion in principal reduction on first liens $300 million may be in forgiveness of prior principal forbearance Chase may do more $300 million in principal forbearance for first liens Minimum of $2 billion for 1 st and 2 nd, forgiveness and forbearance $10,000 credit for LMI Lending Purchase money loans to credit-wothy borrowers Hardest Hit Areas Disaster Areas between 10/1/12 and 11/19/13 Lost home to foreclosure or short sale or Are first time LMI homebuyers 87

93 Anti-Blight Walkaways (Forgiveness of principal where a foreclosure not pursued) Demolition Donations of property to nonprofits or servicemembers Funding community equity restoration funds Timing Start counting 10/1/2013 Finish by 12/31/17 Early credit incentive= 115% 88

94 What s in the Numbers? Incentive to do it soon (115%) Incentive to do it in Hardest Hit Areas (125%) Incentive to do their own portfolio before they do it for others (50%) No waivers, unless Waivers Contested case, where client would not otherwise have received as favorable relief 89

95 What This Means for Your Clients New round of principal reduction mods Some opportunities to work with Chase on LMI lending & anti-blight work Ocwen Settlement Extension of National Mortgage Settlement CFPB & 49 states Consent judgment at b_consent-order_ocwen.pdf FAQs at b_common-questions_ocwen.pdf 90

96 What the Settlement Covers Servicing standards Payments to homeowners who lost their home in foreclosure Principal reductions Servicing Standards Exhibit A Basically the same as the National Mortgage Settlement Includes requirements for 14 day pre-foreclosure referral notice Must offer and facilitate loan mod when NPV positive and no investor restriction Must provide description of mod waterfall, eligibility criteria, mod terms on website Must evaluate during day pre-sale period 30, not 14 day appeal periods (mod denial) 91

97 Payments to Homeowners Who Lost Their Homes in Foreclosure Total of $125 million Homeowners who lost homes between January 1, 2009 and December 31, 2012 Managed by an as-yet unappointed settlement administrator No waiver or release of claims Exhibit B Principal Reduction $2 billion in principal reduction between November 30, 2013 and November 30, 2016 Ocwen will pick who gets these principal reduction mods, but can t hurt to ask Credit will be given for HAMP mods, less any incentive payments received by Ocwen 92

98 Requirements for Principal Reduction Mods Regular Principal Reduction Mod Mod with Principal Reduction Deferred over 3 Years (SAM) Pre-mod LTV > 100% Post-mod LTV No greater than 120% No greater than 95% Payment reduction At least 10% Max DTI 31% Borrower s payments remain current for 90 days following modification No waiver of legal rights permitted LEP Guidance HUD Mortgagee Letter [S]ervicers should be mindful of persons with disabilities and persons with limited English proficiencies, and take extra care to ensure that the appropriate communication tools are available for them. HAMP More materials in non-english languages Survey of servicers Handbok Chptr 2, 4.2 The policy must include a provision for providing effective relationship management to borrowers whose primary language is other than English. CFPB Examination Manual, Module IV (Risks in Mortgage Servicing) asks LEP files flagged? Phone option for non-english? Customer service personnel in languages other than English Translations of documents 93

99 Problem Family member inherits house, or gets it in divorce Family member probably needs a modification Servicer won t talk to them or refuses to modify the loan Freddie Mac Guidance Provides for simultaneous modifications and assumptions, after borrower s death, by someone, like a surviving spouse, with an ownership interest in the property B65.12, B65.28 in the Single Family Seller Servicer Guide 94

100 Fannie Mae Guidance References exempt transactions basically the Garn-St Germain exceptions Requires communication with new owners in exempt transactions Loan mod requests for new owners in exempt transactions have to be evaluated as if they came from borrowers See Fannie Mae Lender Letter LL , also the Fannie Mae, Transfers of Ownership, Questions and Answers CFPB Guidance CFPB Bulletin (Oct. 15, 2013) Servicers should let successors in interest know what documents they need to provide for communication & assumption Servicers should let successors in interest know what their options are Servicers should develop policies for suspending foreclosure and processing assumption and loan modifications simultaneously 95

101 Status of MDFRA? The Special Case of HAMP Principal Reduction Modifications (General Welfare Payments) Annual borrower incentive payments under HAMP (pay-forperformance) don t count as income IRS Rev. Rul Payments to the investors to encourage principal reductions, subsidize loan modifications don t count as income. IRS Rev. Proc , at 14 Payments made to or on behalf of borrowers under the Hardest Hit programs don t count as income. IRS Notice , I.R.B

102 Timing of Income Recognition under HAMP HAMP mods spread out the reduction over 3 years Homeowners can recognize the income as forgiven or at the time the permanent modification goes into effect Most homeowners will minimize their tax consequences if they recognize the full amount of forgiven debt as income at the time the permanent modification is executed. Maximizes use of insolvency and QPRI Simplifies accounting and record-keeping Homeowners can amend prior returns Rev. Proc The nonprofit National Consumer Law Center (NCLC ) helps build family wealth for low-income and other disadvantaged people in the U.S. by offering advocacy expertise through publications, policy analysis, research, litigation services, and training. 97

103 New Loan Origination Rules Diane E. Thompson, February 2014 National Consumer Law Center 2014 What We ll Cover Just say no to arbitration and credit insurance QM/ Ability to repay Loan originator compensation Escrows Appraisals 98

104 No Mandatory Arbitration (h) no mandatory pre-dispute arbitration clauses or waiver of federal claims or right to bring claims in federal court for applications after 6/1/13 for closed end loans secured by a dwelling, & for open end loans secured by principal dwelling No Credit Insurance NO financing single premium credit insurance (i) closed end loans secured by a dwelling & open end loans secured by principal dwelling N/A if credit insurance calculated and fully paid monthly Includes credit life, disability, unemployment, or property insurance & any other accident, loss of income, life or health insurance & payments directly or indirectly for debt cancellation or suspension Excludes credit unemployment insurance meeting specific requirements, (i)(2)(ii) 99

105 Ability to Repay 15 U.S.C. 1639c and 12 CFR Effective Date: Jan. 10, 2014 Coverage: residential mortgage loans Not residential mortgage transactions Closed-end, dwelling-secured (including manufactured housing) Excludes HELOCs, time shares, reverse mortgages or bridge or construction loans Basic requirement: lender must conduct a reasonable and good faith evaluation of the borrower s ability to repay Basic Ability to Repay 1. Current or reasonably expected income or assets (other than value of secured property) 2. Current employment status (if employment income used to assess ability to repay) 3. Monthly mortgage payment 4. Monthly payment on any simultaneous loans secured by the same property 5. Taxes and insurance required by creditor, plus association fees/ground 6. Debts, alimony and child support obligations 7. Monthly back-end debt-to-income ratio or residual income May use compensating factors 8. Credit history 100

106 Evaluating ATR Creditor must verify information, including income and assets, using reasonably reliable third-party records Employment status can be orally verified. Credit lines not reflected on a credit report used as a source need not be further verified. Third party sources can include: tax return or transcript, W-2s, payroll statements, bank records, employer records or third party with employer information, public benefit documentation, check cashing receipts, funds transfer receipts. Records can be obtained from the consumer Credit report as reasonably reliable third-party record: sufficient but not where creditor knows or has reason to know it is inaccurate in whole or in part. Fraud or similar alert; statement of dispute; other record that contradicts Inaccurate can disregard without additional records but OK to get additional records ATR is individualized determination Certain Loans Have Presumption of ATR Determination Qualified Mortgage rebuttable presumption (for higher-priced loans) or safe harbor Private label GSE Gov t Agency (insured or guaranteed by FHA, USDA, VA) Small Creditor Qualified Mortgage Small Creditor Balloon Qualified Mortgage Prepayment Penalty Qualified Mortgage Refi Exemption 101

107 General QM Rules No neg am or interest only Points and fees maximum of 3% (but loans under $100K have separate caps) Loan term of no more than 30 years Underwriting payments: maximum rate for first 5 years after first payment based on fully amortizing schedule No more than 43% DTI (Appendix Q, which formally applies only to QM analysis but may have other applications) GSE Temporary QM or Agency (e)(4) Common loan term restrictions on neg am, IO, balloons, 30-year term and pts and fees. Plus eligible for purchase or guarantee by GSEs, to be insured by FHA, guaranteed by VA, guaranteed by USDA or insured by RHS Sunset: GSE special rule expires on 1/10/2021 Agency rules last until agency issues own QM rule HUD FHA QM effective January New leverage to enforce GSE/agency underwriting rules 102

108 Small Creditor QM Small creditor definition: Assets less than $2 billion(not including affiliates) and Creditor and affiliates combined originated no more than 500 first-lien, closed-end residential mortgages subject to ATR in prior calendar year (not including subordinate liens or mortgages excluded from ATR) Loan must be made and held by small creditor Can t be subject to forward commitment to sell the loan after consummation, other than to a creditor that itself is eligible If sold in less than 3 years, outside of bankruptcy, receivership, merger, etc., and not to a small creditor Small creditors entitled to presumption without being bound by 43% DTI or Appendix Q, so long as creditor Verifies debt and income and Considers either DTI or residual income Balloon Loans & QM In general, balloon loans don t qualify for QM status ( (e)(2)(c)) But small creditors can make QM balloon loans Until 1/9/2016 all small creditors After 1/10/16 only small creditors operating predominantly in rural and underserved areas Loan must otherwise meet small creditor QM definition & interest rate must be fixed 103

109 Prepayment Penalties & QM Only on some loans Fixed rate or step rate loans Not on higher-priced QM loans Certain characteristics Otherwise permitted by applicable(state) law No PPP after first 3 years of loan Maximum PPP is 2% for years 1 and 2 and 1% for year 3 Subject to cap on points and fees: If maximum PPP pushes loan above points and fees threshold then not QM Must also have offered similar loan without PPP Certain Refis are Exempt from ATR/QM (d) ATR/QM does not apply to refinancing of non-standard mortgage by creditor holding or servicing the non-standard mortgage. Not available to subservicers or third parties. Meant to help avoid impending payment shock. FHA Streamline Refi subject to FHA QM Modifications already exempt because not new credit. 104

110 Refinancing of Non-Standard Loans to Standard Loans by Same Creditor Exempt from ATR Eligible nonstandard loans: ARM fixed for at least one year; IO; or Neg Am If made after 1/10/14, made in compliance with ATR rules Borrower must be current Maximum 1 30-day late in 12 months; No lates in prior 6 mos. Refinancing will prevent default New payments must be materially lower Written app. no later than 2 mos. after recast Creditor has considered whether new loan likely to prevent default on nonstandard loan after recast Standard loan Fixed rate for at least 5 years Fully amortizing payments Amortization no greater than 40 years Meets QM points and fees cap No cash out QM Levels of Presumption In order to show you are entitled to the rebuttable presumption, you have to show it is a higher-priced mortgage loan. Higher-priced QM loans: Loans with APR >1.5 + APOR (1 st lien) Loans with APR >3.5 + APOR (sub liens) Loans with APR>3.5 + APOR (small creditor QM loans all liens) Remember HPMLs have already been subject to the FRB ability to repay rule 105

111 QM or non QM Non-compliance with QM standard may be easier to show than rebutting QM presumption Unclear how courts will interpret standard for rebuttal And many loans get the safe harbor General ATR standard has more prongs to challenge than the rebuttal Evidence That ATR Determination Not Reasonable/Good Faith Comment (c)(1)(ii)(B): Not elements of a claim. 1. Default shortly after consummation or recast 2. Use of underwriting standards that have historically resulted in relatively high delinquency and default rates in adverse economic conditions 3. Underwriting standards applied inconsistently or used standard different from those of similar loans without reasonable justification 4. Disregard of evidence that underwriting standards not effective at determining ATR 5. Disregard of evidence of insufficient residual income 6. Disregard of evidence that ATR relies on refinance of loan or sale of secured property 106

112 Appendix Q Guidelines include: Seasonal and self-employment Reliance on bonuses/overtime for income Alimony, child support, maintenance income Rental income Projected income (verified and within 60 days) and obligations (only if begins within 12 mos) Exclusions from debt include open accounts with zero balance No waiver of ATR claims Comment (c)(1)-1(i) A consumer s statement or attestation that the consumer has the ability to repay the loan is not indicative of whether the creditor s determination was reasonable and in good faith. 107

113 Loan Originator Compensation (a), (b), (d) Effective 1/1/14 Applies to closed-end consumer credit secured by a dwelling, including closed-end reverse mortgages Who Is a Loan Originator Subject to the Rule? Broad definition includes an individual or organization that for $ or expectation of $: takes application, arranges credit transaction, assists in applying for credit, presents credit terms to consumer, offers or negotiates credit terms, extends credit, makes a referral to a LO or creditor, OR advertises any of the above services 108

114 Loan Originators Include... Creditor in table-funded transaction Comment (a)- Creditor must both fund the loan from its own resources & not assign the loan at closing to avoid treatment as loan originator Employees & agents of creditor Employees & agents of mortgage broker Loan Originators Are Not... Person who performs clerical duties only Loan processors/ underwriters Licensed real estate broker who is paid only for real estate brokerage services Servicer or servicer employee doing a loan modification Bona fide third party advisors HUD approved housing counselors Manufactured housing retailer employees Seller/financers 109

115 Prohibited Payments to Loan Originators (d) Broad definition: no loan originator shall receive & no person shall pay to a loan originator directly or indirectly $$ that is based on a term of a transaction; the terms of multiple transactions by an individual loan originator; or the terms of multiple transactions by multiple individual loan originators Proxies for Loan Terms Also prohibits comp/$$ based in whole or in part on a factor that is a proxy for a term. Two part definition: The factor must consistently vary with a term over a significant number of transactions AND The loan originator must have control must be able to directly or indirectly add drop or change the factor in originating loans. 110

116 But Loan Originator Compensation May Be Based On.... Size of loan Overall $$ volume Long term performance of loans Hourly rate for hours actually worked and paid to LO Existing v. new customers Payment fixed in advance for all loans for the creditor Quality of loan files % of loan apps that result in closed loans And You Can Base Loan Originator Compensation on Loan Terms If You Pool It For both bonuses and retirement plans, the loan originator compensation may be based on loan terms if it is pooled compensation Bonuses: May pay up to 10% of LO s total comp through bonuses/profit-sharing Unless the individual originated 10 or fewer covered loans in 12 months for that employer, in which case it is unlimited 111

117 Dual Compensation (d)(2) If any LO receives compensation directly from a consumer then No loan originator may receive comp directly or indirectly from any other person, and No person shall pay $$ to the loan originator directly or indirectly Comp received directly from a consumer includes $$ from another person not the creditor or its affiliates pursuant to an agmt btw consumer and person But... Unlike the Fed, the CFPB said: Loan originator organization that receives $$ directly from consumer may: Pay comp to individual LO, and Individual LO may receive comp from LO org Payments made by a third party (e.g., seller) count as payments made by the consumer Points and fees paid by consumer don t count as payments from the consumer 112

118 Anti-steering, (e) No steering of consumer by loan originator to a transaction with more $$ for loan originator unless in the consumer s interest, (e)(1) No violation/not steering/safe harbor if loan originator presents consumer with choices/loan options as specified for each type of transaction in which consumer expresses an interest, (e)(2) Loan types include: loan with fixed APR, loan with APR that can change, reverse mortgage What Options Must Be Presented For each loan type, loan originator must present these loan options to avoid steering violation & must have good faith belief that consumer likely qualifies for options: Lowest interest rate Lowest interest rate without nasty loan terms such as PPP, neg am, IO, demand feature, < 7 year balloon, shared equity or shared appreciation, or if reverse mortgage, w/o PPP, shared equity or shared appreciation Lowest total $$ discount points, orig points/fees If multiple loans with same total $$ points/fees, loan with lowest interest rate and lowest p/f Then, loan originator is free to originate loan with highest comp. 113

119 Higher-Priced Mortgage Rules HPML CFPB collapsed the Fed s pre-existing category with Dodd-Frank s higher-risk mortgages Slightly different coverage rules for escrow and appraisal rules Closed-end loans Coverage Secured by the consumer s principal dwelling Excludes Loans to finance initial construction Temporary or bridge loans of less than 12 months Open-end credit Reverse mortgages 114

120 APR Triggers Based on application date Post October 1, 2009 First lien APR > comparable APOR percentage points Subordinate lien > comparable APOR percentage points APOR lookup: Substantive Protections Ability to repay Prepayment penalties Escrow required Prohibition on evading these restrictions by structuring the loan as open-end credit Reg. Z

121 Ability to Repay Pre-January 10, 2014 Identical to HOEPA s rules Must evaluate ability to repay No safe harbor, but a rebuttable presumption if creditor Verifies income; Underwrites to maximum scheduled payment in first seven years; And uses either a DTI ratio or residual income analysis Post January 10, 2014 Contained in Reg. Z Discussed in ch. 9 of TILA Discussed in session K5 (1:30 on Saturday) Still a rebuttable presumption of ability to repay for these loans Prepayment Penalties No prepayment penalties permitted on HPML after January 10,

122 Prepayment Penalties Pre-January 10, 2014: No prepayment penalties unless The penalty is otherwise permitted by law; The penalty lasts no more than two years; The penalty does not apply if the source of the prepayment funds is a refinancing by the same creditor or an affiliate; and The amount of the monthly payment is fixed for the first four years. Post January 2014: No prepayment penalties. Period. Full stop. Note: A violation of these requirements gives rise to rescission rights Escrow Rules: What Applies When? Hodgepodge of effective dates: April 1, 2010 (October 1, 2010 for manufactured homes) April 1, June 1, 2013 July 24, 2013 January 1, 2014 Big changes between 2010 and 2011, 2011 and June 1,

123 Coverage Exclusions On top of the HPML standard exclusions: Cooperative shares No insurance if a master policy maintained Small servicers excluded if they do not escrow for any loans they service Note: servicers may still require escrow If loan contract so provides Federal flood insurance requirements Other agreement between borrower and servicer Escrow Requirements Pre-June 1, 2013: Consumer may cancel account 365 days after closing Reg. Z (b)(3)(ii) [pre-june 1, 2013] Post June 1, 2013: Consumer may cancel account 5 years after closing; The outstanding principal balance is less than 80% of the value of the home at closing; and The homeowner must be current.. Reg. Z (b)(3) [post-june 1, 2013] 118

124 Appraisal Requirements Licensed or certified appraiser must prepare a written appraisal report based on a physical inspection of the interior of the property. Creditors must disclose to applicants information about the purpose of the appraisal and to provide consumers with a free copy of any appraisal report. Appraisal Requirements Property flipping protection: If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors must obtain a second appraisal at no cost to the consumer. Additional $2,000 statutory damages. 15 U.S.C. 1639h(e) 119

125 Appraisal Coverage Beyond HPML exclusions: Qualified Mortgage purchase money loans Trailers and boats Second appraisal requirement does not apply to rural areas Coverage uncertain: Proposed rule exempting streamlined refinancing; loans secured by manufactured homes, but not land; and real-estate secured loans with a dollar value of $25,000 or less 78 Fed. Reg. 48,547 (Aug. 8, 2013) Effective January 18, 2014 Assignee Liability for MLO and ATR Violations Absolute assignee liability in foreclosure defense 15 USC 1640(k) Affirmative cases?? 15 USC 1641(e): assignee liability where violation apparent on the face of the disclosure statement provided Query: What will be the disclosure statements provided? Notice of broker compensation Statements verifying income Statement that loan complies with the law, either implicitly or explicitly 120

126 Tenants in Foreclosure Updated February 2014 Tara Twomey National Consumer Law Center Protecting Tenants at Foreclosure Act 121

127 Protecting Tenants at Foreclosure Title VII of the Helping Families Save Their Homes Act of 2009, , P.L (2009) Amended by 1484 of the Dodd-Frank Wall Street Reform Act, P.L (2010) Pending bills to permanently extend tenant protections. H.R. 3543; S 1761 When does it apply? What protections does it provide? How does PTFA relate to state law? Bona Fide the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; the lease or tenancy was the result of an armslength transaction; and the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy. 122

128 When does PTFA apply? Federally related mortgage loan OR any dwelling or residential real property? Yes Bona fide tenant and/or bona fide lease? Yes PTFA Applies No No PFTA does not apply; proceed under state law What protections does PTFA provide? LEASE AT-WILL OR NO LEASE If lease entered into before notice of foreclosure, tenant may occupy the premises until end of lease term Exception: Purchaser who will occupy property as primary residence only needs to provide 90- day notice to vacate 90-day notice to vacate 123

129 Relationship to state law Floor not a ceiling PFTA does not affect state or local law that provides longer time periods or other additional protections for tenants State substantive laws apply -service requirements -longer time periods - just cause ordinances State and Local Protections 124

130 SB 56 Bona Fide Lease Applicable Properties Notice 125

131 Keep Chicago Renting Ordinance 126

132 Public Act SB0056 Enrolled LRB HEP b AN ACT concerning civil law. Be it enacted by the People of the State of Illinois, represented in the General Assembly: Section 5. The Code of Civil Procedure is amended by changing Sections 9-121, 9-205, 9-207, , , , , , , , and and by adding Sections , , and as follows: (735 ILCS 5/9-121) Sec Sealing of court file. (a) Definition. As used in this Section, "court file" means the court file created when a forcible entry and detainer action is filed with the court. (b) Discretionary sealing of court file. The court may order that a court file in a forcible entry and detainer action be placed under seal if the court finds that the plaintiff's action is sufficiently without a basis in fact or law, which may include a lack of jurisdiction, that placing the court file under seal is clearly in the interests of justice, and that those interests are not outweighed by the public's interest in knowing about the record. (c) Mandatory sealing of court file. The court file relating to a forcible entry and detainer action brought against a tenant under Section of this Code or as set 127

133 Public Act SB0056 Enrolled LRB HEP b forth in subdivision (h)(6) of Section of this Code shall be placed under seal who would have lawful possession of the premises but for the foreclosure on the property shall be sealed pursuant to Section (Source: P.A , eff ) (735 ILCS 5/9-205) (from Ch. 110, par ) Sec Notice to terminate tenancy from year to year. Except as provided in Section and Section of this Act, in all cases of tenancy from year to year, 60 days' notice, in writing, shall be sufficient to terminate the tenancy at the end of the year. The notice may be given at any time within 4 months preceding the last 60 days of the year. (Source: P.A ) (735 ILCS 5/9-207) (from Ch. 110, par ) Sec Notice to terminate tenancy for less than a year. (a) Except as provided in Section of this Code, in In all cases of tenancy from week to week, where the tenant holds over without special agreement, the landlord may terminate the tenancy by 7 days' notice, in writing, and may maintain an action for forcible entry and detainer or ejectment. (b) Except as provided in Section of this Code, in In all cases of tenancy for any term less than one year, other 128

134 Public Act SB0056 Enrolled LRB HEP b than tenancy from week to week, where the tenant holds over without special agreement, the landlord may terminate the tenancy by 30 days' notice, in writing, and may maintain an action for forcible entry and detainer or ejectment. (Source: P.A ) (735 ILCS 5/ new) Sec Termination of bona fide leases in residential real estate in foreclosure. (a) A mortgagee, receiver, holder of the certificate of sale, holder of the deed issued pursuant to that certificate, or, if no certificate or deed was issued, the purchaser at a judicial sale under Section of this Code, who assumes control of the residential real estate in foreclosure, as defined in Section of this Code, may terminate a bona fide lease, as defined in Section of this Code, only: (i) at the end of the term of the bona fide lease, by no less than 90 days' written notice or (ii) in the case of a bona fide lease that is for a month-to-month or week-to-week term, by no less than 90 days' written notice. (b) Notwithstanding the provisions of subsection (a) of this Section, an individual who assumes control of residential real estate in foreclosure pursuant to a judicial sale and who will occupy a dwelling unit of the residential real estate in foreclosure as his or her primary residence may terminate the bona fide lease for the dwelling unit subject to the 90-day 129

135 Public Act SB0056 Enrolled LRB HEP b notice requirement of subsection (a) of this Section. (c) Nothing in this Section or Section of this Code shall abrogate the rights of a mortgagee, receiver, holder of the certificate of sale, holder of the deed issued pursuant to that certificate, or, if no certificate or deed was issued, the purchaser at a judicial sale, who assumes control of the residential real estate in foreclosure to terminate a bona fide lease of a dwelling unit in residential real estate in foreclosure under Section 9-118, 9-119, 9-120, 9-201, 9-202, 9-203, 9-204, 9-209, or of this Code. (735 ILCS 5/ ) Sec Dwelling unit. For the purposes of Sections , , , , , , , , and only, "dwelling unit" means a room or suite of rooms providing complete, independent living facilities for at least one person, including permanent provisions for sanitation, cooking, eating, sleeping, and other activities routinely associated with daily life. (Source: P.A , eff ; , eff ) (735 ILCS 5/ new) Sec Bona fide lease. (a) For purposes of Sections , , , , and of this Code only, the term "bona fide lease" means a lease of a dwelling unit in residential real 130

136 Public Act SB0056 Enrolled LRB HEP b estate in foreclosure for which: (1) the mortgagor or the child, spouse, or parent of the mortgagor is not the tenant; (2) the lease was the result of an arms-length transaction; (3) the lease requires the receipt of rent that is not substantially less than fair market rent for the property or the rent is reduced or subsidized pursuant to a federal, State, or local subsidy; and (4) either (i) the lease was entered into or renewed on or before the date of the filing of the lis pendens on the residential real estate in foreclosure pursuant to Section of this Code or (ii) the lease was entered into or renewed after the date of the filing of the lis pendens on the residential real estate in foreclosure and before the date of the judicial sale of the residential real estate in foreclosure, and the term of the lease is for one year or less. (b) A written lease for a term exceeding one year that is entered into or renewed after the date of the filing of the lis pendens on the residential real estate in foreclosure pursuant to Section of this Code and before the date of the judicial sale of the residential real estate in foreclosure that otherwise meets the requirements of subsection (a) of this Section shall be deemed to be a bona fide lease for a term of one year. 131

137 Public Act SB0056 Enrolled LRB HEP b (c) An oral lease entered into at any time before the date of the judicial sale of the residential real estate in foreclosure that otherwise meets the requirements of subsection (a) of this Section shall be deemed to be a bona fide lease for a month-to-month term, unless the lessee proves by a preponderance of evidence that the oral lease is for a longer term. In no event shall an oral lease be deemed to be a bona fide lease for a term of more than one year. (d) A written or oral lease entered into on or after the date of the judicial sale of the residential real estate in foreclosure and before the date of the court order confirming the judicial sale that otherwise meets the requirements of subsection (a) of this Section shall be deemed to be a bona fide lease for a month-to-month term. (e) Notwithstanding paragraph (1) of subsection (a) of this Section, a child, spouse, or parent of the mortgagor may prove by a preponderance of evidence that a written or oral lease that otherwise meets the requirements of subsection (a) of this Section is a bona fide lease. (735 ILCS 5/ new) Sec Residential real estate in foreclosure. For purposes of Sections , , , , and of this Code only, the term "residential real estate in foreclosure" means any real estate, except a single tract of agricultural real estate consisting of more than 40 acres, 132

138 Public Act SB0056 Enrolled LRB HEP b which is improved with a single family residence or residential condominium units or a multiple dwelling structure containing single family dwelling units for one or more families living independently of one another, for which an action to foreclose the real estate: (1) has commenced and is pending; (2) was pending when the bona fide lease was entered into or renewed; or (3) was commenced after the bona fide lease was entered into or renewed. (735 ILCS 5/ ) (from Ch. 110, par ) Sec Parties. (a) Necessary Parties. For the purposes of Section of the Code of Civil Procedure, only (i) the mortgagor and (ii) other persons (but not guarantors) who owe payment of indebtedness or the performance of other obligations secured by the mortgage and against whom personal liability is asserted shall be necessary parties defendant in a foreclosure. The court may proceed to adjudicate their respective interests, but any disposition of the mortgaged real estate shall be subject to (i) the interests of all other persons not made a party or (ii) interests in the mortgaged real estate not otherwise barred or terminated in the foreclosure. (b) Permissible Parties. Any party may join as a party any other person, although such person is not a necessary party, including, without limitation, the following: (1) All persons having a possessory interest in the 133

139 sy Bsiiiyii ORDINANCE BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF CHICAGO: SECTION 1. Section of the Municipal Code of Chicago is hereby amended by adding the language underscored and by deleting the language struck through, as follows: Powers and duties of the department. (Omitted text is unaffected by this ordinance) (b) Powers and duties of the commissioner and the department. The powers and duties ofthe commissioner and department shall be as follows: (Omitted text is unaffected by this ordinance) (33) To exercise all rights, powers, duties, obligations and responsibilities that relate to the issuance or revocation of permits for the installation or maintenance of collection bins pursuant to Section T; (34) To administer and enforce chapter SECTION 2. The Municipal Code of Chicago is hereby amended by adding a new Chapter 5-14, as follows: Chapter 5-14 Protecting Tenants at Foreclosures Title, purpose and scope. This chapter shall be known and may be cited as the "Protecting Tenants in Foreclosed Rental Property Ordinance" and shall be liberally construed and applied to promote its purposes and policies. In order to protect and promote the health, safety and welfare of its residents and mitigate the damaging effects on our communities of foreclosures, which individually are catastrophic for the families and tenants who lose their homes, and collectively can economically destabilize an othen/vise healthy neighborhood, by causing building abandonment, excessive vacancy, declines in property values, and a perception of a neighborhood as being unworthy of investment, it is the purpose of this chapter and the policy of the city to preserve, protect, maintain and improve rental property and prevent occupied buildings from becoming vacant after foreclosures. Nothing In this ordinance shall affect the obligation to provide notice of termination of a tenancy as required by any applicable law governing actions for possession Definitions. For purposes of this chapter, the following definitions apply: 134

140 "Bona fide third-party purchaser" means any person who, through an arms length transaction, purchases, or is othenwise transferred title to, a foreclosed rental property from an owner. A "bona-fide purchaser" shall not include any person who had a mortgage lien on the foreclosed rental property during the foreclose procedure. A mortgagee shall also include the mortgagee's subsidiary, parent, trustee, nominee, agent or assignee. "Commissioner" means the commissioner of buildings. "Cooperative building" means a building or buildings and the tract, lot, or parcel on which the building or buildings are located and fee title to the land and building or buildings is owned by a corporation or other legal entity in which the shareholders or other co-owners each also have a long-term proprietary lease or other long-term arrangement of exclusive possession for a specific unit of occupancy space located within the same building or buildings. "Dwelling unit," "rental agreement," "rent" and "tenant" have the meaning ascribed to those terms in Section "Foreclosed rental property" means: (1) (i) a building containing one or more dwelling units that are used as rental units, including a single family house; or (ii) a dwelling unit that is subject to either the Condominium Property Act or the Common Interest Community Association Act that is used as a rental unit; (2) for which legal and equitable interests in the building or dwelling unit were terminated by a foreclosure action pursuant to the Illinois Mortgage Foreclosure Law; and (3) one or more of the rental units are occupied on the date a person becomes the owner. A "foreclosed rental property" does not include a dwelling unit in a cooperative building. "Owner" means any person who alone, or jointly or severally with others, is: (1) pursuant to a judicial sale of a foreclosed rental property, the purchaser of the foreclosed rental property after the sale has been confirmed by the court and any special right of redemption has expired; or (2) a mortgagee which has accepted a deed in lieu of foreclosure or consent foreclosure on a foreclosed rental property. "Owner" includes the owner and his agent for the purpose of managing, controlling or collecting rents. "Principal residence" means a person's primary or chief residence that the tenant actually occupies on a regular basis. "Qualified tenant" means a person who: (1) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenant's principal residence. For purposes of this definition: (1) a lease shall be considered bona fide only if: (i) the mortgagor or the child, spouse, or parent of the mortgagor is not the tenant; (ii) the lease was a result of an arms-length transaction; 135

141 (iii) the lease requires the receipt of rent that is not substantially less than fair market rent for the property, or the rental unit's rent is reduced or subsidized due to a government subsidy. (2) "Mortgagor" means: (i) the person whose interest in the real estate was the subject of a mortgage and that person's legal and equitable interests in the real estate was terminated by a foreclosure pursuant to the Mortgage Foreclosure Law, 735 ILCS 5/ ; or (ii) any person claiming any legal or equitable interest in the real estate through a mortgagor as a successor. Where a mortgage is executed by a trustee of a land trust, the mortgagor is the trustee and not the beneficiary or beneficiaries. "Rental unit" means any dwelling unit which is held out for rent to tenants Exclusions. This chapter shall not apply to: (a) an owner of a foreclosed rental property who was the owner prior to the effective date of this chapter; (b) any bona fide third-party purchaser; (c) a person appointed as a receiver and issued, or assigned, a Receiver's Certificate under 65 ILCS 5/ or 765 ILCS 605/14.5 who becomes an owner due to the foreclosure on the Receiver's Certificate; (d) an owner who will occupy the rental unit as the person's principal residence; (e) a bona-fide not-for-profit in existence continuously for a period of five years immediately prior to becoming the owner ofthe rental unit and whose purpose is provide financing for the purchase or rehabilitation of affordable housing Notice to Tenants. (a) (1) No later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall make a good faith-effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed rental property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance. The notice shall be given in English, Spanish, Polish and Chinese and be as follows: "THIS IS NOT A NOTICE TO VACATE THE PREMISES. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any right that you may have. Pursuant to the City of Chicago's Protecting Tenants in Foreclosed Rental Property Ordinance, if you are a qualified tenant you may be eligible for relocation assistance in the amount of $10,600 unless the owner offers you the option to renew or extend your current written or oral rental agreement with an annual rent that: (1) for the first twelve months, does not 136

142 exceed 102% of your current annual rent; and (2) for any twelve-month period thereafter, does not exceed 102% of the immediate prior twelve-month period's annual rent. The option to renew or extend your lease shall continue until the property is sold to a bona fide third-party purchaser. If you are eligible as a qualified tenant and the owner fails to pay you the relocation assistance that is due, you may bring a private cause of action in a court of competent jurisdiction seeking compliance with the Protecting Tenants in Foreclosure Rental Property Ordinance, Chapter 5-14 of the Municipal Code of Chicago, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorney's fees." The notice shall also include the name, address and telephone number of the owner, property manager or owner's agent who is responsible for the foreclosed rental property. (2) If the owner ascertains the identity of a tenant more than 21 days after becoming the owner, the owner shall provide the notice within 7 days of ascertaining the identity of the tenant. (3) The written notice required by this section shall be served by: (A) delivering a copy of the notice to the known tenant; (B) leaving a copy of the notice with some person of the age of 13 years or older who is residing in the tenant's rental unit; or (C) sending a copy of the notice by first class or certified mail, return receipt requested, to each known tenant, addressed to the tenant. (b) In addition to the notice required in subsection (a), no later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall post a written notice on the primary entrance of each foreclosed rental property which sets forth the disclosures in subsection (a). (c) Any owner who fails to comply with this section shall not collect rent due and owning from any known tenant, until the owner has served the notices required by this section Tenant relocation assistance. (a) The owner of a foreclosed rental property shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner offers such tenant the option to renew or extend the tenant's current rental agreement with an annual rental rate that: (1) for the first twelve months of the renewed or extended lease, does not exceed 102% of the qualified tenant's current annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102% of the immediate prior year's annual rental rate. Provided that if a rental unit is occupied by two or more qualified tenants, the owner's total liability to all the qualified tenants of the rental unit shall be no more than if the rental unit was occupied by one qualified tenant. 137

143 (b) The owner shall pay the relocation fee to the qualified tenant no later than 7 days after the day of complete vacation of the rental unit by the qualified tenant. The relocation fee shall be paid by certified or cashier's check payable to the qualified tenant. (c) The relocation fee shall be in addition to any damage, deposit or other compensation or refund to which the qualified tenant is othenwise entitled. (d) The owner may deduct from the relocation fee all rent due and payable for the rental unit occupied by the qualified tenant prior to the date on which the rental unit is vacated, unless such rent has been validly withheld or deducted pursuant to state, federal or local law. The owner shall not retain all or any part of the relocation fee for the payment of any other amount, including without limitation, for any damage to the premises or for any other violation or breach of a rental agreement. (e) The owner shall not be liable to pay the relocation fee to any qualified tenant: (1) who does not enter into a rental agreement after being offered a renewal or extension of the tenant's rental agreement with a rent in an amount that complies with subsection (a); or (2) against whom the owner has obtained a judgment for possession of the rental unit. (f) In addition to any other fine or penalty provided, if an owner fails to comply with this section, the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee. This subsection does not preclude the qualified tenant from recovering other damages to which he may be entitled under this chapter. (g) The owner shall comply with this section until the foreclosed rental property is sold or othenwise transferred to a bona fide third-party purchaser. (h) Nothing in this section shall be construed as prohibiting an owner from exercising any right to evict a tenant for cause. If a qualified tenant is evicted for cause, the owner shall not be liable for any relocation assistance provided under this section Registration of foreclosed rental property. (a) No later than 10 days after becoming the owner of a foreclosed rental property, the owner shall register such property with the commissioner. The registration shall be in a form and manner prescribed by the commissioner and shall contain the following information: (1) name, address and telephone number ofthe owner; (2) address of the foreclosed rental property; (3) if more than one rental unit is located in the foreclosed rental property, the number of rental units in the property, and whether each rental unit was occupied 138

144 by a known tenant at the time the person became the owner. If occupied by a known tenant, the name and address of each known tenant; (4) if the foreclosed rental property consists of only one rental unit, the name of the known tenant at the time the person became the owner; (5) name, address and telephone number of the owner's agent for the purpose of managing, controlling or collecting rents and any other person not an owner who is controlling such property, if any; (6) name, address and telephone number of a natural person 21 years of age or older, designated by the owner as the authorized agent for receiving notices of code violations and for receiving process, in any court proceeding or administrative enforcement proceeding, on behalf of such owner in connection with the enforcement of this Code. This person must maintain an office or actually reside, in Cook County, Illinois. An owner who is a natural person and who meets the requirements of this subsection as to location of residence or office may designate himself as agent; (7) an affidavit signed by the owner which lists, by rental unit, all the qualified tenants at the time person became the owner; and (8) any other pertinent information reasonably required by the commissioner. The owner shall make available within 10 business days all information requested by the commissioner. By designating an authorized agent under the provisions of this section the owner is consenting to receive any and all notices of code violations concerning the property and all process in any court proceeding or administrative enforcement proceeding brought to enforce code provisions concerning the property by service of the notice or process on the authorized agent. Any owner who has designated an authorized agent under this section shall be deemed to consent to the continuation of the agent's designation for the purposes of this section until the owner notifies the commissioner of a change of authorized agent or until a change in information pursuant to subsection (c). Any owner who fails to register under this section shall further be deemed to consent to receive, by posting at the foreclosed rental property, any and all notices of code violations and all process in an administrative proceeding brought to enforce code provisions concerning the property. (b) At the time of filing the registration the owner shall pay a registration fee of $ for each foreclosed rental property registered. (c) If any other change in any information required under this section occurs at any time, the owner shall file with the commissioner a statement indicating the nature and effective date of the change within ten days after the change takes effect. (d) If the foreclosed rental property is sold or othen/vise transferred to a bona fide third-party purchaser, the owner shall, within 10 days of such sale or transfer, notify the commissioner in writing in a form and manner prescribed by the commissioner. 139

145 (e) The registration statement shall be deemed prima facie proof of the statements therein contained in any administrative enforcement proceeding or court proceeding instituted by the city against the owner. (f) In the event that the foreclosed rental property becomes vacant after registration pursuant to this section, the owner shall comply with the vacant building registration requirements of chapter 13-12, if applicable Rights, obligations and remedies. (a) A tenant may bring a private cause of action in a court of competent jurisdiction seeking compliance with sections and and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorney's fees; provided, however, that only the department of buildings may enforce section The rights, obligations and remedies set forth in this chapter shall be cumulative and in addition to any others available at law or in equity Waiver of rights in rental agreements-prohibited. No rental agreement offered or entered into by an owner after the effective date of this chapter for a rental unit located in a foreclosed rental property may provide that a tenant agrees to waive or forego the rights and remedies provided under this chapter and any such provision included in a rental agreement is unenforceable Administration and enforcement of chapter. The commissioner and the commissioner of business affairs and consumer protection shall administer this chapter and may adopt rules and regulations for the effective administration of this chapter. The commissioner and the commissioner of business affairs and consumer protection shall consult and cooperate with each other in the implementation, administration and enforcement of the provisions of this chapter. The commissioner or the commissioner of business affairs or consumer protection shall enforce any provision of this chapter by instituting an action with the department of administrative hearings or by the corporation counsel through an injunction or any other suit, action or proceeding at law or in equity in a court of competent jurisdiction. Any information, receipt, notice, or other document required under this chapter shall be open for inspection and review by the commissioner at any reasonable time Violation - Penalties - Liability. Unless otherwise provided, any person found guilty of violating this chapter, or any rule or regulation promulgated hereunder, shall be fined not less than $ nor more than $1, Each failure to comply with this chapter with respect to each person shall be considered a separate offense. Each day that a violation exists shall constitute a separate and distinct offense. 140

146 With regard to any violation ofthis chapter by a corporation, all officers and directors thereof who may be responsible for any violation of this chapter shall, except as othen/vise specifically prohibited or negated by law, be liable as provided in Section (e) ofthis code for all fines, costs, fees and penalties imposed on a corporation pursuant to this chapter. Liability for violations of this chapter shall be joint and several. SECTION 3. Nothing in this ordinance shall be construed to impair any contract executed prior to the effective date of this ordinance. Nothing in this ordinance shall be construed as requiring the rental or continued rental of a dwelling unit subject to the Condominium Act or Common Interest Community Association Act in contravention of the governing association's declaration, by-laws, rules and regulations or other governing documents. SECTION 4. This ordinance takes effect 90 days after its passage and publication. 141

147 New Supreme Court Foreclosure Rules (99.1,113 & 114) Special Supreme Court Rules Committee on Mortgage Foreclosures Convened in April members appointed by Illinois Supreme Court (2 per Justice: judges, plaintiff s and defense counsel, bank reps, AG, law professor) 15 th member added later: Manny Flores, Director, Division of Banking, Illinois Department of Financial and Professional Regulation (IDFPR) Purpose was to study and formulate proposals to help those facing the loss of their homes and improve the judicial process in mortgage foreclosures throughout Illinois 142

148 Timeline June spring 2012: met, formed subcommittees, studied various foreclosure programs and initiatives, drafted proposed rules Spring/summer 2012: held public hearings Summer/fall 2012: met, amended rules, sent consensus recommendations to Illinois Supreme Court February 2013: rules approved by Supreme Court March 1, 2013: initial effective date (and final effective date for Rule 99.1) May 1, 2013: deferred effective date for Rules 113 and 114 Rule 99.1 Effective date of March 1, 2013 Gives Illinois Supreme Court a sort of check-list of items to look for in approving mediation programs 143

149 Existing Mediation Programs Cook County Will County Peoria County Bond County Madison County McLean County Attorney General Grants $5 m in new grants to set up mediation programs To be administered by NIU and Resolution Systems Institute (North), University of Illinois (Central), and Dispute Resolution Institute (South) to: Work with judges to develop rules and documents the judicial circuit needs to implement a mediation program; Recruit and train mediators; Develop case coordination systems; Work with housing counselors and legal aid attorneys to assist homeowners who participate in the foreclosure mediation programs; Develop an online monitoring system to permit the mediation programs to input data for tracking and evaluation; and Evaluate and report outcomes and efficiency of the mediation programs and develop ways to improve the programs when needed. 144

150 Judicial Districts Targeted Targets 1st, 2nd, 5th, 6th, 7th, 16th, 17th, 19th, 20th and 21 st judicial districts Mediation Programs (Rule 99.1) Local circuits submitting mediation program plan for approval to Supreme Court must address: HUD-certified housing counseling Pro bono legal representation Language access for program participants Costs charged to any participants in program Financial sustainability of program Training of program personnel Above list is suggestive, not mandatory - sets a sort of rebuttable presumption of what a program should look like, within applicable financial/other parameters 145

151 Issues not addressed by Rule 99.1 Voluntary or mandatory Whether lender representative must be physically present Data and outcome tracking systems But AG grant asks grantees to: Develop an online monitoring system to permit the mediation programs to input data for tracking and evaluation; and Evaluate and report outcomes and efficiency of the mediation programs and develop ways to improve the programs when needed. Interaction with other new rules Rule 113 Not so much mostly Rule 113 regulates content and notices filed after mediation would occur Rule 114 Loss mitigation affidavit can (and should be) a tool used as part of a county s mediation program 146

152 Practice and Procedure in Mortgage Foreclosure Cases (Rule 113) Effective date of May 1, 2013 will only apply to cases filed on or after May 1, 2013 Implements a few helpful changes in terms of what must be attached to complaint (section (b)) form of prove-up affidavit (section (c)) Required notices (sections (d), (f)) Protections for surplus funds (sections (g), (h)) Deceased mortgagors (section (i)) Note attached to complaint (Rule 113(b)) Rule states: a copy of the note, as it currently exists, including all indorsements and allonges, shall be attached to the mortgage foreclosure complaint at the time of filing. How is that different? Adds to current requirement which states only that a copy of the note must be attached. What about the mortgage? Does not require copy of mortgage as it currently exists because mortgage follows note. So will plaintiff now always = name on note as endorsed? No, plaintiff may still be different from name on note because agent, e.g., loan servicer, can be plaintiff 147

153 Caveat: bearer paper Note may be paid to the order of if so, the bearer of the paper is generally entitled to foreclose Prove-up affidavit (Rule 113(c)) Identify affiant & job description Identify records relied upon Payment history attached if defendant filed an appearance or responsive pleading Identify computer software used Provide additional evidence as necessary to show right to sue Follow form affidavit provided in Rule

154 Prove-up affidavit (Rule 113(c)) Principal $ Interest $ Pro Rata MIP/PMI $ Escrow Advance $ Late Charges $ NSF Charges $ Property Maintenance $ Property Inspections $ BPO $ GROSS AMOUNT DUE $ Less/Plus balance in reserve accounts $ NET AMOUNT DUE $ (Plus, plaintiff will have to submit a separate itemization for attorney s fees and court costs.) Required notices (Rule 113 (d), (f)) Rule 113(d) Notice of default and judgment filed and mailed within 2 business days, sent to property address or address on appearance or other document filed by defendant Form notice informs of right to file motion to vacate, gives redemption amount and legal referral But Rule 113(e) says failure to send notice does not provide basis for vacating judgment Rule 113(f) Notice of sale mailed 10 business days prior to sale to all defendants 149

155 Protections for surplus funds Required notice (Rule 113(g)) Required form (Rule 114(h)) These changes are intended to protect borrowers entitled to judicial sale surplus proceeds from predatory surplus fund collectors As per Crown v. Young, decided March 18, 2013, by the Illinois Appellate Court (Unclaimed Funds had client assign right to surplus of $14,000 in exchange for ½ of proceeds plus $50 voided by the court as unconscionable) Deceased mortgagors (Rule 113(i)) (i) Deceased Mortgagors. In all mortgage foreclosure cases where the mortgagor or mortgagors is or are deceased, and no estate has been opened for the deceased mortgagor(s), the court shall, on motion of a party, appoint a special representative to stand in the place of the deceased mortgagor(s) who shall act in a manner similar to that provided by section of the Illinois Code of Civil Procedure (735 ILCS 5/13-209). Does not apply to joint surviving tenant. 735 ILCS 5/ (h). 150

156 Loss Mitigation Affidavit (Rule 114) Effective date of May 1, 2013 applies to all cases in which no judgment of foreclosure entered as of May 1, 2013 Where defendant has appeared or filed an answer or other responsive pleading, plaintiff must file a loss mitigation affidavit evidencing compliance with any applicable loss mitigation program Rule 114(a) (a) Loss Mitigation. For all actions filed under the Illinois Mortgage Foreclosure Law, and where a mortgagor has appeared or filed an answer or other responsive pleading, Plaintiff must, prior to moving for a judgment of foreclosure, comply with the requirements of any loss mitigation program which applies to the subject mortgage loan. 151

157 Rule 114(b) (b) Affidavit Prior to or at the Time of Moving for a Judgment of Foreclosure. In order to document the compliance required by paragraph (a) above, Plaintiff, prior to or at the time of moving for a judgment of foreclosure, must file an affidavit specifying: (1) Any type of loss mitigation which applies to the subject mortgage; (2) What steps were taken to offer said type of loss mitigation to the mortgagor(s); and (3) The status of any such loss mitigation efforts. Rule 114(c) (a) The subject mortgage loan is eligible for the following loss mitigation programs : (b) For each of the programs listed above in 3(a), the following steps have been taken by the mortgagee to comply with its obligations under such program: (c) For each of the programs listed above in 3(a), the current status of loss mitigation effort is as follows: 152

158 Rule 114(d) (d) Enforcement. The court may, either sua sponte or upon motion of a mortgagor, stay the proceedings or deny entry of a foreclosure judgment if Plaintiff fails to comply with the requirements of this rule Rule 114 & Mediation From the Committee Comments: Where counties have mediation programs in place, it is advisable that the county adopt procedures to incorporate the loss mitigation affidavit into the mediation process. 153

159 Rule 114 Scenarios No Rule 114 Affidavit provided at all Rule 114 Affidavit provided but with inadequate information Rule 114 Affidavit provided but with information known to be false Rule 114 Affidavit provided but truthfully shows incomplete loan modification process 154

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