handling mortgage servicing cases under the new · pdf filehandling mortgage servicing cases...

Handling Mortgage Servicing Cases under the New

CFPB Regulations

June 23, 2014 Dallas, TX

Speakers: Richard Alembik

John Rao Tara Twomey

Jennifer Wagner

Online Materials:Online Materials:Online Materials:Online Materials:

http://www.nclc.org/conferences-training/2014-mortgage-training-conference.html

No Username or Password needed

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.

Acknowledgements

We would like to thank the Consumer Protection and Education Fund of the Attorneys General

for its grant in support of this conference. Thanks to our speakers for volunteering their time and

expertise; and Jessica Hiemenz for coordinating the conference, CLEs, and the materials; to

Debbie Parziale, Eleanna Cruz, Beverlie Sopiep, and Marina Levy for handling registrations and

finalizing the materials; and to Svetlana Ladan for coordinating the website materials.

© 2014 National Consumer Law Center® - Materials included in this book cannot be copied or reproduced in any way

without the express written permission of NCLC®.

Handling Mortgage Servicing Cases under the New CFPB Regulations

Sponsored by NATIONAL CONSUMER LAW CENTER® & National Association of Consumer Advocates

June 23, 2014

Speakers Include

Richard S. Alembik, Richard S. Alembik, PC John Rao, National Consumer Law Center, Inc.®

Tara Twomey, National Consumer Law Center, Inc.® Jennifer S. Wagner, Mountain State Justice, Inc.

Agenda

Review of the new CFPB servicing regulations by participants before the workshop is encouraged. This is an advanced intensive.

7:30am 7:30am 7:30am 7:30am –––– 8:30am8:30am8:30am8:30am Registration & Coffee

8:38:38:38:30am 0am 0am 0am –––– 10101010::::00000000amamamam Notices of Error and Requests for Information Scope and limitations Servicer response obligations Requests for identity of mortgage owner Requests for payoff statements

10:00am 10:00am 10:00am 10:00am –––– 10:3010:3010:3010:30amamamam Force-Placed Insurance Duty to advance premiums Notice requirements

10:30am 10:30am 10:30am 10:30am –––– 10:4510:4510:4510:45amamamam Break

10:45am 10:45am 10:45am 10:45am –––– 11111111:15:15:15:15 Early Intervention and Continuity of Contact Pre-foreclosure review period

11:15am 11:15am 11:15am 11:15am –––– 12:3012:3012:3012:30 Loss Mitigation Procedures What is complete loss mitigation application? Duty to evaluate for all loss mitigation options Loan modification denials Appeal rights

11112:2:2:2:30303030pm pm pm pm –––– 1:1:1:1:30303030pmpmpmpm Lunch 1:30pm 1:30pm 1:30pm 1:30pm –––– 2:302:302:302:30pmpmpmpm Loss Mitigation Procedures (continued) Dual tracking protections Transfer of servicing requirements Using notices of error and requests for information

2:302:302:302:30pm pm pm pm –––– 3:00pm3:00pm3:00pm3:00pm Periodic Mortgage Statements Required disclosures Default information Coupon book and small servicer exemptions

3:00pm 3:00pm 3:00pm 3:00pm –––– 3:15p3:15p3:15p3:15pmmmm Break

3:15pm 3:15pm 3:15pm 3:15pm –––– 4:00pm 4:00pm 4:00pm 4:00pm TILA Servicing Rules Mortgage payment application Request for payoff statement Payment change notices Transfer of ownership notices

4:00pm 4:00pm 4:00pm 4:00pm –––– 5:30pm5:30pm5:30pm5:30pm Private Remedies under RESPA and TILA

Strategies for identifying and proving damages

Handling Mortgage Servicing Cases under the New CFPB Regulations

A. Notices of Error and Requests for Information

1. New RESPA Rules Change Qualified Written Request Procedure: Notices of Error……………8

2. New RESPA Rules Change Qualified Written Request Procedure: Requests for Information…18

3. Sample Request for Information to Obtain Identity of Mortgage Owner………………………28

4. Sample Response to Request for Information…………………………………………………30

5. Notices of Error and Requests for Information PowerPoint……………………………………31

B. Force-Placed Insurance

1. RESPA Force-Placed Insurance Restrictions……………………………………………………40

2. Force-Placed Insurance PowerPoint……………………………………………………………48

C. Early Intervention and Continuity of Contact

1. RESPA Early Intervention Requirements for Borrowers in Default……………………………53

2. RESPA “Continuity of Contact” Requirements for Borrowers in Default………………………58

3. Early Intervention and Continuity of Contact PPT………………………………………………61

D. Loss Mitigation Procedures

1. RESPA Loss Mitigation Procedures……………………………………………………………67

2. Sample RESPA Request for Information about a Loss Mitigation Application…………………92

3. Sample RESPA Notice of Error for Dual Tracking Violations…………………………………98

4. Checklist for Reviewing RESPA Loss Mitigation Notices……………………………………102

5. Sample Servicer 5-Day Acknowledgment Letter………………………………………………105

6. Loss Mitigation Procedures PowerPoint………………………………………………………111

E. Periodic Mortgage Statements

1. TILA Rule on Periodic Mortgage Statements…………………………………………………124

2. Periodic Statements PowerPoint………………………………………………………………133

F. Other TILA Servicing Rules

1. RESPA Rule on Prompt Crediting of Payments………………………………………………137

2. Duty to Provide Timely Mortgage Payoff Statements…………………………………………140

3. Interest Rate and Payment Change Notices……………………………………………………144

4. Mortgage Transfer of Ownership Notices……………………………………………………145

5. Other TILA Servicing Rules PowerPoint………………………………………………………153

G. Private Remedies under RESPA and TILA

1. Private Remedies for RESPA Servicing Violations……………………………………………159

2. Attorney Fee Petition Checklist…………………………………………………………………174

3. Mortgage Servicing Claims Chart………………………………………………………………174

Speakers Bio

Richard S. “Rick” Alembik is the principal attorney at Richard S. Alembik, PC, in Decatur,

Georgia. A Phi Beta Kappa graduate of Drew University, in Madison, New Jersey, Alembik then

earned his J.D. from the University Of Georgia School Of Law in 1991. Alembik has since

focused his practice on real-estate related and commercial litigation. However, the majority of

Alembik's practice now consists of commercial and residential foreclosure defense. Alembik has

first-chaired more than 60 jury trials and arbitration proceedings in state and federal courts, and

arbitration forums. (One of Alembik’s two seven-figure jury verdicts involved a complex

commercial wrongful foreclosure case tried in the Superior Court of DeKalb County, Georgia in

2001.) Alembik has had an “AV Preeminent” rating from Martindale-Hubbell since 2003. From

2012 through 2014 he has been recognized as a Thomson Reuters “Super Lawyer.” Alembik

regularly lectures on various legal topics (generally involving real-estate litigation) at continuing

legal education seminars, is regularly consulted and quoted by local and national press on

foreclosure-related matters, and has made TV appearances as a legal commentator on

foreclosure-related matters.

John Rao is an attorney with the National Consumer Law Center, Inc. Mr. Rao focuses on

consumer credit, mortgage servicing, and bankruptcy issues and has served as a panelist and

instructor at numerous bankruptcy and consumer law trainings and conferences. He has served as

an expert witness in court cases and has testified in Congress on consumer matters. Mr. Rao is a

contributing author and editor of NCLC's Consumer Bankruptcy Law and Practice; and a

coauthor of NCLC’s Foreclosures and Bankruptcy Basics. He is also a contributing author to

Collier on Bankruptcy and the Collier Bankruptcy Practice Guide. Mr. Rao served as a member

of the federal Judicial Conference Advisory Committee on Bankruptcy Rules from 2006 to 2012,

appointed by Chief Justice John Roberts. He is a conferee of the National Bankruptcy

Conference, fellow of the American College of Bankruptcy, vice-president of the National

Association of Consumer Bankruptcy Attorneys, member of the editorial board of Collier on

Bankruptcy, and former board member for the American Bankruptcy Institute.

Tara Twomey is currently Of Counsel to the National Consumer Law Center and the Project

Director for the National Consumer Bankruptcy Rights Center. She has been a Lecturer in Law

at Stanford Law School, Harvard Law School and Boston College Law School. 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. This practice area included foreclosure prevention and chapter 13

bankruptcy. Ms. Twomey is a contributing author of several books published by the National

Consumer Law Center, including Foreclosures: Defenses, Workouts and Mortgage Servicing.

Jennifer Wagner is Managing Attorney at Mountain State Justice, a non-profit, public interest

law firm in West Virginia. Jennifer litigates on behalf of low-income consumers, focusing on

combatting predatory mortgage lending and abusive mortgage servicing. Jennifer also engages

in other consumer and civil rights litigation, including access to appropriate medical care,

worker's health and safety, and the humane treatment of prisoners. She has given numerous

trainings on consumer litigation. Prior to joining Mountain State Justice, Jennifer clerked on the

U.S. Fourth Circuit Court of Appeals and worked at Partnership for the Homeless in New York

City. She graduated with honors from New York University School of Law and Harvard College.

New RESPA Rules Change Qualified Written Request Procedure: Notices of Error

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 § 1024.35 or a “request for information” sent under Regulation X §

1024.36. 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 § 1024.35 or seeks information under § 1024.36 is a notice of error or request for

information for purposes of these respective regulations. However, the CFPB’s Official

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

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. §§ 1024.35(a) and 36(a) (effective Jan. 10, 2014).

3 See Amini v. Bank of Am. Corp., 2012 WL 398636 (W.D. Wash. Feb. 7, 2012); Luciw v. Bank of Am., 2010 WL

3958715 (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 3842308 (N.D. Ga. Sept. 24, 2010) (same); Rodeback v. Utah Fin., 2010 WL 2757243 (D. Utah

July 13, 2010) (same). 4 Official Interpretation, Supplement 1 to Part 1024, ¶ 30(b)-(Qualified written request)-1, effective Jan. 10, 2014).

8

not satisfy the requirements for being either a notice of error under section 1024.35 or a request

for information under section 1024.36.

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 1024.35.5 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. § 1026.36(c)(1);6

• Failing to pay taxes, insurance, and other escrow items in a timely manner as

required by 12 C.F.R. § 1024.34(a),7 or to refund an escrow account balance upon

loan payoff as required by 12 C.F.R. § 1024.34(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. § 1026.36(c)(3);9

• Failing to provide accurate information to a borrower regarding loss mitigation

options and foreclosure, as required by 12 C.F.R. § 1024.39;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 non-

judicial foreclosure process in violation of 12 C.F.R. § 1024.41(f) or (j);11

• Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale

in violation of 12 C.F.R. § 1024.41(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.

5 Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014).

6 See NCLC Foreclosures, § 9.6.3 (4th ed. and 2013 Supp.).

7 Id. at § 9.2.4.

8 Id. at § 9.2.4.2.

9 Id. at § 9.6.5.

10 Id. at § 9.2.6.

11 Id. at § 9.2.8.7.

12 Id.

13 Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014).

9

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 1024.37.14

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 §

1024.38, 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

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

14

See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-2 (effective Jan. 10, 2014). 15

See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10742 (Feb. 14, 2013). 16

Id. 17

Reg. X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014); § 9.4, infra. 18

See Section-by-Section Analysis, § 1024.35(b)(8), 78 Fed. Reg. 10,743 (Feb. 14, 2013). 19

Id.

10

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

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

1024.2, 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

20

See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-1 (effective Jan. 10, 2014). 21

Id. 22

See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,743/-/44 (Feb. 14, 2013). 23

Reg. X, 12 C.F.R. § 1024.35(b)(11) (effective Jan. 10, 2014). 24


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 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 830948 (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 4405538 (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, § 9.2.2.2.3.1 (4th ed. and 2013 Supp.).

11

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 1024.35(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 1024.35(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

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 1024.35(b), the CFPB

stated that the “appeals process set forth in § 1024.41(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 1024.35(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

27

Reg. X, 12 C.F.R. § 1024.38 (effective Jan. 10, 2014). 28

See Reg. X, 12 C.F.R. § 1024.41 (effective Jan. 10, 2014) (loss mitigation procedures); NCLC Foreclosures, §

9.2.8 (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. 111-22, 123 Stat. 1632 (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”). 30



Id.

12

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 1024.35 includes express exclusions and limitations on the use of error notices as

discussed above, nothing in section 1024.35 or its commentary prohibits a borrower from

asserting an error under the catch-all provision in section 1024.35(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

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;

33

12 U.S.C. § 2605(k)(1)(C). 34

Reg. X, 12 C.F.R. § 1024.35(g)(1)(i) (effective Jan. 10, 2014). 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. § 1024.35(g)(1)(ii) (effective Jan. 10, 2014). 37

Id.

13

• 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 §

1024.35 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 1024.35, an attorney who drafts a notice of error should ensure that it is

concise and tailored to the facts of the particular case.

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

38

See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(ii)-1 (effective Jan. 10, 2014). 39

See Section-by-Section Analysis, § 1024.36(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.”). 40

Reg. X, 12 C.F.R. § 1024.35(g)(2) (effective Jan. 10, 2014). 41

Reg. X, 12 C.F.R. §§ 1024.35(d) (effective Jan. 10, 2014). 42

Reg. X, 12 C.F.R. §§ 1024.35(f) (effective Jan. 10, 2014). 43

Reg. X, 12 C.F.R. §§ 1024.35(e)(3) (effective Jan. 10, 2014).

14

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

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 1024.35(b)(6) asserting that the servicer has failed to provide an accurate

loan payoff balance following a request made under Regulation Z section 1026.36(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 1024.35(b)(9) that the servicer initiated a foreclosure before the

120th day of delinquency in violation of section 1024.41 (f) or (j), or under section 1024.35

(b)(10) that the servicer moved for foreclosure judgment or conducted a foreclosure sale in

violation of section 1024.41(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

44

Reg. X, 12 C.F.R. §§ 1024.35(e)(1) (effective Jan. 10, 2014). 45

Reg. X, 12 C.F.R. § 1024.36(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, § 9.6.5 (4th ed. and 2013 Supp.) and NCLC eReports, Nov. 2013, No. 4. 48

Reg. X, 12 C.F.R. §§ 1024.35(e)(3)(i)(A) (effective Jan. 10, 2014). 49

See NCLC Foreclosures, § 9.2.8.7 (4th ed. and 2013 Supp.) . The loss mitigation rule will be covered in a future

eReports article. 50

Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) (effective Jan. 10, 2014).

15

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.

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 1024.35(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 1024.35(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

51

Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014). 52

Id. 53

12 U.S.C. 12 C.F.R. § 2605(e)(4); Reg. X, § 1024.35(e)(3)(ii) (effective Jan. 10, 2014). 54

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. § 1024.36(e)(4) (effective Jan. 10, 2014).

16

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.61

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

1024.35(h) for notices of error and section 1024.36(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 1024.35 with respect to the notice of error on the February payment.

60

See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(4)-1 (effective Jan. 10, 2014). 61

Id. 62

Reg. X, 12 C.F.R. § 1024.36(e)(2) (effective Jan. 10, 2014). 63

Pub. L. No. 111-203, 124 Stat. 1376, tit. XIV, § 1463(a) (July 21, 2010). 64

Reg. X, 12 C.F.R. § 1024.35(h) and § 1024.36(g) (effective Jan. 10, 2014). 65

Reg. X, 12 C.F.R. § 1024.35(h) (effective Jan. 10, 2014). 66

See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(h)-1 (effective Jan. 10, 2014).

17

New RESPA Rules Change Qualified Written Request Procedure: Requests for Information

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 § 1024.36 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

ineffective because of this definition, as discussed below, are effectively abrogated by

Regulation X § 1024.36.

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 § 1024.36, 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

1 12 U.S.C. § 2605(f). Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).

2 Reg. X, 12 C.F.R. § 1024.36(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, § 9.2.2.2.1 (4th ed. and

2013 Supp.). 3 Reg. X, 12 C.F.R. § 1024.21(e)(2)(i)(effective until Jan. 10, 2014).

4 See Section-by-Section Analysis, § 1024.36(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 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. § 1024.36(a) (effective Jan. 10, 2014).

18

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. 4.9

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

permissible under Regulation X § 1024.36.

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

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.

6 Id.

7 Reg. X, 12 C.F.R. § 1026.36(c)(3) (effective Jan. 10, 2014).

8 See Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.).

9 See also Foreclosures, § 9.6.5 (4th ed. and 2013 Supp.).

10 See, e.g., Mitchell v. Reg’l Trust Serv. Corp., 2013 WL 556395 (N.D. Cal. Feb. 12, 2013); Van Egmond v. Wells

Fargo Home Mortg., 2012 WL 1033281 (C.D. Cal. Mar. 21, 2012); Saucedo v. Bank of Am., 2011 WL 6014008,

(D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011). See also Foreclosures, §

9.2.2.2.3.1 (4th ed. and 2013 Supp.). 11


Id. 13

See Section-by-Section Analysis, § 1024.36(a), 78 Fed. Reg. 10,754 (Feb. 14, 2013).

19

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 § 1024.36(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 standards15

in another section of Regulation X, § 1024.38,

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 § 1024.36 provides borrowers in foreclosure

with access to foreclosure-related documentation. The CFPB stated specifically that § 1024.36

“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 § 1024.36, the CFPB noted in the Official Staff

Interpretation for the servicing file provision that § 1024.38(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 § 1024.36. Upon

receipt of a borrower request for information asking for a servicing file, a servicer shall provide a

copy of the information contained in the servicing file, subject only to the limitations set forth in

§ 1024.36.19

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 § 1024.38.20

Although the general servicing requirements found in § 1024.38 are not privately enforceable,

they help to define the scope of a permissible request for information under § 1024.36 (which is

enforceable by the borrower). Section 1024.38(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

14

Id. See also Foreclosures, § 9.2.2.2.3.3 (4th ed. and 2013 Supp.). 15

See Foreclosures, § 2.9 (4th ed. and 2013 Supp.). 16

See Section-by-Section Analysis, § 1024.38(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). 19

Id. 20

See Foreclosures, § 9.4 (4th ed. and 2013 Supp.).

20

by the borrower to the servicer in accordance with the notices of error procedures under §

1024.35 or the loss mitigation procedures under § 1024.41.21

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 § 1024.38(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 § 1024.36. 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

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 § 1024.36.

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 § 1024.36.24

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

21

Reg. X, 12 C.F.R. § 1024.38(c)(2) (effective Jan. 10, 2014). 22

E.g., Liebelt v. Quality Loan Serv. Corp., 2011 WL 741056 (N.D. Cal. Feb. 24, 2011); Aniel v. Litton Loan

Servicing, L.P., 2011 WL 635258 (N.D. Cal. Feb. 11, 2011); Taggart v. Wells Fargo Home Mortg., Inc., 2010 WL

3769091 (E.D. Pa. Sept. 27, 2010). 23

See Foreclosures, § 9.2.2.2.2.2 (4th ed. and 2013 Supp.). 24

See Section-by-Section Analysis, § 1024.36(f)(1), 78 Fed. Reg. 10,759 (Feb. 14, 2013). 25

Reg. X, 12 C.F.R. § 1024.36(f)(2) (effective Jan. 10, 2014).

21

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

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

26

12 C.F.R. § 1026.36(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). 28

12 C.F.R. § 1026.36(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, § 1024.36(f)(1)(ii), 78 Fed. Reg. 10,759/-/60 (Feb. 14, 2013).

22

reasonably determines that any of the exclusions set forth in § 1024.36(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 avoid a general request for the entire

PSA.32

Rather, the borrower’s request should 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

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

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 3928610 (Bankr. S.D.N.Y. Aug. 31, 2010) (same). 33

12 C.F.R. § 1026.36(f)(1)(iii) (effective Jan. 10, 2014). 34

See Section-by-Section Analysis, § 1024.36(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, § 9.2.2.2.3.2 (4th ed. and 2013 Supp.).

23

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.39

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

Finally, 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 § 1024.36(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

38

See Foreclosures, § 9.2.8.2.4 (4th ed. and 2013 Supp.). 39

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(d)(1)-1 (effective Jan. 10, 2014). 40

Id. 41

12 C.F.R. § 1026.36(f)(1)(iv) (effective Jan. 10, 2014). 42

Id. 43

Id. 44

Id.

24

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.45

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 § 1024.36, 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

45

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 35(f)(1)(iv)-1 (effective Jan. 10, 2014). 46

See Section-by-Section Analysis, § 1024.36(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. § 1024.36(c) (effective Jan. 10, 2014). 48

Reg. X, 12 C.F.R. § 1024.36(e) (effective Jan. 10, 2014). 49

Reg. X, 12 C.F.R. § 1024.36(d) (effective Jan. 10, 2014). 50

See Foreclosures, § 9.2.2.5.5 (4th ed. and 2013 Supp.).

25

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

offsite documents with reasonable efforts.55

51

Reg. X, 12 C.F.R. § 1024.36(d)(2)(i)(A) (effective Jan. 10, 2014). 52

12 U.S.C. § 2605(e)(4); Reg. X, 12 C.F.R. § 1024.36(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). 55

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(d)-2 (effective Jan. 10, 2014).

26

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 section 1024.35(h) for notices of error and section 1024.36(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.

56

Pub. L. No. 111-203, 124 Stat. 1376, tit. XIV, § 1463(a) (July 21, 2010). 57

Reg. X, 12 C.F.R. § 1024.35(h) and § 1024.36(g) (effective Jan. 10, 2014).

27

Sample Request for Information under RESPA to Obtain Identity of Mortgage Owner

The form written request copied below can be used to obtain from the servicer of the

debtor’s mortgage information about the owner of the mortgage. This information is particularly

useful in determining the proper party in foreclosure proceedings, for exercising rescission

rights, for naming the proper party in bankruptcy lien strip off and claim objection proceedings,

and for effectuating service of process on the mortgage owner in litigation matters.

For a detailed discussion of the RESPA requirements for requests for information, see §

9.2.2 of NCLC’s Foreclosures (4th ed. and 2013 Supp.).

Advocates should check that the address they use in preparing the sample form is one

given by the servicer for requests for information, and not assume that the address used by the

client to send monthly payments is the proper designated address.1 If the request is sent by an

attorney on behalf of a client, it should include a written authorization from the client similar to

that provided below.2 Appropriate alterations based on the clients’ situation must be made before

sending the following sample request:

[date]

[Mortgage servicer]

[Address]

Attn: Borrower Inquiry Department

Re: [Borrowers’ name, address, account number]

To Whom it May Concern:

Please be advised that I represent [borrowers] with respect to the mortgage loan you are

servicing on the property located at [address]. My clients have authorized me to send this request

on their behalf (see Authorization below). As servicer of my client’s mortgage loan, please treat

this as a “request for information” pursuant to the Real Estate Settlement Procedures Act, subject

to the response period set out in Regulation X, 12 C.F.R.§ 1024.36(d)(2)((i)(A), and a request

under § 1641(f)(2) of the Truth in Lending Act.3

1 Borrower written inquiries (including notices of error) under the RESPA must be sent to the “designated” address

for receipt and processing of such inquiries, if the servicer has properly designated such an address. See Reg. X, 12

C.F.R. § 1024.35(c); § 9.2.2.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.). The servicer’s website should be

checked for the designated address. 2 A servicer is required to respond to a request for information that is sent by the borrower or the borrower’s agent.

12 U.S.C. § 2605(e)(1)(A). However, a servicer may require that the borrower or agent provide documentation, such

as an authorization, that the agent has authority to act on the borrower’s behalf. See Official Bureau Interpretation,

Supplement 1 to Part 1024, ¶ 36(a)-1 (effective Jan. 10, 2014); § 9.2.2.4 of NCLC’s Foreclosures (4th ed. and 2013

Supp.). 3 A similar right exists under TILA. See 15 U.S.C. § 1641(f)(2); National Consumer Law Center, Truth in Lending

§ 5.15.11 (8th ed. 2012 and Supp.). The primary advantage to sending a RESPA information request over a TILA

request is the fixed ten business day response period, whereas no specific deadline is provided under TILA or

28

Please provide the following information:

1. The name of the owner or assignee of my clients’ mortgage loan;

2. The address and telephone number for the owner or assignee of my clients’

mortgage loan;

3. The name, position and address of an officer of the entity that is the owner or

assignee of my clients’ mortgage loan;4 and

4. Any other relevant contact information for the owner or assignee of my clients’

mortgage loan.

Thank you for taking the time to respond to this request.

Very truly yours,

___________________

[attorney]

Authorization to Release Information

To: [servicer]

Re: Borrowers: [name of borrowers]

Account No: [account no.]

Property Address: [address]

We are represented by the law office of [name of firm] and attorney [name of attorney]

concerning the mortgage on our home located at [address]. We hereby authorize you to release

any and all information concerning our mortgage loan account to the law office of [name of firm]

and attorney [name of attorney] at their request. We also authorize you to discuss our case with

the law office of [name of firm] and attorney [name of attorney].

Thank you for your cooperation.

Very truly yours,

_____________________

[debtor 1]

_______________________

[debtor 2]

Regulation Z. Both provisions are privately enforceable, though the availability of statutory damages is subject to

different requirements under the RESPA and TILA remedy provisions. For statutory damages under TILA, the

borrower does not need to prove a pattern and practice of noncompliance by the servicer. See NCLC, Truth in

Lending § 5.15.11.4 (8th ed. 2012 and Supp.). 4 For bankruptcy purposes, this information is useful for complying with Bankruptcy Rule 7004(h).

29

©National Consumer Law Center 2014

Notices of Error and

Requests for Information

Notices of Error and Requests for Information

• New regime January 10, 2014: separate qualifications and procedures for:

– “notice of error” under Reg. X § 1024.35

– “request for information” under Reg. X § 1024.36

• Written inquiry can be a NOE or RFI even if not a QWR

• No fees for either a NOE or RFI– § 1024.35(h) – error resolution

– § 1024.36(g) – information requests

31

Notice of Error12 C.F.R. § 1024.35

Failure to accept a conforming payment

Failure to apply a payment correctly

Failure to timely credit a payment

Failure to make timely escrow disbursements

Imposing an unreasonable fee

Failure to provide a payoff statement

Failure to provide accurate loss

mitigation information

Failure to do a servicing transfer

correctly

Filing a foreclosure without giving the correct notices re.

loss mitigation

Moving for foreclosure judgment

or sale without following the loss

mitigation protocols

Any other error relating to the servicing of a

borrower's mortgage loan

What Isn’t Subject to a

Notice of Error12 C.F.R. § 1024.35(g) & Official Bureau Interpretation § 1024.35(b)-1

Origination of loan

Underwriting of loan

Securitization or transfer of ownership of loan

Duplicative requests

Overbroad requests

NOEs more than one year after loan discharged or no longer servicer

Servicer must notify borrower in writing within 5 business days after making determination not to comply

32

What If Servicer Says No Error?

• Within 15 business days of receiving borrower’s request, servicer must provide at no charge the documents and information it relied upon in making a determination that no error occurred.

• May include documents showing information entered in servicer’s collection system (such as a copy of screen shot of servicer’s system).

• Servicer is not required to provide documents that contain confidential, proprietary, or privileged information, but must still provide notice within 15 days

Notice of Error & Loss Mitigation• Loss mitigation is related to servicing of loan

• Provisions for Notices of Error on– Initiating foreclosure improperly

– Proceeding to sale improperly

– Failing to provide accurate loss mitigation

• But no explicit Notice of Error for failure to adequately evaluate for loss mitigation– Appeal process in § 1024.41(h) should provide

effective review

– Catch-all was added “to encompass the myriad and diverse types of errors that borrowers may encounter….”

– Loss mitigation evaluation not excluded

33

Servicer Limited Safe Harbor

• No liability, if:

– Servicer corrects error within 60 days of discovery,

but before

• action filed under 12 U.S.C. § 2605(f)

• receipt of written notice of error from borrower

• Unintentional mistakes are actionable

• No bankruptcy or litigation “exemption”

Request for Information

• Servicer is required to respond to any

written request for information “with respect

to the borrower’s mortgage loan”

• Unlike QWR, a RFI is not limited to

information “related to the servicing” of the

loan

34


• RFI may seek:

– information about a loan modification

application

– “servicing file,” which includes:

• schedule of all account transactions

• copy of security instrument that establishes lien

• any notes created by servicer personnel reflecting

communications with the borrower

– no per se rule against seeking loan origination

docs

Limitations on RFI12 C.F.R. § 1024.36(f)

• Duplicative – Not duplicative if for different time period, if information

could change

• Confidential or proprietary– Servicer employee compensation or personnel actions

– Examination reports or audits

• Irrelevant– Info on other borrowers

– Servicer training manuals

– Investor instructions (!)

• Overbroad or unduly burdensome

• Untimely (more than one year after loan discharged or servicer no longer servicing loan)

• Servicer must notify borrower in writing within 5 business days after deciding not to comply

35

Who Can Send a NOE or RFI?

• Borrower

• Borrower’s Attorney

• Borrower’s “Agent”

– CFPB Commentary: Servicer may require proof of authority from agent and may not treat letter as notice of error or information request until documentation received

Where to Send a NOE or RFI?• If servicer has an “exclusive address,” it must:

– provide written notice designating the exclusive address

– use same address for notices of error and requests for information

– provide the exclusive address on: any website servicer maintains for servicing of the loan; any required periodic statement or coupon book; any notices required by early intervention or loss mitigation rules

Reg. X, 12 C.F.R. § 1024.35(c) and 1024.36(b)

• Do not send to lock box address

• Do not send (solely) to servicer’s attorney

36

Time for Servicer Response

5 business days

• Acknowledge QWR, NOE, or RFI, or

• Take requested action

30 business days

• Correct borrower’s account, or

• After conducting a reasonable investigation, provide borrower written explanation as to why servicer believes account is correct, or

• Provide borrower with requested information or explanation why information is unavailable

Exceptions to 30-Day Response

Period

7 business days

• for NOE asserting failure to provide accurate payoff statement

Prior to foreclosure sale

• for NOE based on 120-day pre-foreclosure waiting period or dual-track requirements, if NOE received more than 7 days before a scheduled foreclosure sale

10 business days

• for RFI seeking identity of owner of mortgage

37

Extension of 30-Day Response

Period

15 day extension

• if servicer notifies borrower of extension and reason for delay before end of initial 30-day period.

No extension for

• timely notice of error based on 120-day pre-foreclosure waiting period or dual-track requirements or

• request for information seeking identity of mortgage owner

During the Response Period

• No adverse credit reporting of payment that is

subject of notice of error, for 60 days after

receipt of notice. 12 U.S.C. § 2605(e)(3)

• No foreclosure if notice of error received on

120-day pre-foreclosure waiting period or dual

track provisions more than 7 days before

foreclosure sale. 12 C.F.R. § 1024.35(i)

• Otherwise, servicer may pursue collection

remedies, including foreclosure

38

Asking the Servicer to Identify the

Mortgage Loan Owner

Useful commentary in the RESPA Official Interpretations, § 1024.36(a)-2

TILA (1641(f)(2)) RESPA (Reg. X

§1024.36(d)(2)

Time Presumptively “reasonable” 10 business days

Fees Not discussed Banned

Remedy $4K plus actuals, but

servicer liability?

Actual, unless pattern

and practice and then

$2K

Statute of limitations 1 year 3 years

39

RESPA Force-Placed Insurance Restrictions

In response to numerous problems with insurance obtained by a servicer when a

borrower’s policy lapses or is canceled, Congress included in the Dodd-Frank Act new

restrictions on “force-placed insurance.”1 New regulations implementing the Dodd-Frank Act

amendments to RESPA2 dealing with force-placed insurance go into effect on January 10, 2014.

The purpose of these amendments, as noted by the CFPB, is to “protect borrowers from the

unwarranted force-placement of insurance when a servicer does not have a reasonable basis to

impose the charge on a borrower.”3

Most of the RESPA amendments on force-placed insurance deal with notices that must

be provided to borrowers before insurance may be force placed. In addition to implementing

these notice requirements, a significant consumer protection was added by the CFPB in the final

rule. Servicers are prohibited from purchasing force-placed insurance, and instead must pay the

borrower’s existing insurance policy, if there is an escrow account on the mortgage.4 The CFPB

soundly concluded that a servicer should not purchase force-placed insurance when a servicer is

able to make disbursements from an escrow account to maintain the borrower’s hazard

insurance. As discussed more fully below, this requirement implements the statutory duty under

RESPA for servicers to timely disburse funds out of escrow accounts.

Definition of “force-placed insurance”

A definition of “force-placed insurance” is provided in RESPA and Regulation X.5 The

implementing regulation contains a broader definition in that it does not include the limiting

language contained in the statutory definition, the phrase “when the borrower has failed to

maintain or renew hazard insurance.” As explained by the CFPB, the requirements in Regulation

X apply even if the borrower has maintained insurance but the servicer has, in fact, erroneously

force-placed insurance.6 The term “force-placed insurance” is thus defined in Regulation X to

mean “hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage

loan that insures the property securing such loan.”7

The statutory definition also suggests that the term “force-placed insurance” is a type of

“hazard insurance.” However, RESPA does not include a definition of “hazard insurance.”

Thus, the CFPB determined in the final rule that it was necessary to define “hazard insurance” in

order to implement the statute. The final rule defines “hazard insurance” to mean “insurance on

the property securing a mortgage loan that protects the property against loss caused by fire, wind,

1 12 U.S.C. § 2605(l) and (m).

2 12 U.S.C. § 2605(k), (l) and (m), added by Pub. L. No. 111-203, 124 Stat. 1376 § 1463(a) (July 21, 2010).

3 See 78 Fed. Reg. 10,712 (February 14, 2013).

4 12 C.F.R. § 1024.17(k)(5) (effective Jan. 10. 2014); § 9.2.5.3.3, infra.

5 12 U.S.C. § 2605(k)(2) (“‘force-placed insurance’ means hazard insurance coverage obtained by a servicer of a

federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as

required of the borrower under the terms of the mortgage”). See also 12 C.F.R. § 1024.37(a) (effective Jan. 10,

2014). 6 See 78 Fed. Reg. 10,722 (Feb. 14, 2013).

7 12 C.F.R. § 1024.37(a)(1) (effective Jan. 10, 2014).

40

flood, earthquake, theft, falling objects, freezing, and other similar hazards for which the owner

or assignee of such loan requires insurance.”8

Although the Reg. X definition of hazard insurance includes flood insurance, and sections

2605(k), (l) and (m) of RESPA do not contain an exclusion for flood insurance, the CFPB

concluded that the force-placed insurance requirements should not apply to flood insurance.

Regulation X provides that hazard insurance required by the Flood Disaster Protection Act of

1973 (FDPA) does not constitute force-placed insurance.9 The CFPB noted that because flood

insurance is extensively regulated by the FDPA, the CFPB was concerned that “overlapping

regulatory restrictions would be unduly burdensome and produce little consumer benefit.”10

Duty to Timely Disburse Out of Escrow Rather than Force-Place Insurance

Servicers have a duty under section 2605(g) of RESPA to timely disburse funds out of

escrow accounts.11

A significant limitation on this requirement in Regulation X (adopted by the

CFPB’s predecessor, HUD) provides that the obligation does not apply if the borrower’s

payment is more than thirty days overdue.12

The CFPB has partially overridden this exemption

in the 2013 RESPA Servicing Rule with respect to force-placed insurance.

Servicers are prohibited from purchasing force-placed insurance, and instead must

disburse funds from the borrower’s escrow account to pay the borrower’s existing insurance

policy, if there is an escrow account on the mortgage.13

This duty to disburse funds in a timely

manner to pay the borrower’s hazard insurance premium charges exists unless the servicer is

“unable to disburse funds” from the borrower’s escrow account.14

The regulation specifies that a

servicer is considered unable to disburse funds only in two limited situations: (1) the servicer has

a reasonable basis to believe that the borrower’s insurance is being canceled for reasons other

than nonpayment or (2) the property is vacant.15

Thus, the duty to disburse under this regulation

applies even if the borrower’s mortgage payment is more than thirty days overdue or there are

not sufficient funds in the escrow account.16

It is important to note, however, that the rule is structured as a prohibition against

purchasing force-placed insurance. Thus, a servicer is not required to disburse funds from an

escrow account to maintain a borrower’s insurance policy, so long as the servicer does not

purchase force-placed insurance. In practice, though, it is likely that the duty will arise in most

cases unless the servicer meets one of the two basis for inability to disburse funds, since investor

contracts and guidelines typically compel the servicer to purchase force-placed insurance or

otherwise keep the property insured. The CFPB’s Commentary provides examples of when a

8 12 C.F.R. § 1024.31 (effective Jan. 10, 2014).

9 12 C.F.R. § 1024.37(a)(2) (effective Jan. 10, 2014).

10 See 78 Fed. Reg. 10,723 (Feb. 14, 2013).


12 Reg. X, 12 C.F.R. § 1024.17(k)(1), (2).

13 Reg. X. 12 C.F.R. § 1024.17(k)(5)(i) (effective Jan. 10, 2014).

14 Id.

15 Reg. X. 12 C.F.R. § 1024.17(k)(5)(ii)(A) (effective Jan. 10, 2014).

16 Reg. X. 12 C.F.R. § 1024.17(k)(5)(i) and (k)(5)(ii)(B) (effective Jan. 10, 2014).

41

servicer has a reasonable basis to believe that a borrower’s hazard insurance policy is being

canceled or not renewed for reasons other than nonpayment of premium charges:

• A borrower notifies a servicer that the borrower has cancelled the hazard

insurance coverage, and the servicer has not received notification of other hazard

insurance coverage;

• A servicer receives a notification of cancellation or non-renewal from the

borrower’s insurance company before payment is due on the borrower’s hazard

insurance;

• A servicer does not receive a payment notice by the expiration date of the

borrower’s hazard insurance policy.17

The effect of the regulation in the situation in which there are not sufficient funds in the

escrow account is that the servicer must advance funds to timely pay the borrower’s hazard

insurance premium charges. A servicer that advances the premium payment to be disbursed

from an escrow account may advance the payment on a month-to-month basis, if permitted by

state or other applicable law and this payment method is accepted by the borrower’s hazard

insurance company.18

Regulation X states that a servicer that advances funds in this situation

“may seek repayment from the borrower for the funds the servicer advanced, unless otherwise

prohibited by applicable law.”19

It is unclear whether the CFPB is suggesting that the servicer

can seek immediate payment from the borrower. Such an interpretation would be inconsistent

with the escrow account procedures used to recover escrow deficiencies through an adjustment

to future escrow payments following an escrow account analysis.20

The uncertainty stems from

the omission in this new repayment provision of language found in existing Regulation X section

1024.17(k)(2), which provides that when funds are advanced by a servicer, it may seek

repayment “for the deficiency pursuant to paragraph (f) of this section.” Paragraph (f) deals with

the recovery of shortages and deficiencies at the time of an escrow account analysis. If the new

repayment provision is construed as establishing a process separate from paragraph (f), a servicer

may be able to seek collection outside of the escrow account process.

Although this requirement imposed on servicers under Regulation X applies only if the

mortgage has an escrow account, it should significantly limit the instances in which borrowers

are charged for force-placed insurance.21

Because the regulation implements the timely escrow

disbursement duty under section 2605(g) of RESPA, it is enforceable with a private right of

action under section 2605(f).22

17

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 17(k)(5)(ii)(A)-1 (effective Jan. 10, 2014). 18

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 17(k)(5)(ii)(C)-1 (effective Jan. 10, 2014). 19

Reg. X. 12 C.F.R. § 1024.17(k)(5)(ii)(C) (effective Jan. 10, 2014). 20

See NCLC Foreclosures, § 9.3.4 (4th ed. and 2013 Supp.). 21

For mortgage accounts without an escrow account, the National Mortgage Settlement requires that the five

covered servicers send the borrower a notice offering to advance the premium if the borrower agrees to set up an

escrow account and repay the advanced premium. See § 2.9, supra. No similar requirement was added to Reg. X by

the CFPB. 22

See NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).

42

Limitations of Fees

The Dodd-Frank Act also provides that all charges related to force-placed insurance that

are assessed to the borrower, other than charges subject to state regulation as the business of

insurance, must be bona fide and reasonable.23

Regulation X implements this statutory language

by defining a “bona fide and reasonable charge” as a charge for a “service actually performed

that bears a reasonable relationship to the servicer’s cost of providing the service, and is not

otherwise prohibited by applicable law.”24

Exemptions from Coverage

In addition to the exclusion for flood insurance discussed above, 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.25

Small servicers are exempted from the requirements

in sections 1024.17(k)(5)(i) and 1024.17(k)(5)(ii)(B) of Reg. X, but 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 with all other force-placed insurance

provisions in section 1024.37, including the notice requirements discussed in Part 2 of this

article.

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 a

borrowers who have made no payment for more than six months and the servicer has determined

to have vacated the property.26

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.

CFPB Construes the Statutory Language

An amendment to RESPA made by the Dodd-Frank Act prohibits a servicer from

“obtaining” force-placed insurance unless the servicer has a reasonable basis to believe that the

borrower has failed to comply with the mortgage loan contract’s requirements to maintain

23

12 U.S.C. § 2605(m). 24

12 C.F.R. § 1024.37(h)(2) (effective Jan. 10, 2014). 25

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. 266.5. See 12 C.F.R. §

1026.41(e)(4). See also § 9.1.4.2, supra. 26

See 78 Fed. Reg. 10,767 (Feb. 14, 2013).

43

property insurance.27

The statute goes on to state that a servicer cannot have a reasonable basis

for “obtaining” force-placed insurance if it has failed to comply with the notice requirements set

out in RESPA section 2605(l).28

Section 2605(l) provides that a servicer may not “impose any

charge” on the borrower for force-placed insurance before sending the required notices. The

different statutory language caused the CFPB to establish in the final rule an important

distinction between “obtaining” force-placed insurance and “charging” the borrower a fee for

force-placed insurance. The CFPB concluded that “when a servicer purchases force-placed

insurance but does not charge a borrower for such insurance, the servicer does not ‘obtain’ force-

placed insurance within the meaning of section 6(k)(1)(A) of RESPA.”29

Thus, a servicer does

not violate RESPA if it obtains force-placed insurance but never charges the borrower a fee for

that insurance.

Reasonable Basis to Believe Borrower Does Not Have Insurance Coverage

The CFPB’s Commentary interpreting the notice requirements states that information

about the borrower’s hazard insurance that is received from the borrower, or the borrower’s

insurance agent or provider, may provide the servicer with a reasonable basis to believe that the

borrower has either complied with or failed to comply with the insurance requirement in the

mortgage loan contract.30

In the absence of this information, the servicer may satisfy the

reasonable belief standard if the servicer acts with reasonable diligence to determine the status of

coverage and does not otherwise receive evidence of coverage. A servicer that complies with the

notice requirements described below is deemed to have acted with reasonable diligence.31

Two Initial Notices

Before charging the borrower any fee for force-placed insurance, 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.32

More specifically, section 1024.37(c)(1) of Reg. X provides that a servicer may

not charge a borrower for force-placed insurance unless the following sequential steps have been

followed by the servicer:

Step 1. The servicer must deliver to the borrower or place in the mail a written notice

with the disclosures set forth in section 1024.37(c)(2) at least forty-five days before the premium

charge or any fee is assessed.33

This first notice must inform the borrower that the hazard

insurance is expiring or has expired and that the servicer does not have evidence that the

borrower has hazard insurance; that hazard insurance is required and that the servicer has

purchased or will purchase such insurance at the borrower’s expense; that the borrower must

promptly provide the servicer with insurance information and a description of the requested

27

12 U.S.C. § 2605(k)(l)(A); 12 C.F.R. § 1024.37(b) (effective Jan. 10, 2014). 28

12 U.S.C. § 2605(l). 29

See 78 Fed. Reg. 10,765 (Feb. 14, 2013). 30

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(b). 31

Id. 32

12 U.S.C. § 2605(l)(1); 12 C.F.R. § 1024.37(c) (effective Jan. 10, 2014). 33

12 C.F.R. § 1024.37(c)(1)(i) (effective Jan. 10, 2014).

44

insurance information and how the borrower may provide such information; and that any

insurance the servicer has purchased or purchases may cost significantly more than the

borrower’s insurance and may not provide as much coverage.34

Step 2. The servicer must deliver to the borrower or place in the mail a written notice in

accordance with section 1024.37(d)(1) at least fifteen days before the premium charge or any fee

is assessed.35

This second notice may not be delivered or placed in the mail until at least thirty

days after the first notice is delivered or placed in the mail. This second notice must inform the

borrower that the notice is the second and final notice, and it must include much of the same

information as in the first notice.36

In addition, it must set forth the cost of the force-placed

insurance, stated as an annual premium, or a reasonable estimate if the servicer does not know

the cost of force-placed insurance.37

If the servicer has received hazard information after

sending the first notice, but has not received evidence of continuous coverage, the second notice

must request that the borrower provide the information that is missing and advise that the

borrower will be charged for insurance the servicer purchases for the period during which the

servicer is unable to verify coverage.38

Step 3. If by the end of the fifteen-day period beginning on the date the second notice

was delivered or placed in the mail, the servicer has not received, from the borrower or

otherwise, evidence demonstrating that the borrower has had hazard insurance coverage

continuously in place, the servicer may charge the borrower for force-place insurance.39

If the

borrower’s insurance policy or state law permit the borrower to pay the premium after the due

date and maintain the policy with no lapse in coverage, the borrower is considered to have

maintained the coverage “continuously” for purposes of this provision.40

The CFPB’s Commentary addresses the situation in which a servicer has received

updated information from the borrower after the first notice is sent but while the servicer is in the

process of preparing the second notice. If the second notice has already been put into

production, the servicer is not required to update the notice with new insurance information

received about the borrower, so long as the written notice was put into production within a

reasonable time before the second notice was delivered or placed in the mail.41

A reasonable

time for this rule is considered to be five days.

For purposes of the Subpart C servicing regulations, the term “day” is defined to mean a

calendar day.42

If a time period expressed in days does not include the language “excluding legal

34

12 C.F.R. § 1024.37(c)(2) (effective Jan. 10, 2014). 35

12 C.F.R. § 1024.37(c)(1)(ii) (effective Jan. 10, 2014). 36

12 C.F.R. § 1024.37(d)(2)(i) (effective Jan. 10, 2014). 37

12 C.F.R. § 1024.37(d)(2)(i)(D) (effective Jan. 10, 2014). An estimate must be based on the information

reasonably available to the servicer at the time the disclosure is provided, such as investor requirements for the

amount of coverage depending upon the borrower’s delinquency status or number of days past due. See Official

Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(d)(2)(i)(D)-1. 38

12 C.F.R. § 1024.37(d)(2)(ii) (effective Jan. 10, 2014). 39

12 C.F.R. § 1024.37(c)(1)(iii) (effective Jan. 10, 2014). 40

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(iii)-1. 41

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(d)(4). 42

12 C.F.R. § 1024.31 (effective January 10, 2014).

45

public holidays, Saturdays, and Sundays,” it is referring to calendar days. Thus, all the of the

time periods in the force-placed insurance rule, section 1024.37(c) of Reg. X, are stated as

calendar days, not business days.

Subsequent Notice of Renewal or Replacement of Force-Placed Insurance

A similar multi-step process must occur before a servicer assesses on a borrower a

premium charge or fee for the renewal or replacement of force-placed insurance the servicer has

previously obtained. However, the servicer need only provide one notice to the borrower,

delivered to the borrower or placed in the mail at least forty-five days before charging the

borrower.43

The content of the renewal notice combines much of the information provided in the

first and second notices given before force-placed insurance is obtained, including a statement

setting forth the cost of the force-placed insurance, stated as an annual premium, or a reasonable

estimate if the servicer does not know the cost of force-placed insurance.44

A renewal notice

must be sent before each anniversary of a servicer purchasing force-placed insurance, but need

not be sent more than once a year.45

Format of Notices

Regulation X contains several specific requirements for the format of the notices. For

example, some of the information on each notice must be set out in bold text.46

A servicer must

not include information on the notices other than what is required by the regulation, but may

provide additional information on separate pieces of paper sent in the same transmittal.47

The

CFPB has made available Model Forms that may be used by servicers for the four notices.48

The

first notice is designated as Form MS-3(A), the second notice when no information has been

provided by the borrower is Form MS-3(B), the second notice when incomplete information has

been provided by the borrower is MS-3(C), and the renewal or replacement notice is MS-3(D).

If a servicer mails the required notices, it must use a class of mail not less than first-class mail.49

Proof of Coverage and Cancellation of Force-Placed Insurance

Section 2605(l)(2) of RESPA states that the servicer shall accept any reasonable form of

written confirmation from a borrower of existing insurance coverage, which shall include the

existing policy number along with the identity of, and contact information for, the insurance

company or agent, or as otherwise required by the CFPB.50

The CFPB did not include in Reg. X

43

12 C.F.R. § 1024.37(e)(1)(i) (effective Jan. 10, 2014). 44

12 C.F.R. § 1024.37(e)(2) (effective Jan. 10, 2014). 45


See 12 C.F.R. §§ 1024.37(c)(3), (d)(3), and (e)(3) (effective Jan. 10, 2014). 47

See 12 C.F.R. §§ 1024.37(c)(4), (d)(4), and (e)(4) (effective Jan. 10, 2014). 48

See Appendix MS-3 to Part 1024--Model Force-Placed Insurance Notice Forms, reprinted in NCLC Foreclosures,

Appx. C.3.2 (4th ed. and 2013 Supp.). 49

12 C.F.R. § 1024.37(f) (effective Jan. 10, 2014). 50

12 U.S.C. § 2605(l)(2).

46

any specific requirements for evidence demonstrating insurance coverage. However, the CFPB’s

Commentary provides that a servicer may require as evidence of continuous insurance coverage

a copy of the borrower’s policy declaration page, the borrower’s insurance certificate, the

borrower’s insurance policy, or other similar forms of written confirmation.51

A servicer may

reject evidence of coverage if neither the borrower’s insurance provider nor agent provides

confirmation of the insurance information submitted by the borrower, or if the terms of the

borrower’s hazard insurance policy do not comply with the mortgage loan contract requirements.

Servicers must cancel force-placed insurance coverage within fifteen days of receiving

evidence that the borrower has had in place hazard insurance coverage that complies with the

mortgage loan contract.52

Any force-placed insurance premium charges or related fees paid by

the borrower for overlapping insurance coverage, when both the force-placed insurance and

borrower’s policies were in effect, must be refunded in full.53

Similarly, any force-placed

insurance premium charges or related fees assessed to the borrower in this situation in which

overlapping coverage existed must be removed from the borrower’s account.54

Only if proof of coverage is not provided within fifteen days after the second notice, can

the servicer charge the borrower for force-placed insurance coverage. The CFPB’s Commentary

notes that a servicer may charge a borrower for force-placed insurance it has purchased,

retroactive to the first day of any period when the borrower did not have hazard insurance in

place, if charging the borrower in this manner is not prohibited by state or other applicable law.55

The Commentary illustrates this with an example involving the renewal or replacement of force-

placed insurance. Assume that on January 2, the servicer sends the renewal notice required by

section 1024.37(e)(1)(i) and at 12:01a.m. on January 12, the existing force-placed insurance the

servicer had purchased (and charged to the borrower) expires and the servicer replaces it with a

new policy. On February 5, the servicer then receives evidence that the borrower has hazard

insurance effective since 12:01 a.m. on January 31. The servicer may charge the borrower for

forced-place insurance for the period from 12:01 a.m., January 12 to 12:01a.m., January 31, as

early as February 5.56

All of the requirements discussed in this article are enforceable with a private right of

action under RESPA section 2605(f).57

51

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(iii)-2. 52

12 U.S.C. § 2605(l)(3)(A); 12 C.F.R. § 1024.37(g)(1) (effective Jan. 10, 2014). 53

12 U.S.C. § 2605(l)(3)(B); 12 C.F.R. § 1024.37(g)(2) (effective Jan. 10, 2014). 54

Id. 55

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(c)(1)(i). 56

Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 37(e)(1)(iii)-1. 57


47

AND TH E NEW C FPB R U L E S

Force-placed Insurance

FORCE-PLACED INSURANCE

5. Property Insurance. Borrower shall keep the improvements now existing or

hereafter erected on he Property insured against loss by fire, hazards, included within

the term “extended coverage,” and any other hazards including, but not limited to,

earthquakes and floods, for which Lender requires insurance….If Borrower fails to

maintain any of the coverages described above, Lender may obtain insurance coverage,

at Lender’s options and Borrower’s expense. Lender is under no obligation to purchase

any particular type or amount of coverage. Therefore such coverage shall cover Lender

but might or might not protect Borrower, Borrower’s equity in the Property, or the

contents of the Property, against any risk, hazard or liability and might provide greater

or lesser coverage than was previously in effect. Borrower acknowledges that the cost

of the insurance coverage so obtained might significantly exceed the cost of insurance

that Borrower could have obtained. Any amounts disbursed by Lender under this

Section 5 shall become additional debtor of Borrower secured by this Security

Instrument. These amounts shall bear interest and shall be payable, with such interest,

upon notice from Lender to Borrower requesting payment.

48

HOW IT WORKS

• Master policy

• Individual properties can be added, deleted, or modified

• Creditor pays the premium (less kickback)and then seeks reimbursement from the consumer or investors

• Cost is always much higher than standard homeowner’s insurance policy

• Primary insurers

• Assurant Specialty Property; QBE Insurance Group; American Modern Insurance (Litton and Saxon)

• All insurance related activity is outsourced to the insurance companies

FOLLOWING THE MONEY

• Commissions paid to subsidiaries that serve as placing agent

• Portions of premiums received through reinsurance agreement.

ServicerSubsidiary

Places policy

Insurance CompanyCommission $$

$$ Premiums collected from

borrowers

Reinsurance Company 1

Reinsurance Company 2

Servicer Subsidiary

$$ Premiums

Claim liability

49

DODD-FRANK

• Section 1463, codified as 12 U.S.C. § 2605(k), (l)

• Prohibits force-placed insurance unless servicer has a reasonable basis to believe borrower has failed to comply to loan agreement

• Notice requirements

• Termination requirements

• Charges must be bona fide and reasonable

• Private right of action


• Borrower’s insurance has been cancelled or not renewed

• Borrower has insurance but the amount or terms of coverage are inadequate

• Borrower has insurance but doesn’t provide proof of insurance to the servicer???

• Servicer improperly force-places insurance

50

CFPB REGULATIONS

• 12 C.F.R. § 2605(k)(2); 12 C.F.R. § 1024.37(a).

• Definition of “force-placed insurance”

• Procedural provisions – notice requirements

• Substantive provisions

• Upon proof of coverage, terminate and refund for overlapping coverage

• For escrowed loans must pay existing insurance policy (with limited exceptions)

• Charges must be for services actually performed and have reasonable relationship to cost of providing service.

CFPB REGULATIONS

• Reasonable relationship to cost

• Average loss-ratio for voluntary homeowner’s insurance is 61%.

• Average loss-ratio for FPI coverage is only 24%.

• Losses are not high enough to justify exorbitant cost.

• Recent settlements: BofA - $228m; JPMorgan $300m; CitiGroup - $110m; and HSBC - $32m

• Actually performed

• Backdating policies?

51

PAY EXISTING POLICY

• Applies only to loans with escrow accounts

• Exceptions

• Borrower’s insurance is being canceled for reasons other than nonpayment

• Property is vacant

• Small servicer exemption – only if FPI purchased and charged to borrower is less than the amount small servicer would need to disburse out of escrow

• No bankruptcy, default or foreclosure exception

• No exception for insufficient funds in escrow account


Other Claims

Damages

52

RESPA Early Intervention Requirements for Borrowers in Default

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 § 1024.39 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, § 1024.40, requires the servicer to maintain a continuity

of contact with the borrower if the borrower requests loss mitigation assistance, and § 1024.41

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

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

1 12 C.F.R. § 1024.39(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.

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).

53

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 §

1024.39.9

Pre-Foreclosure Written Notice Regarding Loss Mitigation

Section 1024.39(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

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 § 1024.39(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 (§ 1024.40(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

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).

10 12 C.F.R. § 1024.39(b) (effective Jan. 10, 2014).

11 12 C.F.R. § 1024.39(b)(1) (effective Jan. 10, 2014).

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).

15 12 C.F.R. § 1024.39(b)(2)(i)(effective Jan. 10, 2014)

16 12 C.F.R. § 1024.39(b)(2)(ii) (effective Jan. 10, 2014).

17 12 C.F.R. § 1024.39(b)(2)(iii) (effective Jan. 10, 2014).

54

• 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 toll-

free 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

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 § 1024.39(b)(2) meets the clear and

conspicuous standard in § 1024.32(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 § 1024.39(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 § 1024.32(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

18

12 C.F.R. § 1024.39(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). 19

12 C.F.R. § 1024.39(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

1024.39(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.”). 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 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)(iv)-1 (effective Jan. 10, 2014).

55

by the early intervention notice under § 1024.39, 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

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 1024.39(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

28

12 C.F.R. § 1024.35(b)(7). See NCLC Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.). 29

12 U.S.C.§ 2605(f); NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.). 30


Reg. X, 12 C.F.R. § 1024.30(b)(1). A small servicer, as defined by Regulation Z section 1026.41(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. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also

includes “Housing Finance Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage

loans serviced by such agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014). 32

Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014).. A reverse mortgage transaction is defined at 12

C.F.R. § 1026.33(a). 33

Reg. X, 12 C.F.R. § 1024.30(b)(3) (effective Jan. 10, 2014). A “qualified lender” is defined at 12 C.F.R.§

617.7000, which covers mortgage loans made under the Farm Credit System. 34

See Section-by-Section Analysis, § 1024.39(b), 78 Fed. Reg. 10,807 (Feb. 14, 2013). 35

See 78 Fed. Reg. 62,993 (Oct. 23, 2013). 36

12 C.F.R. § 1024.39(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).

56

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.

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 § 1024.39 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).39

38

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 39(d)(1) - 3 (effective Jan. 10, 2014). 39

12 C.F.R. § 1024.39(d)(2) (effective Jan. 10, 2014).

57

RESPA “Continuity of Contact” Requirements for Borrowers in Default 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 § 1024.391 that were discussed in an earlier eReports

article and the loss mitigation procedures in § 1024.412 that will be covered in a future article, §

1024.40 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 § 1024.39(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

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

1 See NCLC eReports, Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6 (4th ed. and 2013 Supp.).


3 Reg. X, 12 C.F.R. § 1024.40 (effective Jan. 10, 2014).

4 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 40(a)–2 (effective Jan. 10, 2014).

5 Reg. X, 12 C.F.R. § 1024.40(a) (effective Jan. 10, 2014).

58

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

1024.41.10

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 § 1024.35 or an information request under § 1024.36.13

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

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

6 Reg. X, 12 C.F.R. § 1024.40(b)(1)(i) (effective Jan. 10, 2014).

7 See NCLC Foreclosures, § 9.2.8.2.2 (4th ed. and 2013 Supp.) (discussing loss mitigation applications).

8 See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.) (discussing appeal rights).

9 Reg. X, 12 C.F.R. § 1024.40(b)(1)(ii) (effective Jan. 10, 2014).

10 Reg. X, 12 C.F.R. § 1024.40(b)(1)(iii), (iv), and (v) (effective Jan. 10, 2014).

11 Reg. X, 12 C.F.R. § 1024.40(b)(2)(i) and (ii) (effective Jan. 10, 2014).

12 Reg. X, 12 C.F.R. § 1024.40(b)(3) (effective Jan. 10, 2014).

13 Reg. X, 12 C.F.R. § 1024.40(b)(4) (effective Jan. 10, 2014).

14 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 40(a)–1 (effective Jan. 10, 2014).

15 Reg. X, 12 C.F.R. § 1024.30(c)(2) (effective Jan. 10, 2014).

16 Reg. X, 12 C.F.R. § 1024.30(b)(1). A small servicer, as defined by Regulation Z section 1026.41(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. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also

59

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

In contrast with the early intervention requirements under § 1024.39 and the loss

mitigation procedures under § 1024.41, 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 “objectives-

based policies and procedures requirement” and that “private liability is not compatible” with

such requirements.22

Consistent with this approach, § 1024.40 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 § 1024.39 and § 1024.41, or

possibly could be pursued together with other servicing abuses as a state UDAP statute

violation.24

includes “Housing Finance Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage

loans serviced by such agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014). 17

Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014). A reverse mortgage transaction is defined at 12

C.F.R. § 1026.33(a). 18

Reg. X, 12 C.F.R. § 1024.30(b)(3) (effective Jan. 10, 2014). A “qualified lender” is defined at 12 C.F.R.§

617.7000, 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, § 1024.39(b), 78 Fed. Reg. 10,811 (Feb. 14, 2013). 22

See Section-by-Section Analysis, § 1024.40, 78 Fed. Reg. 10,808 (Feb. 14, 2013). 23

Reg. X, 12 C.F.R. § 1024.40(a) and (b) (effective Jan. 10, 2014). 24 See NCLC Foreclosures, § 8.2 (4th ed. and 2013 Supp.).

60


Early Intervention and

Continuity of Contact

Loss Mitigation Rules

Rules effective Jan. 10, 2014 dealing with foreclosure avoidance:

• Early Intervention - Reg. X § 1024.39

• Continuity of Contact - Reg. X § 1024.40

• Loss Mitigation - Reg. X § 1024.41

61

Early Intervention

By 36th day of delinquency, servicer must make good faith effort to

establish “live contact” with the borrower

By 45th day of delinquency, servicer must provide

notice of loss mitigation options

Early Intervention

• No later than 36th day of delinquency, servicer

must make good faith effort to establish “live

contact” with the borrower

– includes telephoning or conducting in-person

meeting with the borrower, but not leaving a

recorded phone message

– purpose is to provide opportunity to discuss the

circumstances of a borrower’s delinquency

– servicer should inform the borrower about

availability of loss mitigation options, if appropriate

62

Early Intervention

• No later than 45th day of delinquency, servicer must provide borrower with written notice containing information about available loss mitigation options

– servicer is not required to give this notice more than once during any 180-day period

– rule does not require communication prohibited by applicable law (FDCPA; bankruptcy)

– CFPB has provided model clauses for the notice that may be used by servicers

Written Notice Must Include:

Statement encouraging the borrower to contact the servicer

Telephone number for “continuity of contact” personnel and servicer’s mailing address

Brief description of examples of available loss mitigation options

Application instructions or general statement such as “contact us for instructions on how to apply”

63

Continuity of Contact (Not SPOC)

Policies and procedures reasonably designed to ensure that:

• A single person or a team of personnel is assigned to borrower no later than 45th day of delinquency

• Assigned personnel are available by telephone

What Do They Do?• Provide borrower with accurate information about available

loss mitigation options, including actions needed to complete

an application, time deadlines, status of borrower’s

application, and foreclosure referrals

• Obtain information needed to properly evaluate borrower for

loss mitigation options

• Timely retrieve complete record of borrower’s payment

history and all written information borrower has provided for a

loss mitigation application

• Provide this information to other personnel who are required

to evaluate the borrower for loss mitigation options

• Provide borrower with information about procedures for

submitting a notice of error or an information request

64

Day of Delinquency• Delinquency begins on day a full payment (to

cover PITI) for a given billing cycle is due and unpaid, even if there is grace period before assessment of a late fee

• Example - if payment is due January 1 and amount due is not fully paid during the 36-day period after January 1, servicer must attempt live contact not later than by February 6 (36 days after January 1)

• This definition of delinquency applies to § 1024.39 and § 1024.40, but not § 1024.41

Pre-Foreclosure Review Period

By 36th day of delinquency

Attempt live contact with borrower

By 45th day

Send written notice and assign personnel to borrower

After 120th Day

If complete application not received, may initiate foreclosure by making first notice or filing

65

Bankruptcy Exemptions

Bankruptcy Exemption?

Early

intervention

Yes; for any portion of debt discharged in

bankruptcy; applies to joint borrowers if one

has filed for bankruptcy

Continuity of

contact

No; Comment 40(a)–2 explains that

servicer may assign personnel with

specialized knowledge in bankruptcy law to

assist the borrower

Loss

Mitigation

No

66

RESPA Loss Mitigation Procedures

Important RESPA regulations concerning loss mitigation procedures went into effect on

January 10. The new rules specify procedures a servicer must follow if a mortgage loan

borrower requests loss mitigation assistance.

New Rules Specify Procedures and Not the Substance of Offered Loss Mitigation Assistance

In drafting the loss mitigation requirements in Regulation X § 1024.41, the CFPB drew a

distinction between “substantive” and “procedural” regulation of servicers’ loss mitigation

activities.1 The regulation expressly states that nothing in § 1024.41 imposes a duty on a servicer

to provide any borrower with a specific loss mitigation option.2 The CFPB leaves to the servicer

the discretion to approve or disapprove an option.3 Instead, the CFPB has mandated a procedural

framework within which the evaluation of loss mitigation options must take place.4

Borrowers have a private right of action to seek remedies for violations of the procedural

requirements in § 1024.41, such as the failure to give required notices, failure to evaluate

applications in accordance with required time frames, and the failure to refrain from foreclosure

during certain periods of the review process.5 However, borrowers do not have a private right of

action under the CFPB’s rules to enforce the terms of an agreement between a servicer and an

owner or assignee of a mortgage concerning the evaluation of borrowers for loss mitigation

options.6

If the servicer fails to comply with the substantive standards of an applicable loss

mitigation program, the CFPB regulatory scheme does not preclude borrowers from enforcing

substantive rights under other state or federal laws.7 It may also be possible for borrowers to use

the error correction procedures under § 1024.35 to address a servicer’s failure to correctly

evaluate a borrower for a loss mitigation option.8

1 See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,816/-/18 (Feb. 14, 2013).

2 Reg. X, 12 C.F.R. § 1024.41(a) (effective Jan. 10, 2014).

3 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(1)-1 (effective Jan. 10, 2014; “The conduct

of a servicer’s evaluation with respect to any loss mitigation option is in the sole discretion of a servicer.”). 4 12 C.F.R. § 1024.41(a). See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,818 (Feb. 14, 2013) (“The

Bureau believes that this framework provides an appropriate mortgage servicing standard; servicers must implement

the loss mitigation programs established by owners or assignees of mortgage loans and borrowers are entitled to

receive certain protections regarding the process (but not the substance) of those evaluations.”). 5 The CFPB relied on its authority under sections 6(j)(3), 6(k)(1)(C), 6(k)(1)(E), and 19(a) of RESPA to establish the

loss mitigation procedures in § 1024.41. The CFPB also relied upon the general rulemaking authority under §

1022(b) of the Dodd-Frank Act to carry out the consumer protection purposes of RESPA. See Section-by-Section

Analysis, § 1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013). 6 See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,818 (Feb. 14, 2013).

7 Reg. X, 12 C.F.R. § 1024.41(a) (effective Jan. 10, 2014; “Nothing in § 1024.41 should be construed to ...

eliminate any such right that may exist pursuant to applicable law.”). See also Section-by-Section Analysis, §

1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013). The CFPB’s analysis specifically notes the consistency between

appeal remedies under CFPB rules and remedies available under the California Homeowner Bill of Rights. Id. at

10,835. 8 See NCLC eReports, Dec. 2013, No. 4; NCLC Foreclosures, § 9.2.2.2.2.3 (4th ed. and 2013 Supp.).

67

Any Loss Mitigation “Application” Triggers Homeowner Rights Certain specific obligations, discussed below, are imposed upon the servicer the moment

the borrower acts in a manner that can reasonably be construed as the submission of an

“application.” Section 1024.41 imposes overlapping duties on a servicer once it receives a

borrower’s application for loss mitigation review.

The term “application” is to be construed “expansively.”9 An application must be

distinguished from a “complete” application. A complete application triggers additional

requirements on the servicer, but any application, even if incomplete, triggers certain

requirements.

The CFPB’s commentary emphasizes that an application need not be in any particular

form and includes any “prequalification” for a loss mitigation option.10

The application may be

verbal.11

The borrower’s actions need only meet two broad criteria in order to be construed as an

“application” under the rules. First, the borrower must express an interest in seeking any form of

foreclosure avoidance. Second, the borrower must provide at least some information that a

servicer would normally use in determining whether a borrower qualified for a loss mitigation

option.12

It should not be difficult to find these two elements present in many communications

between a borrower and servicer personnel. For example, the existence of a “hardship” related

to a default is a requirement for virtually all loss mitigation options under servicing guidelines in

general use. The borrower who mentions a loss of income or an increased expenditure in the

course of a phone conversation with a servicer’s representative and expresses an interest in

avoiding foreclosure has made an “application” under the CFPB rule.

The regulation does not prohibit a servicer from offering loss mitigation options to a

borrower who has not submitted a loss mitigation application.13

In addition, a servicer is

permitted to offer a loss mitigation option to a borrower who has submitted an incomplete loss

9 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014). See also

Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013) (“Because a servicer must exercise

reasonable diligence in making a loss mitigation application complete, the Bureau believes appropriate

communication with a borrower that expresses an interest in a loss mitigation option is to clarify the borrower’s

intention regarding the submission and to obtain information from the borrower to make a loss mitigation

application complete.”). 10

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014) (“For

example, if a borrower requests that a servicer determine if the borrower is “prequalified” for a loss mitigation

program by evaluating the borrower against preliminary criteria to determine eligibility for a loss mitigation option,

the request constitutes a loss mitigation application.”). 11

See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013). 12

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-3 (effective Jan. 10, 2014). This

commentary makes clear that both prongs of this standard must be satisfied before a communication must be

deemed an “application.” 13

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(i)-1 (effective Jan. 10, 2014).

68

mitigation application where the offer is not based on any evaluation of information submitted by

the borrower in connection with the application.14

As an example, the CFPB’s Official Bureau Interpretation provides that if a servicer has a

program that offers trial loan modifications to all borrowers who become 150 days delinquent

without an application or consideration of any information provided by a borrower in a loss

mitigation application, the servicer's offer under the program does not violate the duty to

evaluate the borrower for all loss mitigation options, and a servicer is not required to comply

with §1024.41 with respect to the program.15

The offer of the loss mitigation option in that

situation is treated as not being based on an evaluation of a loss mitigation application.

A “Complete” Loss Mitigation Application

The most significant protections under the rule are afforded to the borrower upon

submission of a complete application. A “complete loss mitigation application” is defined as “an

application in connection with which a servicer has received all the information that the servicer

requires from a borrower in evaluating applications for the loss mitigation options available to

the borrower.”16

An application is complete when the borrower provides all the required

information even though additional information may be required that is not in the control of the

borrower.17

For example, if the servicer requires a credit report and the borrower authorizes

release of the report or has requested the report, the application is complete even though the

credit reporting agency has not yet provided the report.

Considered in isolation, this definition appears to leave much to the servicer’s discretion.

However, substantial non-RESPA sources define the parameters of the loss mitigation

application process that applies to a particular loan. Most servicers are required to adhere to

application guidelines set by owners of loans, investors, or government insurers.18

For example,

the FHFA servicing alignment guidelines mandate use of a simple and concise loss mitigation

application form that must be accepted and reviewed by all servicers for GSE-related loans.19

A

servicer should not be able to assert that a set of documents fully complying with FHFA

guidelines defining a complete application for a GSE loan was somehow “incomplete.”

14

Id. 15

Id. 16



In response to RESPA’s loss mitigation rule, the Dept. of Treasury issued Supplemental Directive 13-09 (Oct. 18,

2013), which provides: “This Supplemental Directive introduces the concept of a “Loss Mitigation Application”

which consists of (i) the “Initial Package” described in Section 2.2.2 of Chapter II of the Handbook and, (ii) to the

extent a servicer is required under the CFPB Regulations to consider a borrower for HAMP contemporaneously with

all other loss mitigation options available to the borrower, those other documents and information the servicer

requires in order to evaluate the borrower for such options. However, servicers are reminded that the first loss

mitigation option considered by servicers for each borrower shall continue to be HAMP, in accordance with existing

guidance.” 19

See NCLC Foreclosures, § 2.10 (4th ed. and 2013 Supp.).

69

Servicer’s Duties upon Receipt of an “Incomplete” Application

Borrowers seeking loss mitigation often have to deal with multiple requests by servicers

for information and documents (including documents previously submitted) over extended

periods of time without ever getting confirmation that their applications are complete. The CFPB

attempted to address this problem by adopting § 1024.41(b)(2), which imposes distinct

obligations upon a servicer to respond to an application, whether or not it is complete.20

These

obligations extend over the post-default period up to forty-five days before a scheduled

foreclosure sale date.21

When initially made aware of a communication that can reasonably be deemed to be an

application for loss mitigation, the servicer must promptly conduct a review to determine

whether the communication represents a complete or an incomplete application.22

If the servicer

determines that the application is complete, it must send the borrower a notice acknowledging

that the application is complete within five business days of receipt of the application.23

If the servicer deems the application to be “incomplete” for any reason, the regulation

requires two actions by the servicer. First, the servicer must act affirmatively to complete the

application. The servicer must exercise “reasonable diligence” to obtain any documents and

information it claims to require to complete the application.24

Second, the regulation mandates

that the servicer provide a written notice to the borrower describing the documents and

information needed to complete the application.25

This notice must include a “reasonable date”

by which the borrower should submit the missing documents and information.26

The servicer

must send the notice within five business days of receipt of an application it deems incomplete.27

Reasonable Deadline for Completing an Incomplete Application

In setting a “reasonable date” for completing the application, the CFPB Official Bureau

Interpretation states that the deadline should preserve the “maximum borrower rights,” except

when the selection of a particular deadline would be “impracticable” for the borrower to

comply.28

The CFPB suggests that generally, it would be impracticable for a borrower to obtain

and submit documents in less than seven days. The CFPB Interpretation also states that a

servicer should consider the following “milestones” in setting a reasonable date:

• the date when any documents or information previously submitted by the

borrower will be considered stale;

• the date that is the 120th day of the borrower’s delinquency;

• the date that is 90 days before a foreclosure sale;

20


Reg. X, 12 C.F.R. § 1024.41(b)(2)(i) (effective Jan. 10, 2014). 22

Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(A) (effective Jan. 10, 2014). 23

Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014). 24



Reg. X, 12 C.F.R. § 1024.41(b)(2)(ii) (effective Jan. 10, 2014). 27


See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(2)(ii)-1 (effective Jan. 10, 2014).

70

• the date that is 38 days before a foreclosure sale.29

As discussed below, several of these “milestones” are based on the timeline for the

availability of appeal rights and dual tracking protections for borrowers under the rule. For

example, if a servicer sets a deadline to complete the application that is 89 days before a sale,

generally this would not be a reasonable date if setting a deadline 90 days or more before the sale

would be practicable. This is because the borrower would lose the right to appeal a loan

modification denial if the application is completed less than 90 days before a scheduled

foreclosure sale, as discussed in part II of this article. If the date of a foreclosure is not known,

the servicer may use a reasonable estimate of the date when the foreclosure may be scheduled.30

The setting of a reasonable date to complete the application under this provision is not

intended to create an absolute deadline that would preclude evaluation of the application if the

borrower fails to complete the application by that date. The CFPB has noted that §

1024.41(b)(2)(ii) requires servicers to inform borrowers of the reasonable date by which the

“borrower should make the loss mitigation complete, as opposed to the date by which the

borrower must make the loss mitigation application complete.”31

What Happens If the Servicer Decides Later That a Complete Application Is Incomplete?

If the borrower submits all the missing documents and information as stated in the five-

day notice of application status, or no additional information is requested in the notice because

the servicer considers the application to be complete, the application is considered “facially

complete.”32

If a servicer later discovers that it incorrectly concluded that the application was

complete, that more information is needed, or that corrections are required to be made to

previously submitted documents, the servicer must promptly request the missing information or

corrected documents. However, the servicer must treat the application as complete for purposes

of the dual tracking protections in §§ 1024.41(f)(2) and 1024.41(g) until the borrower is given a

reasonable opportunity to complete the application.33

If the borrower completes the application within this period, the application is considered

complete as of the date it was facially complete for the timelines contained in the following

provisions: § 1024.41(d)(procedures for denial of loan modification options); §

1024.41(e)(procedures dealing with borrower response to a loss mitigation offer); §

1024.41(f)(2)(dual track protections for application received before a foreclosure referral); §

1024.41(g)(dual track protections for application received more than 37 days before a

foreclosure sale); and § 1024.41(h)(appeal procedures). The application is considered complete

as of the date it is actually completed for purposes of § 1024.41(c)(procedures for evaluation of

loss mitigation applications).

29

Id. 30

Id. 31

See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60395 (Oct. 1, 2013) (emphasis in original). 32

Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014). 33

Id.

71

Servicer’s Duty to Respond to a “Complete” Application

Significantly greater rights accrue to a borrower whose submission constitutes a

“complete” loss mitigation application. If the servicer receives an application its deems

complete, it must acknowledge the application as “complete” by sending the borrower written

notice within the five-day period.34

The CFPB considered and rejected the option to have the

requirement for the five-day notice of application status apply only to incomplete applications.35

In addition to acknowledging the application in writing as “complete,” the servicer’s

immediate responsibility upon receipt of a complete loss mitigation application is to evaluate it.

Section 1024.41(c)(1)(i) sets a strict time frame for this evaluation provided that the complete

application is received by the servicer more than thirty-seven days before a foreclosure sale.36

The evaluation of the borrower for all loss mitigation options must be completed within thirty

days of receipt of a complete application.37

By this time deadline the servicer is also required

under § 1024.41(c)(1)(ii) to provide the borrower with a written notice stating the servicer’s

determination of which loss mitigation options, if any, are being offered to the borrower.38

As discussed more fully below, if the servicer is denying the borrower for any trial or

permanent loan modification option, the notice must state specific reasons for the denial of each

modification option.39

The decision not to offer a particular loan modification option available

to the borrower, even if a different loan modification option or other form of loss mitigation is

offered, constitutes the denial of that loan modification option.40

If applicable, the evaluation

notice must also inform the borrower of the amount of time the borrower has to accept or reject a

loss mitigation offer and to exercise appeal rights for the denial of a loan modification, which are

discussed in Part II of this article.41

Although the § 1024.41(c)(1)(ii) evaluation notice requirement refers to the loss

mitigation options being offered to the borrower, this provision should be construed to require

the servicer to provide the borrower with a written notice of its decision not to offer any loss

mitigation options to the borrower. In fact, another provision in § 1024.41 that deals with dual

tracking refers to a notice under § 1024.41(c)(1)(ii) as stating that the borrower is not eligible for

any loss mitigation options.42 However, there is no specific requirement to provide a detailed

written notice specifying the reasons for the denial of loss mitigation options other than loan

modification options.

This chart helps to illustrate the timelines for servicer treatment of applications under the

loss mitigation rule:

34


See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,823-26 (Feb. 14, 2013). 36

Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014). 37

Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014). 38





See Reg. X, 12 C.F.R. § 1024.41(f)(2)(i) (effective Jan. 10, 2014).

72

Other Law May Require Evaluation of Applications Submitted Within 37 Days of Foreclosure

The RESPA duty to evaluate the borrower for all loss mitigation options applies if the

borrower submits a complete loss mitigation application more than thirty-seven days before a

foreclosure sale. However, a servicer may be obligated under non-RESPA applicable law to

evaluate a borrower’s application submitted less than thirty-seven days before a foreclosure sale.

Consistent with the general RESPA preemption rule that more consumer protective laws are not

preempted,43

the CFPB explicitly stated in promulgating the RESPA loss mitigation rule that

“servicers should comply with the most restrictive requirements to which they are subject.”44

As an example, the CFPB noted that the National Mortgage Settlement and GSE

requirements impose obligations on servicers to conduct an expedited loss mitigation evaluation

for applications received thirty-seven days or less before a foreclosure sale.45

The CFPB stated

that “[n]othing in § 1024.41 prohibits or impedes a servicer from complying with these

requirements and servicers may be required to comply with requirements that are more

prescriptive than the regulations implemented by the Bureau.”46

43

See NCLC Foreclosures, § 9.4 (4th ed. and 2013 Supp.). 44

See also Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,822 (Feb. 14, 2013). 45

The HAMP program guidelines also allow an application to be submitted up to seven business days before a sale

and would cause a foreclosure sale to be suspended. See NCLC Foreclosures, § 2.8.2.12 (4th ed. and 2013 Supp.). 46

Id.

73

Actions That Can be Taken Based on an Incomplete Application

The CFPB loss mitigation regulation emphasizes that a servicer shall not evade the duty

to evaluate the borrower for all loss mitigation options by offering the borrower an option based

on an incomplete application. 47

However, the regulation contains two limited exemptions to this

anti-evasion provision.

Exemption Where Application Remains Incomplete.

The first exemption provides that a servicer may in its discretion evaluate an incomplete

loss mitigation application and offer a borrower a loss mitigation option if the servicer exercises

reasonable diligence in obtaining the needed information and the application remains incomplete

for a significant period of time under the circumstances without any progress by the borrower to

complete the application.48

A servicer may consider the timing of the foreclosure process in

determining whether an application is incomplete for a significant period of time.49

For example, the CFPB’s Official Bureau Interpretation states that “if a borrower is less

than 50 days before a foreclosure sale, an application remaining incomplete for 15 days may be a

more significant period of time under the circumstances than if the borrower is still less than 120

days delinquent on a mortgage loan obligation.”50

If the servicer offers a loss mitigation option

in this situation, the evaluation of the incomplete application is not subject to § 1024.41 and does

not count as a single complete loss mitigation application for purposes of the duplicative request

rule discussed in Part II of this article.51

Exemption for Short-Term Forbearance Programs in §1024.41(c)(2)(iii).

A servicer can offer a borrower a short-term payment forbearance program based on an

incomplete loss mitigation application.52

The CFPB’s Official Bureau Interpretation notes that a

borrower’s incomplete loss mitigation application in this situation is still subject to the other

obligations in §1024.41, including the obligation to review the application to determine if it is

complete, to exercise reasonable diligence in obtaining documents and information to complete a

loss mitigation application, and to provide the borrower with the five-day notice of application

status.53

In addition, an offer of a payment forbearance option cannot preclude the borrower from

receiving an evaluation for all available options and access to review rights if the borrower later

submits a complete application.54

Any notification from the servicer that offers the borrower a short-term payment

forbearance should state that the borrower has the option of completing the application to receive

47



See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(ii)-1 (effective Jan. 10, 2014). 50

Id. 51


Reg. X, 12 C.F.R. § 1024.41(c)(2)(iii) (effective Jan. 10, 2014). 53

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-2 (effective Jan. 10, 2014). 54

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-3 (effective Jan. 10, 2014).

74

a full evaluation.55

If a servicer provides such notification, and the borrower complies with the

payment forbearance and does not request further assistance, the CFPB’s Official Bureau

Interpretation states that the servicer may stop requesting documents from the borrower and

suspend its reasonable diligence efforts under § 1024.41(b)(1) until near the end of the payment

forbearance period.56

The Interpretation also instructs that before the end of the forbearance

period, the servicer should contact the borrower to determine if the borrower wishes to complete

the application and proceed with a full loss mitigation evaluation.

The CFPB describes a payment forbearance program as a loss mitigation option that

“allows a borrower to forgo making certain payments or portions of payments for a period of

time,” and a short-term payment forbearance as a program that “allows the forbearance of

payments due over periods of no more than six months.”57

The six-month period refers to the

amount of payments being deferred (no more than six months of payments) rather than the

duration of any repayment agreement that is part of the forbearance plan.58

For example, if the

borrower is permitted to defer payment of six monthly payments of $1,000 per month, the

forbearance program would be considered short-term even if the servicer allows the borrower to

pay the $6,000 in missed payments over an 18 month period.

The rule does not preclude a servicer from offering multiple, successive short-term

payment forbearance programs.59

However, to address the concern that a borrower might face an

immediate foreclosure at the end of the forbearance plan and would therefore lose the benefit of

the 120-day pre-foreclosure waiting period provided under § 1024.41(f)(discussed in Part II of

this article), § 1024.41(c)(2)(iii) provides that a servicer shall not make the first notice or filing

required by applicable law for any judicial or non-judicial foreclosure process, and shall not

move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is

performing under the terms of a payment forbearance program offered pursuant to the rule.60

In creating this exemption to the anti-evasion provision, the CFPB made clear that a

short-term payment forbearance is nevertheless a form of loss mitigation.61

Thus, if the borrower

wishes only to obtain a short-term payment forbearance and does not want to be considered for

other loss mitigation options, it may be advisable for the borrower to not complete the loss

mitigation application. If the borrower is offered a short-term payment forbearance in response

to a complete loss mitigation application, any additional loss mitigation applications submitted

by the borrower to that servicer, even if submitted years later, will not be subject to the

procedures under § 1024.41, based on the duplicative request provision discussed in Part II of

this article (forthcoming in a future NCLC eReport).

55

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)- 3(iii) (effective Jan. 10, 2014). 56

Id. 57

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(c)(2)(iii)-1 (effective Jan. 10, 2014). 58

Id. (“Such a program would be short-term regardless of the amount of time a servicer allows the borrower to make

up the missing payments.”). 59

See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60400 (Oct. 1, 2013). 60


See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 60401 (Oct. 1, 2013).

75

Written Notice of Denial of Loan Modification Options

The regulation provides enhanced notification requirements if a loan modification is

being denied. The servicer has an obligation after evaluating a loss mitigation application to give

the borrower written notice of its decision to deny any trial or permanent loan modification

available to the borrower.62

The information required to be provided in this denial notification

must be included in the evaluation notice sent to the borrower under § 1024.41(c)(1)(ii) that

describes the loss mitigation options being offered to the borrower. Consistent with the

requirement to evaluate the borrower for all available loss mitigation options, a servicer’s

determination not to offer a borrower a loan modification available to the borrower is a denial of

that loan modification option for purposes of this notice requirement, notwithstanding that the

servicer offers the borrower a different loan modification option or other loss mitigation option.63

Disclosure of Reasons for Denial of Loan Modification Options

The rule requires that within thirty days of receipt of a complete loss mitigation

application, the servicer must give the borrower notice in writing of the servicer’s decision on the

borrower’s eligibility for all trial and permanent loan modification options available the

borrower.64

This written denial portion of the § 1024.41(c)(1)(ii) evaluation notice must state the

specific reasons for the servicer’s denial of any modification option, and if applicable, that the

borrower was not evaluated on other criteria.65

The CFPB’s Official Bureau Interpretation

makes clear that a servicer is required to disclose the actual reason or reasons for the denial.66

If

a servicer's systems establish a hierarchy of eligibility criteria (often referred to as a “waterfall”),

and the borrower is denied based on the first criterion and there is no further evaluation based on

additional criteria, a servicer complies with the rule by providing only the reason or reasons for

which the borrower was actually evaluated and rejected, as well as notification that the borrower

was not evaluated on other criteria.67

In this situation, a servicer is not required to determine or

disclose whether a borrower would have been denied based on the additional criteria if such

criteria were not actually considered.

For example, if a borrower must satisfy qualifications A, B and C to be approved for a

loan modification, and the servicer’s system determines that the borrower has failed qualification

A, the servicer may end the evaluation for that loss mitigation option and is required to disclose

the reason for denial based only on qualification A. The servicer need not disclose all potential

reasons for denial such as qualifications B and C if they were not actually evaluated.

If a reason for denial was a requirement set by an owner or assignee of the loan, the

notice must identify the owner or assignee and the specific requirement that was the basis for the

denial.68

A mere statement that a loan modification option is denied based on an investor

requirement, without additional information specifically identifying the relevant investor or

62



Reg. X, 12 C.F.R. § 1024.41(c)(1)(ii) and (d) (effective Jan. 10, 2014). 65

Id. 66


Id. 68


76

guarantor and the specific applicable requirement, is insufficient.69

However, less detail is

required if the owner or assignee has an evaluation criteria that sets an order for ranking the

evaluation of loan modification options and a borrower has qualified for a particular loan

modification option in the ranking established by this waterfall. In this situation, it is sufficient

for the servicer to inform the borrower that the investor’s requirements include the use of a

waterfall and that the borrower is being denied for any other loan modification options ranked

below the option offered to the borrower.70

If the servicer denies any loan modification option because of a net present value

calculation,71

the notice must state this reason and include the inputs used for the calculation.72

This requirement should assist advocates who are reviewing a servicer’s denial of a modification

for a mortgage not subject to program guidelines with a similar requirement, such as those not

covered by HAMP or the National Mortgage Settlement.

Notice of Appeal Rights

The denial notice must also describe the borrower’s right to appeal the denial, the

deadline to make an appeal, and any requirements for making an appeal.73

As described in Part

II of this article (forthcoming in a future NCLC eReport), borrowers may generally exercise

appeal rights so long as the complete application was submitted at least ninety days before a

scheduled foreclosure sale.74

Rights Where Notice of Denial Not Compliant

Examine a denial notice carefully for both timing and accuracy. To be valid, the notice

of denial must specifically state all grounds considered for denial for each available loan

modification option applicable to the borrower. Non-RESPA guidelines determine what loan

modification options are available to the borrower or for a particular loan. These may be

guidelines under FHFA servicing standards, under the National Mortgage Settlement, under

government-insured (FHA, VA, RHS) programs, or under pooling and servicing agreements.

Failure to comply with the written notice of denial requirement is by itself a violation of

Regulation X and can give rise to a private legal claim. More significantly, the notice may serve

as a window into the servicer’s loss mitigation review process, or lack of one. A defective denial

notice may establish that an appropriate loss mitigation review never took place. Referral to

foreclosure or the conduct of a sale without complying with requirements for evaluating a

complete application violates the Regulation X’s dual tracking prohibitions described in Part II

of this article.75

If costs and fees were incurred or, more significantly, if the borrower lost a

69

Id. 70

Id. 71

See NCLC Foreclosures, § 2.8.2.3 (4th ed. and 2013 Supp.) (discussing generally the net present value test). 72


Reg. X, 12 C.F.R. § 1024.41(d)(2) (effective Jan. 10, 2014). 74

Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014). 75

See also NCLC Foreclosures, § 9.2.8.7 (4th ed. and 2013 Supp.) (discussing the dual tracking provisions).

77

home while the servicer ignored available alternatives to foreclosure, the borrower can hold the

servicer accountable through recourse to the remedies allowed under RESPA.76

New Restrictions on Dual Tracking

Regulation X’s loss mitigation rule limits mortgage servicers’ “dual tracking” practices.

Dual tracking refers to a common servicer practice of proceeding with foreclosure while

evaluating a borrower for loss mitigation options. As a consequence of this practice borrowers

lose their homes, or are subjected to emotional distress related to the fear of losing their homes,

before proper evaluations for foreclosure alternatives have been completed.

Regulation X § 1024.41 applies restrictions to dual tracking during two distinct stages.

The first period (discussed starting in the next section) runs 120 days from the beginning of the

borrower’s delinquency. Here, the intent of the rule is to encourage servicers to review all loss

mitigation options prior to the commencement of foreclosure, before substantial costs have been

incurred, and while the likelihood of a successful loss mitigation outcome is greatest.

Many borrowers, however, do not seek out legal help or are not directed by counselors to

loss mitigation until after the foreclosure process has begun. Therefore, some restrictions on

dual tracking are also placed on servicers during a second stage, during the period after a

foreclosure has been initiated (as discussed later in this article). During this second period

servicers must continue to seek out borrowers for applications, complete evaluations, and, in

certain situations, refrain from completing a foreclosure.

The 120-day Pre-Foreclosure Review Period

During the initial 120 days of a delinquency, a borrower should be insulated from

foreclosure activity.77

Section 1024.41(f)(1) prohibits, during this time period, servicers from

taking the first step to initiate foreclosure proceedings under state law—called “first notice or

filing.”78

Instead, during the early months of a delinquency Regulation X mandates that

servicers take affirmative steps through verbal and written solicitation to engage borrowers in the

process of submitting a loss mitigation application for evaluation.79

The requirement to give the

borrower a forty-five-day early intervention written notice regarding loss mitigation is one aspect

of this mandated solicitation effort.80

The import of Regulation X’s 120-day rule is significant. Both the GSE servicing

guidelines and the National Mortgage Settlement had restricted in some ways the servicer’s

76

See NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.) 77

See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 10,833 (Feb. 14, 2013) (“The Bureau further believes

it necessary and appropriate for borrowers, servicers, and courts to have a known early period during which a

servicer shall not begin the foreclosure process.”). 78


Reg. X, 12 C.F.R. § 1024.39 (effective Jan. 10, 2014). 80

Reg. X, 12 C.F.R., § 1024.39(b) (effective Jan. 10, 2014). See NCLC eReports, Jan. 2014, No. 5; NCLC

Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.), discussing the early intervention written notice.

78

flexibility in referring a case to foreclosure during the initial 120 days of delinquency.81

However, § 1024.41(f)(1) impacts foreclosure timelines in a more significant way. Section

1024.41(f)(1) preempts state foreclosure timelines to the extent that they allow an earlier

commencement of foreclosure.82

The GSE guidelines and National Mortgage Settlement applied

a 120-day time frame to the servicer’s “referral” of a foreclosure case to an attorney or trustee to

commence foreclosure. Section 1024.41(f)(1), on the other hand, sets an absolute bar to the

commencement of foreclosure by applying the 120-day limitation to the “first notice or filing

required by applicable law for any judicial or non-judicial foreclosure process.”83

What is the “First Notice or Filing?” The “first notice or filing” of a foreclosure is

defined broadly as “any document required to be filed with a court, entered into a land record, or

provided to a borrower as a requirement for proceeding with a judicial or non-judicial

foreclosure process.”84

Examples of a “first notice or filing” include “a foreclosure complaint, a

notice of default, a notice of election or demand, or any other notice that is required by

applicable law in order to pursue acceleration of a mortgage loan obligation or sale of a property

securing a mortgage loan obligation.”85

The question of whether a document is the first notice or

filing is determined by the foreclosure procedure under applicable state law.86

Under certain state laws, to begin a foreclosure the foreclosing party must give the

borrower a notice sixty, ninety, or more days before accelerating a mortgage or before filing

certain documents in land records or with a court.87

In response to questions from the mortgage

81

Before § 1024.41 became effective, the general strategy of the GSE servicing standards had been to authorize

financial incentives to servicers who obtained completed loss mitigation applications from borrowers during the

initial 120-day delinquency period and to impose financial sanctions on servicers who had not complied with state-

specific time frames for completing foreclosures, regardless of the status of loss mitigation applications at the end of

120 days pre-foreclosure referral period. See e.g., Fannie Mae Single Family Servicing Guide, ch. VIII § 103.04,

801-8 through 801-10 (Mar. 14, 2012); Freddie Mac Servicing Alignment Initiative FAQs (Jan. 8, 2013), No. 66.

Because the GSE guidelines had encouraged only delays in referrals to foreclosure during the initial 120 days of

delinquency, the GSE guidelines allowed the servicer to give a notice of breach or acceleration to the borrower

before the 120 days expired if giving the notice earlier is required under state law. Freddie Mac Servicing

Alignment Initiative FAQs (Jan. 8, 2013), No. 34. The CFPB rule preempts such state laws and this is therefore no

longer permitted if the notice is the “first notice” for purposes of § 1024.41(f)(1). The National Mortgage

Settlement servicing guidelines prohibit referral to foreclosure while a loss mitigation application is under review.

See e.g. Settlement Term Sheet, Exhibit B (Servicing Standards) Part IV, ¶ B.1. The Settlement provision limits

referrals during the initial 120-days of delinquency. However, like the prior GSE rules, the Settlement appears to

allow the referral earlier than 120 days if the servicer completed the review at an earlier date. 82

See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 10,833 (Feb. 14, 2013) (“The Bureau understands

and intends that any such requirement will preempt State laws to the extent such laws permit filing of foreclosure

actions earlier than after the 120th day of delinquency.”). 83

Reg. X, 12 C.F.R. § 1024.41(f)(1) (effective Jan. 10, 2014; emphasis added). 84

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)(1)-1 (effective Jan. 10, 2014). 85

Id. 86

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014). 87

See e.g. Ariz. Rev. Stat. Ann. § 33-807(D) (power of sale may not be executed until 91st day after recording

notice of sale); Cal. Civ. Code § 2924(a)(2),(3) (foreclosing entity must record notice of default and right to cure

three months before notice of sale); Mass. Gen. Laws ch. 244§ 35(foreclosing entity must serve borrower with 90-

day notice of right to cure before recording notice of sale, potentially 150 days before recording notice of sale if

foreclosing party elects to refrain from a statutory loss mitigation review); N.Y. Real Prop. Acts. Law § 1304 (notice

sent at least 90 days before filing foreclosure action); Nev. Rev. Stat. 107.080(c),(d) (power of sale may not be

79

industry and consumer advocates about whether these state law notices must be delayed until

after the borrower is 120 days delinquent, the CFPB amended the Official Bureau Interpretation

before its effective date to include additional commentary.88

The amended CFPB’s

Interpretation clarifies that such notices may be sent in many instances during the 120-day

delinquency period, by describing the following three categories of foreclosure proceedings:

• Where foreclosure procedure requires a court action or proceeding, a document

is considered the first notice or filing if it is the earliest document required to be

filed with a court or other judicial body to commence the action or proceeding

(e.g., a complaint, petition, order to docket, or notice of hearing).

• Where foreclosure procedure does not require an action or court proceeding,

such as under a power of sale, a document is considered the first notice or filing

if it is the earliest document required to be recorded or published to initiate the

foreclosure process.

• Where foreclosure procedure does not require any court filing or proceeding, and

also does not require any document to be recorded or published, a document is

considered the first notice or filing if it is the earliest document that establishes,

sets, or schedules a date for the foreclosure sale.89

Some state laws provide that any notice required to be sent to the borrower before a

judicial foreclosure action is filed must be attached to the complaint, or compliance with such a

requirement must be alleged and proven as a condition precedent to a foreclosure judgment.90

However, the fact that a document or notice must later be filed with a court is not determinative

of the first notice or filing for purposes of the rule. The Official Bureau Interpretation states that

“a document provided to the borrower but not initially required to be filed, recorded, or

published is not considered the first notice or filing on the sole basis that the document must later

be included as an attachment accompanying another document that is required to be filed,

recorded, or published to carry out a foreclosure.”91

Thus, in judicial foreclosure states, the first notice or filing is likely to be the filing of the

initial complaint with the court. In nonjudicial foreclosure states, the first notice or filing will in

most instances be the document that first sets the date of the foreclosure sale that is recorded in

the land records, published in a newspaper, or sent to the borrower. The 120 days from

commencement of delinquency must have passed before these preforeclosure complaints or

notices may be filed, given, published, or recorded.92

In other words, the 120-day time period

exercised until three months after recording notice of breach and election to sell). See generally, § 4.2.5 (discussing

right to cure notices under state law) and § 4.3 (other notice requirements under state foreclosure laws). 88

See Section-by-Section Analysis, § 1024.41(f), 78 Fed. Reg. 60404 (Oct. 1, 2013). 89

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1 (effective Jan. 10, 2014). 90

See e.g. Md. Code Ann. Real Prop. § 7-105.1(c)(1) (affidavit stating that notice of intent to foreclosure was sent at

least 45 days earlier must be attached to Order to Docket or complaint in action to foreclose). 91

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(f)-1.iv (effective Jan. 10, 2014). 92

Although a definition of “delinquency” is not provided for purposes of section 1024.41(f), the Commentary to

Regulation X defines “delinquency” for purposes of another Regulation X provision. See Official Bureau

80

under Regulation X and the time period for making the first notice or filing under state law run

consecutively and not concurrently.

Complete Loss Mitigation Application May Extend the 120-day Pre-Foreclosure Period. Under certain circumstances the bar on initiation of foreclosure can extend beyond 120

days from the beginning of the delinquency. If a borrower submits a complete loss mitigation

application at any time before the first filing or notice of foreclosure has been given or recorded

(even after 120 days), the servicer must evaluate the application, provide a written decision, and

allow for appeal rights before initiating foreclosure.93

More specifically, the servicer may not

make the first notice or filing for any judicial or non-judicial foreclosure process unless:

• The servicer has sent the borrower a notice under § 1024.41(c)(1)(ii)94

stating

that the borrower is not eligible for any loss mitigation option and the appeal

process under § 1024.41(h)95

is not applicable, the borrower has not requested

an appeal within the applicable time period, or the borrower’s appeal has been

denied;

• The borrower rejects all loss mitigation options offered by the servicer; or

• The borrower fails to perform under an agreement on a loss mitigation option.96

For borrowers facing foreclosure, this provision raises two important questions. First,

during the initial 120 days of delinquency or before the first notice of foreclosure under state law

was given, did the borrower submit a complete loss mitigation application? Second, if the

borrower submitted a complete application, did the servicer follow required steps to evaluate and

give notice to the borrower of the outcome of the application? As to the first question, it should

be kept in mind that Regulation X does not define the content of a “complete loss mitigation

application,” other than to reference the information a servicer requires based on guidelines set

by investors, owners of loans, and other non-RESPA law.97

The servicer may have erred in

failing to treat as complete an application that qualified as complete under ascertainable non-

RESPA guidelines that apply to the loan.

A borrower who believes that a servicer gave the first notice to commence foreclosure

under state law without evaluating a complete application should invoke RESPA’s error

resolution procedures by sending the servicer a notice of error.98

The borrower should request

that the servicer correct any errors in its treatment of a complete application submitted before the

first notice was given. The correction should include a proper evaluation of the borrower for all

Interpretation, Supplement 1 to Part 1024, ¶ 39(a)-1 and 39(b)-1 (effective Jan. 10, 2014). See also NCLC eReports,

Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.). 93


See NCLC Foreclosures, § 9.2.8.2.3 (4th ed. and 2013 Supp.). 95

See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.). 96


See NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.). 98

Reg. X, 12 C.F.R. § 1024.35(b)(9) (effective Jan. 10, 2014; scope of error resolution procedures expressly

includes “[m]aking the first notice or filing required by applicable law for any judicial or non-judicial foreclosure

process in violation of § 1024.41(f) or (j).”). See NCLC Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.).

81

loss mitigation options that were available before the servicer erroneously commenced

foreclosure. An evaluation should proceed in accordance with the procedural requirements that

should have been implemented before the foreclosure began.

If the servicer receives such an error notice at least seven days before a scheduled

foreclosure sale, the servicer must comply with the requirements for responding to an error

notice.99

These include acknowledging receipt of the notice of error within five business days.100

The servicer must then comply with the response options within thirty business days or prior to

any foreclosure sale, whichever is earlier.101

The CFPB’s Official Bureau Interpretation

indicates that the appropriate response for a servicer that receives an error notice under this

provision at least seven days before a scheduled foreclosure sale is to cancel or postpone the sale

and satisfy the response requirements during the full thirty-day period allowed under the rule.102

Obviously, a servicer who ignores the error notice and proceeds with a scheduled sale

does so at its peril. If the borrower asserted a valid error involving the decision to proceed to the

first notice of foreclosure, the completion of the foreclosure sale under these circumstances

would expose the servicer to liability under multiple provisions of Regulation X.

Dual Tracking Restrictions After Initiation of Foreclosure

The servicer’s obligation to evaluate borrowers for all available loss mitigation options

does not end once the servicer has made the first notice or filing of the foreclosure process.

After taking the first step in the foreclosure process, the servicer may still be required to follow

up on verbal loss mitigation applications, attempt to finalize incomplete applications, and

evaluate complete applications.

If a borrower who has never had a complete loss mitigation application evaluated submits

a complete application that is received by the servicer more than thirty-seven days before a

scheduled foreclosure sale, the servicer must not conduct a sale or move for a foreclosure

judgment or order of sale until the application has been evaluated and notice of decision given.103

More specifically, § 1024.41(g) prohibits a servicer from taking these actions related to the sale

of the property unless:

• The servicer has sent the borrower a notice under § 1024.41(c)(1)(ii)104

stating

that the borrower is not eligible for any loss mitigation option and the appeal

process under § 1024.41(h)105

is not applicable, the borrower has not requested

99

Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5 (4th ed. and 2013

Supp.). 100

Reg. X, 12 C.F.R. § 1024.35(d) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5.3 (4th ed. and 2013

Supp.). 101

Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) (effective Jan. 10, 2014). See NCLC Foreclosures, § 9.2.2.5.3 (4th ed.

and 2013 Supp.). 102

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 35(e)(3)(i)(B)-1 (effective Jan. 10, 2014). See

also NCLC Foreclosures, § 9.2.2.5.3 (4th ed. and 2013 Supp.). 103

Reg. X, 12 C.F.R. § 1024.41(g) (effective Jan. 10, 2014). 104

See NCLC Foreclosures, § 9.2.8.2.3 (4th ed. and 2013 Supp.). 105

See NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013 Supp.).

82

an appeal within the applicable time period, or the borrower’s appeal has been

denied;

• The borrower rejects all loss mitigation options offered by the servicer; or

• The borrower fails to perform under an agreement on a loss mitigation option.106

The prohibition on a servicer moving for a foreclosure judgment or order of sale includes

making a dispositive motion, such as a motion for default judgment, judgment on the pleadings,

or summary judgment, which may directly result in a foreclosure judgment or order of sale.107

A

servicer that has made such a motion before receiving a complete loss mitigation application

does not violate the rule if it takes reasonable steps to avoid a ruling on the motion or issuance of

an order, until it completes the requirements under § 1024.41.108

A servicer is responsible for

promptly instructing foreclosure counsel it has retained, once it has received a complete loss

mitigation application, not to take actions in violation of § 1024.41(g).109

This may include

instructing counsel to move for a continuance with respect to the deadline for filing a dispositive

motion.110

Section 1024.41(g) does not prevent a servicer from proceeding with the foreclosure

process, including any publication, arbitration, or mediation requirements under applicable law,

when the first notice or filing for a foreclosure proceeding occurred before a servicer receives a

complete loss mitigation application, so long as these actions do not result in the issuance of a

foreclosure judgment, order of sale, or sale of the property.111

Critical Time Periods Before Scheduled Foreclosure Sale

Although the servicer’s obligation to review for loss mitigation continues after

commencement of foreclosure, the Regulation X loss mitigation rules modify certain procedures

in the later stages of foreclosure. As a foreclosure sale date approaches, the borrower’s

procedural protections against dual tracking become more limited. Incrementally, the limitations

restrict appeal rights and cut back on notices that servicers must give regarding application status

and evaluation outcomes. The diminished procedural protections have the greatest impact on

borrowers in non-judicial foreclosure states where the prescribed time from the initial notice of

foreclosure to the date of sale is relatively short.

Particularly under these fast-moving foreclosure regimes, advocates must pay careful

attention to certain time frames that come into play under § 1024.41 after the initial notice of

foreclosure has been given. The dual tracking and other protections under § 1024.41 that apply

to the borrower based on the timeframe between receipt of a complete loss mitigation application

106


See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-1 (effective Jan. 10, 2014). 108

Id. 109

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-3 (effective Jan. 10, 2014). 110

Id. 111

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(g)-2 (effective Jan. 10, 2014).

83

and a scheduled foreclosure sale remain in effect even if a foreclosure sale is later scheduled or

rescheduled.112

The important limitations on the borrower’s procedural rights under the loss mitigation

rules go into effect as follows:

(1) if the borrower submits a complete loss mitigation application less than

ninety days before a scheduled foreclosure sale date, the servicer is no longer

required to offer appeal rights to the borrower;113

(2) if the borrower submits a loss mitigation application less than forty-five days

before a scheduled foreclosure sale date, the servicer is no longer required to

give the borrower the five-day notice acknowledging receipt of a complete loss

mitigation application or a notice describing actions needed to complete an

incomplete application;114


thirty-seven days before a scheduled foreclosure sale date, the servicer is not

required to evaluate and give a written notice of decision on all available loss

mitigation options, or notice of denial of all loan modification options;115


thirty-seven days before a scheduled foreclosure sale date, the servicer may

conduct a sale or move for a foreclosure judgment or order of sale without

complying with the requirements under § 1024.41;116

(5) if the borrower sends a notice of error asserting violations of section

1024.41(f),(g), or (j), and the servicer receives the error notice seven days or less

before a scheduled foreclosure sale, the servicer is not required to comply with

the requirements for responding to an error notice.117

It is important to keep in mind that these time limits curtail only certain procedural rights

of borrowers created under the Regulation X loss mitigation rules. To the extent that other

RESPA requirements (such as error resolution), servicing guidelines, consent decrees,

regulations promulgated by government insurers, or state law create greater procedural or

substantive rights for borrowers, those rights are unaffected by the Regulation X loss mitigation

rules.118

This is true particularly for rights borrowers may have under non-RESPA law to assert

claims accruing during the thirty-seven days before a scheduled foreclosure sale date.

112

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(3)- 2 (effective Jan. 10, 2014). 113


Reg. X, 12 C.F.R. § 1024.41(b)(2)(i) (effective Jan. 10, 2014). 115

Reg. X, 12 C.F.R. § 1024.41(c)(1), (d) (effective Jan. 10, 2014). 116

Reg. X, 12 C.F.R. § 1024.41(g) (effective Jan. 10, 2014). 117


Under the National Mortgage Settlement (NMS) and FHFA/GSE servicing guidelines, unlike the CFPB rules, the

servicer must conduct an expedited loss mitigation evaluation if the borrower submits a complete application during

the period 37 to 15 days before the foreclosure sale date. See, e.g., Bank of America, Appendix B § IV.B.7; Fannie

84

Finally, the error resolution procedures under § 1024.35 remain an option even in later

stages of foreclosure. As was the case for error notices regarding violation of the 120-day bar on

initiation of foreclosure, discussed above, violations of the post-initiation dual tracking

restrictions are specifically subject to the error resolution procedures.119

The borrower may

challenge violations of the pre-sale and prejudgment dual tracking restrictions by giving an error

notice. If the servicer receives this notice of error more than seven days before a scheduled

foreclosure sale, the servicer may have to postpone the sale in order to comply with the error

notice response requirements.120

Deadline for Borrower’s Response to Loss Mitigation Offer

As with other timing issues under § 1024.41, the deadline for a borrower to respond to a

loss mitigation offer is determined by when the borrower’s complete application is received by

the servicer. If a complete loss mitigation application is received ninety days or more before a

foreclosure sale, a servicer may require that a borrower accept or reject an offer of a loss

mitigation option no earlier than fourteen days after the offer is provided to the borrower.121

If a

complete loss mitigation application is received less than ninety days but more than thirty-seven

days before a foreclosure sale, a servicer may require that a borrower accept or reject an offer of

a loss mitigation option no earlier than seven days after the offer is provided to the borrower.122

In general, the failure of a borrower to accept a loss mitigation option within a deadline

established by the servicer in accordance with § 1024.41(e)(1) may be treated by the servicer as a

rejection of the offer.123

However, if a borrower has a right to appeal pursuant to § 1024.41(h)

and requests an appeal, the borrower’s deadline for accepting a loss mitigation option is extended

until fourteen days after the servicer provides the appeal determination notice.124

In addition, if a

borrower does not satisfy the servicer’s requirements for accepting a trial loan modification plan,

but submits the payments required by the plan within a deadline established pursuant to §

1024.41(e)(1), the deadline shall be extended for a reasonable period of time to permit the

borrower to fulfill any remaining requirements for acceptance of the trial modification plan.125

Appeal Rights for Loan Modification Denials

The loss mitigation rule includes an appeal procedure that covers only servicers’

decisions involving eligibility for loan modifications. Borrowers may appeal a servicer’s

decision to deny a borrower’s application for a trial or permanent loan modification.126

However, this right to appeal a loan modification denial applies only if the servicer receives a

Mae Single Family 2012 Servicing Guide § 107.01.03. The CFPB acknowledges that servicers must comply with

these more extensive procedural protections where they apply. See Section-by-Section Analysis, § 1024.41(f), 78

Fed. Reg. 10,833 (Feb. 14, 2013). 119

Reg. X, 12 C.F.R. § 1024.35(b)(10) (effective Jan. 10, 2014; stating that covered errors include “[m]oving for

foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of § 1024.41(g) or (j). 120

Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014). 121 Reg. X, 12 C.F.R. § 1024.41(e)(1) (effective Jan. 10, 2014).

122 Id.

123 Reg. X, 12 C.F.R. § 1024.41(e)(2) (effective Jan. 10, 2014).

124 Reg. X, 12 C.F.R. § 1024.41(e)(2)(iii) (effective Jan. 10, 2014).

125 Reg. X, 12 C.F.R. § 1024.41(e)(2)(ii) (effective Jan. 10, 2014).

126 Reg. X, 12 C.F.R. § 1024.41(h)(1) (effective Jan. 10, 2014).

85

complete application from the borrower at least ninety days before a scheduled foreclosure sale

or during the 120-day preforeclosure review period under § 1024.41(f) discussed below.127

If no

foreclosure sale has been scheduled as of the date a complete loss mitigation application is

received by the servicer, the application is considered to be received more than ninety days

before any foreclosure sale, thereby preserving the borrower’s right to appeal a loan modification

denial.128

The notice of denial, which is included as part of the notice sent to the borrower under §

1024.41(c)(1)(ii),129

must inform the borrower of the right to request an appeal. The borrower

must request an appeal within fourteen days after the servicer provides the notice of denial

within the § 1024.41(c)(1)(ii) evaluation notice.130

The “appeal” is a review by “different personnel than those responsible for evaluating the

borrower’s complete loss mitigation application.”131

Supervisory personnel that are responsible

for oversight of the personnel that conducted the initial evaluation of the borrower’s application

may perform the review, as long as the supervisory personnel were not directly involved in the

initial evaluation.132

The appeal process resembles the “escalation” procedures available under

certain standard loan modification programs, such as HAMP.

The servicer must make an appeal determination and provide the borrower with a notice

of the determination within thirty days of the borrower’s appeal request.133

A servicer’s

determination is not subject to any further appeal.134

If the servicer offers a loss mitigation

option as part of the appeal determination, it may require the borrower to accept or reject the

offer no earlier than fourteen days after the appeal determination notice is provided to the

borrower.135

Even when the appeal decision is ultimately negative, the notice should give the

borrower additional information that may aid in determining whether to challenge the servicer’s

actions on grounds other than the Regulation X requirements.

Exclusion for “Duplicative” Applications

The most significant limitation on the borrower’s procedural rights under the various

components of the loss mitigation rule is that a servicer is not required to comply with § 1024.41

if a borrower has been evaluated previously by that servicer for loss mitigation options for the

borrower’s mortgage loan account. Section 1024.41(i) provides that a servicer is “only required

to comply with the requirements of this section for a single complete loss mitigation application

for a borrower’s mortgage loan account.”136

This exclusion from the application of § 1024.41

127



This notice requirement is discussed in part 1 of this article. 130



See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(h)(3)-1 (effective Jan. 10, 2014). 133


Id. 135

Id. 136

Reg. X, 12 C.F.R. § 1024.41(i) (effective Jan. 10, 2014).

86

will greatly undermine the effectiveness of the CFPB’s loss mitigation rule and present

challenges for borrowers and their advocates.

One plausible interpretation of this brief provision is that the exclusion applies only to

any follow-up or request related to an initial application, but not to a totally separate request

coming at a different time and under different circumstances. The caption for the provision is

“Duplicative requests.” The word “duplicative” is a derivative of “duplicate,” which is defined

as “exactly like something else,” or as having “two corresponding or identical parts: a duplicate

application form.”137

This suggests that the provision would not be referring to a loss mitigation

request being made years after an earlier request, as the two requests could not possibly be

viewed as “duplicative.”

Moreover, in explaining the provision at the time of its issuance, the CFPB repeatedly

referred it as dealing with “renewed applications.”138

The word “renew” describes an attempt to

“resume (an activity) after an interruption.”139

Again, this is consistent with a request being

made in close proximity to an earlier request and involving the same nucleus of facts. A request

made five years after an earlier request does not involve a resumption after an interruption of the

earlier request. Thus, the phrase “single complete loss mitigation application” in § 1024.41(i)

must be referring to one application made during a particular time period, in order to exclude

multiple overlapping and contemporaneous requests for loss mitigation. This interpretation is

certainly most consistent with the consumer protection purposes of RESPA.

However, further explanation by the CFPB when the rule was promulgated suggests that

the scope of the duplicative application exclusion is broad. During the rulemaking proceeding,

the CFPB requested comment on whether there should be some time limitation for the exclusion,

such that the procedures would apply again if a new application were submitted after a specific

time period has passed since the initial evaluation.140

Consumer organizations requested that the

CFPB include at a minimum an exception for new applications submitted after a material change

in circumstances. The CFPB refused to include a time or material change limitation in the final

rule, noting that limiting the loss mitigation procedures to a “single complete loss mitigation

application provides appropriate incentives for borrowers to submit all appropriate information

in the application and allows servicers to dedicate resources to reviewing applications most

capable of succeeding on loss mitigation options.”141

The adoption of this ill-conceived exclusion may mean that a borrower could lose the few

important rights provided under § 1024.41 by simply having requested years earlier a short, six-

month forbearance agreement to deal with a temporary job layoff. If the borrower in this

example submits a complete loss mitigation application, it will be evaluated for all applicable

loss mitigation options under the CFPB’s rules even though the borrower was requesting only a

short-term forbearance agreement. Because the duplicative request exclusion is not limited to an

application for a loan modification, this request for a forbearance would be the borrower’s one

137

New Oxford American Dictionary, Oxford University Press, Third Ed., 2010. 138

See Section-by-Section Analysis, § 1024.41(i), 78 Fed. Reg. 10,836 (Feb. 14, 2013). 139

New Oxford American Dictionary, Oxford University Press, Third Ed., 2010. 140


Id.

87

and only opportunity with that servicer to have access to the consumer protections under the

Regulation X loss mitigation rules.

Even if there were an economic crisis five or ten years later not unlike that which

preceded the adoption of the HAMP program, any request by the borrower at that later time for

loss mitigation assistance for that mortgage account would not be subject to § 1024.41. The

borrower would lose the regulation’s notification requirements for incomplete applications and

loan modification denials, evaluation and appeal rights, and protections from dual tracking. Of

course, the servicer would still be required to comply with any investor or GSE guidelines, or

any applicable non-RESPA legal requirements, that might provide similar rights.

When Does the Duplicative Application Exclusion Not Apply?

When application made to a different servicer. One exception to the duplicative request

exclusion applies when a loss mitigation application is made to a different servicer on the

borrower’s mortgage account, most often when there has been a transfer of servicing. A

transferee servicer is required to comply with the requirements of § 1024.41 regardless of

whether a borrower received an evaluation of a complete loss mitigation application from a

transferor servicer.142

The CFPB’s commentary does not address whether this transferee exception covers

transfers between affiliates or that result through merger or acquisitions of servicers. Another

section of Regulation X that deals with mortgage servicing transfers, § 1024.33(b)(2), provides

that such transfers are not assignments, sales, or transfers of mortgage loan servicing for

purposes of that section if there is no change in the payee, address to which payment must be

delivered, account number, or amount of payment due. However, given the harshness of the

duplicative request rule and the CFPB’s failure to include language similar to § 1024.33(b)(2) in

§ 1024.41, any change in servicer, even if through merger or acquisition, should give the

borrower another opportunity to have a loss mitigation application considered under the §

1024.41 procedures.

When borrower’s application is not completed. In addition, the duplicative request

exclusion does not apply if the borrower’s application is never completed. As discussed in Part I

of this article,143

a servicer may offer certain loss mitigation options based on an incomplete

application without violating the duty to evaluate the borrower for all loss mitigation options.

This may occur 1) when the servicer exercises reasonable diligence to obtain needed information

and the application remains incomplete for a significant period of time, 144

and 2) when the

servicer offers a borrower a short-term payment forbearance program based on an incomplete

142

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014).

143 See “New RESPA Loss Mitigation Procedures,” NCLC eReports, Feb. 2014, No. 3.

144 Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014). The CFPB notes that any such evaluation and

offer in this situation is “not subject to the requirements of § 1024.41 and shall not constitute an evaluation of a

single complete loss mitigation application for purposes of § 1024.41(i).” See Section-by-Section Analysis, §

1024.41(c), 78 Fed. Reg. 10,829 (Feb. 14, 2013).

88

loss mitigation application.145

If the borrower is offered a short-term payment forbearance or

other loss mitigation option under these circumstances in response to an incomplete application,

the duplicative request exclusion does not apply to a subsequent loss mitigation application

submitted by the borrower to that servicer. For borrowers who wish to be considered only for a

short-term payment forbearance program, it may be advisable to not complete the loss mitigation

application so as to preserve rights under § 1024.41 for future applications.

In order to claim the benefit of the duplicative request exception, servicers may be eager

to assert that a borrower’s prior application was “complete,” when in fact it was not. A servicer

must not be permitted to take inconsistent positions in its treatment of a borrower’s loss

mitigation applications. For example, if the servicer deemed a prior application to be complete

and the application was received 45 days or more before a foreclosure sale, the servicer must

have given the borrower a written notice within five days of receipt of the application stating that

it determined the application to be complete.146

When servicer does not properly evaluate borrower’s application. In addition, advocates

may argue that the exclusion does not apply if the servicer never properly evaluated the

borrower’s initial loss mitigation application. The precise wording of § 1024.41(i) suggests that

it applies only if the servicer did in fact “comply with the requirements of this section” with

respect to the initial application. Upon receipt of a “complete application,” the servicer must

evaluate the borrower for all available loss mitigation options within thirty days.147

When the

evaluation is complete, the servicer must give the borrower notice of specific reasons for denial

of loan modification options as well as a description of appeal rights, if applicable.148

If the servicer cannot produce copies of required notices and documentation of a review

for all available loss mitigation options, the servicer cannot claim the benefit of an exception that

assumes it satisfied all requirements for evaluation of a complete loss mitigation application in

the past. Because the one review of a complete application may be the only opportunity a

borrower has for a review for all available loss mitigation options, the rules governing all aspects

of how servicers process a complete application must be strictly construed.

Scope of Duplicative Application Exclusion

The exclusion under § 1024.41(i) is limited to the procedures under the § 1024.41 loss

mitigation rule. The servicer must still comply with the early intervention requirements under §

1024.38,149

and the continuity of contact requirements under § 1024.39,150

even if the borrower

has previously been evaluated for loss mitigation options. The servicer is also required to

comply with any notice of error sent by the borrower under § 1024.35, or any request for

information under § 1024.36, in relation to a subsequent loss mitigation application.151

145


Reg. X, § 1024.41(b)(2)(A) (effective Jan. 10, 2014). 147

Reg. X, §§ 1024.41(c)(1)(i) and (ii) (effective Jan. 10, 2014). 148

Reg. X, §§ 1024.41(d) (effective Jan. 10, 2014). 149




89

Even when the exclusion does apply, the CFPB was careful to note that Regulation X §

1024.38(b)(2)(v) nevertheless applies, which requires servicers to implement policies and

procedures to achieve the objective of “[p]roperly evaluat[ing] a borrower who submits an

application for a loss mitigation option for all loss mitigation options for which the borrower

may be eligible pursuant to any requirements established by the owner or assignee of the

borrower's mortgage loan and, where applicable, in accordance with the requirements of

§1024.41.”152

In other words, a servicer must still review a borrower’s subsequent application

for any applicable loss mitigation options, but in doing so it need not comply with § 1024.41. 153

For example, if the HAMP, GSE, or investor guidelines require a borrower's subsequent

request to be considered based on a change in circumstances, nothing in § 1024.41 prohibits a

servicer from complying with these requirements. In fact, § 1024.38(b)(2)(v) makes clear that a

servicer must comply with these investor guidelines, and if § 1024.41 also happens to be

applicable, then the servicer must comply with the procedural requirements of § 1024.41.

Duty to Comply Following Transfer of Servicing

The requirements for responding to a loss mitigation application may continue to apply

even after the servicing of the borrower’s loan has been transferred. Although a servicer is

required to comply with § 1024.41 only for a single complete loss mitigation application for a

borrower’s mortgage loan,154

a transferee servicer is required to comply with the requirements of

§ 1024.41 regardless of whether a borrower received an evaluation of a complete loss mitigation

application from a transferor servicer.155

Documents and information transferred from a

transferor servicer to a transferee servicer may constitute a loss mitigation application and may

require a transferee servicer to comply with the § 1024.41 loss mitigation requirements.156

In addition, if the borrower is in process of having an application evaluated when the

mortgage is transferred, the transferee servicer must obtain any documents and information

submitted by the borrower to the transferor servicer in connection with the loss mitigation

application and should “continue the evaluation to the extent practicable.”157

For purposes of the

time deadlines and other requirements in §§ 1024.41(e)(1), 1024.41(f), 1024.41(g), and

1024.41(h), a transferee servicer must consider documents and information received from a

transferor servicer that amount to a complete loss mitigation application to have been received by

the transferee servicer as of the date such documents and information were provided to the

transferor servicer.158

152

Reg. X, §§ 1024.38(b)(2)(v) (effective Jan. 10, 2014). 153


Reg. X, 12 C.F.R. § 1024.41(i) (effective Jan. 10, 2014). 155

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014). 156

Id. 157

See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-2 (effective Jan. 10, 2014). See also Reg.

X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014). 158

Id.

90

Small Servicer and Other Exemptions from Coverage

Small servicers159

are required to comply with the prohibition under § 1024.41(f) on

starting the foreclosure process before the borrower is more than 120 days delinquent.160

After

the loan is more than 120 days delinquent, small servicers are also barred from making the first

notice or filing required to start the foreclosure process, moving for a foreclosure judgment or

order of sale, or conducting a foreclosure sale. But, unlike larger servicers, this requirement

applies only if the borrower is performing pursuant to the terms of a loss mitigation

agreement.161

Unlike the dual tracking requirements for larger servicers, small servicers after the 120

day period need not postpone various steps in the foreclosure process with the submission of a

complete loss mitigation application, unless the borrower is offered and accepts a loss mitigation

option, and performs under the terms of that loss mitigation agreement. Small servicers are

exempt from all other requirements in § 1024.41, including those related to various notices,

reasonable diligence in obtaining documents and information, and the appeal procedure.162

A servicer with respect to a reverse mortgage loan transaction is also exempt from all of the §

1024.41 requirements.163

In addition, the loss mitigation procedures under § 1024.41 only apply

to a closed-end mortgage loan that is secured by property that is the debtor’s principal

residence.164

There is no exemption from the Regulation X loss mitigation procedures when a

borrower is in a bankruptcy proceeding.

159

A small servicer, as defined by Regulation Z § 1026.41(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. §

1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014). The small servicer definition also includes “Housing Finance

Agencies, as defined in 24 C.F.R. § 266.5,” without regard to the number of mortgage loans serviced by such

agencies. Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014). See also NCLC Foreclosures, § 9.1.4.3

(4th ed. and 2013 Supp.). (discussing definition of small servicer). 160

Reg. X, 12 C.F.R. § 1024.41(j) (effective Jan. 10, 2014). 161

Id. 162


Reg. X, 12 C.F.R. § 1024.30(b)(2) (effective Jan. 10, 2014). A reverse mortgage transaction is defined at 12

C.F.R. § 1026.33(a). 164

Reg. X, 12 C.F.R. § 1024.30(c)(2) (effective Jan. 10, 2014) (making §§ 1024.39 through 1024.41 applicable

only to a “mortgage loan that is secured by a property that is the borrower’s principal residence’). Reg. X, 12 C.F.R.

§ 1024.31 excludes “open-end lines of credit (home equity plans)” from the definition of “mortgage loans.”

91

Sample RESPA Request for Information About a Loss Mitigation Application

Several courts had held in cases decided before the 2013 RESPA Servicing Rule, under

the former qualified written request procedure, 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.1 Such requests sent after January 10, 2014 are now covered

under Regulation X § 1024.36 and are clearly valid.

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 § 1024.36 is no longer tied solely to

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. The validity of a request no longer turns on the

narrow definition of “servicing” found in RESPA that focuses on the receipt of payments from

the borrower.4 Requests are valid even if the mortgage loan is in default and the servicer is not

“receiving” payments from the borrower.

In discussing a borrower’s right to assert a notice of error for a servicer’s failure to

provide accurate information to a borrower about 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 borrower for

the loss mitigation options and any potential foreclosure process.”5 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

1 See, e.g., Christenson v. Citimortgage, Inc., 2013 WL 5291947 (D. Colo. Sep 18, 2013) (determining that

“servicing” does not include acceleration, loss mitigation or foreclosure issues); Darlington v. Bank of Am., N.A.,

2013 WL 1827739 (D. Minn. Apr. 20, 2013) (letter seeking information about available loan modification programs

did not constitute a qualified written request); Mitchell v. Reg’l Trust Serv. Corp., 2013 WL 556395 (N.D. Cal. Feb.

12, 2013); Van Egmond v. Wells Fargo Home Mortg., 2012 WL 1033281 (C.D. Cal. Mar. 21, 2012); Saucedo v.

Bank of Am., 2011 WL 6014008, (D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011).

See also Foreclosures, § 9.2.2.2.3.1 (4th ed. and 2013 Supp.). 2 Reg. X, 12 C.F.R. § 1024.36(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, § 9.2.2.2.1 (4th ed. and

2013 Supp.). 3 Reg. X, 12 C.F.R. § 1024.21(e)(2)(i)(effective until Jan. 10, 2014).

4 See Section-by-Section Analysis, § 1024.36(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 with respect to the amounts received from the

borrower as may be required pursuant to the terms of the loan.” 5 See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10,742 (Feb. 14, 2013).

92

“providing such information to borrowers is a standard servicer duty.”6 The general servicing

requirements set out in Regulation X § 1024.38(b)(2) require servicers to have policies and

procedures designed to “provide accurate information regarding loss mitigation options available

to the borrower from the owner or assignee of the borrower's mortgage loan.”7

For a detailed discussion of the RESPA requirements for requests for information, see §

9.2.2 of NCLC’s Foreclosures (4th ed. 2012 and 2013 Supp.) and NCLC eReports, Dec. 2013,

No. 6.

Sample Language for the Request for Information

Advocates should check that the address they use in preparing and sending the request is

one given by the servicer for requests for information, and not assume that the address used by

the client to send monthly payments is the proper designated address. 8

If the request is sent by

an attorney on behalf of a client, it should include a written authorization from the client similar

to that provided below.9 Appropriate alterations based on your client’s situation must be made

before sending the following sample request.10

To avoid a servicer response that a request for

information is overbroad or burdensome, only those specific request items that are applicable to

your client and needed to assist in representing the client should be included.11

[date]

[Mortgage servicer]

[Address]




6 Id.

7 Reg. X, 12 C.F.R. § 1024.38(b)(2)(i).








Supp.). 10

No response is required by a servicer to a request for information that is irrelevant, which the regulation describes

as information requested that is not directly related to the borrower’s mortgage loan account. See 12 C.F.R. §

1026.36(f)(1)(iii); § 9.2.2.2.3.3 of NCLC’s Foreclosures (4th ed. and 2013 Supp.). 11

A servicer is not required to comply with a request for information if the servicer reasonably determines that it is

overbroad or burdensome. See 12 C.F.R. § 1026.36(f)(1)(iv); § 9.2.2.2.3.3 of NCLC’s Foreclosures (4th ed. and

2013 Supp.).

93


servicing on the property located at [address]. My clients have authorized me to send this

request on their behalf (see Authorization below). As servicer of my client’s mortgage loan,

please treat this as a “request for information” pursuant to the Real Estate Settlement Procedures

Act, subject to the response period set out in Regulation X, 12 C.F.R.§ 1024.36(d)(2)(i)(B).

Specifically, I am requesting the following information for the period beginning [when account

went into default or some other period] until your receipt of this request (the “applicable

period”):

1. Identify and briefly describe all loss mitigation options that were available to my

clients from the owner or assignee of my clients’ mortgage loan.

2. Provide any notices sent to my clients advising them of the availability of loss

mitigation options.

3. For each loss mitigation application you have received from my clients during the

applicable period, identify the following:

a. the date it was received;

b. the date you sent my clients an acknowledgment of receipt of the

application;

c. the date you determined it was complete;

d. a description of your evaluation of it, including your determination of

which loss mitigation options were or were not offered to my clients.

4. If any loss mitigation application you received from my clients is currently under

review and is considered to be incomplete, provide a list of the additional

documents and information my clients must submit to make the application

complete, as well as any applicable deadline for returning such documents.

5. Identify any other documents or information not under the control of my clients

needed to make the application complete.

6. [For loan modification denial based on investor restrictions] If you have

determined that a loan modification option is not available to my clients because

of a requirement or restriction imposed by the owner or assignee of my clients’

mortgage loan, provide the following:

a. a description of the requirement or restriction and the identity of the owner

or assignee, including the name of any applicable trusts and trustees;

b. the document, or provision within the document, that contains the

requirement or restriction, and information identifying the document

sufficient to locate the document if it is publicly available;

c. a description of your actions to seek a waiver of the requirement or

restriction;

94

d. any documents relating to your efforts to seek a waiver of the requirement

or restriction, and whether such waiver request was approved or denied;

e. any summary information created or retained by you pertaining to loan

modifications available to my clients and investor restrictions applicable

to my clients’ loan or loans pooled with this loan; and

f. any guidance provided to you by the owner or assignee pertaining to

modifications applicable to my clients’ loan.

7. [For loan modification denial based on NPV] If you have determined that a loan

modification option is not available to my clients because of a net present value

calculation, provide:

a. the inputs used for the calculation; and

b. the date the calculation was done.

8. [For loan modification denial based on excessive principal forbearance] If you

have determined that a loan modification option is not available to my clients

because of excessive principal forbearance, provide the figures used in reaching

this determination, including the current unpaid principal balance, value of the

property, gross monthly income, and monthly escrow payment.

9. [For FHA loan modification denial] If you have determined that a loan

modification option is not available to my clients, provide the figures and

calculations used in reaching this determination, including the gross monthly

income, monthly escrow payment, interest arrears, any other fees or charges to be

capitalized, current unpaid principal balance, unpaid principal balance as of the

date of any previous partial claim, and amount of any previous partial claim.

10. If you have determined that a loan modification option is not available to my

clients for any other reason(s), describe in detail the reason(s) for denial and

provide documentation of any reason(s) for denial.

11. Provide any notices or documents you sent to my clients in relation to loss

mitigation of my clients’ loan during the applicable period, including:

a. any notices acknowledging receipt of any loss mitigation application from

them and stating whether the application was complete or incomplete;

b. any notices stating the outcome of your evaluation of their application;

c. any proposed written agreement that offered a loss mitigation option to my

clients;

d. any written agreement signed by my clients that provided for a loss

mitigation option; and

e. any notices stating the outcome of their appeal of your denial of a loan

modification option.

95

12. [If payments made on a loss mitigation option] For any payments made by my

clients pursuant to a temporary or permanent loan modification offer, trial period

plan, forbearance, or any other loss mitigation offer during the applicable period,

describe the following:

a. the date you received each payment;

b. the amount of each payment;

c. a breakdown showing the amount, if any, of each payment that was

applied to principal, interest, escrow, fees and charges, and the amount, if

any, sent to any suspense or unapplied funds account; and

d. the date, amount, and destination of any payment or amount that was

applied from a suspense or unapplied funds account.

13. If you initiated a foreclosure proceeding against my clients during the applicable

period, identify or provide the following:

a. the date the matter was referred to your attorney to begin the legal

foreclosure process;

b. the date you or your attorney made the first notice or filing to begin the

foreclosure process, and a description of the actions taken;

c. [for judicial foreclosure] a listing of any dispositive motions filed and the

date filed;

d. any steps taken to schedule the foreclosure sale, and the date those steps

were taken;

e. the date of any scheduled or rescheduled foreclosure sale; and

f. any notices sent to my clients about the foreclosure of their mortgage loan.

14. Provide any appraisal, broker’s price opinion, automated valuation model

analysis, or other assessment of the value of the property securing my clients’

mortgage loan that you obtained during the applicable period.

15. Provide any notes or logs created by your personnel reflecting communications

with my clients about their request for loss mitigation assistance or about their

default on the loan during the applicable period.

Thank you for taking the time to respond to this request for information.

Very truly yours,

___________________

[attorney]


To: [servicer]


96









Very truly yours,

_____________________

[borrower 1]

_______________________

[borrower 2]

Copyright © 2014 National Consumer Law Center, Inc. All rights reserved.

97

Sample RESPA Notice of Error for Dual Tracking Violations

RESPA Regulation X’s loss mitigation rule limits mortgage servicers’ “dual tracking”

practices—the common servicer practice of proceeding with foreclosure while evaluating a

borrower for loss mitigation options. Another new Regulation X provision allows the

homeowner to cancel or postpone a foreclosure sale by sending a “notice of error” to a servicer

engaged in illegal dual tracking. This article contains sample language for such a notice, with

several variations depending on the nature of the servicer’s violation.

Effective January 10, 2014, under the Regulation X provision implementing 12 U.S.C. §

2605(e) , a written inquiry that asserts servicer error with respect to the borrower’s mortgage

loan is referred to as “notice of error.” For most notices of error, a servicer must acknowledge

the request within 5 business days of receipt, and respond within 30 business days of receipt.1

Of even greater significance, if the borrower or borrower’s agent sends a written notice of

error that is received by the servicer more than 7 days before a scheduled foreclosure sale and the

notice asserts certain violations of the dual tracking provisions of the loss mitigation procedures,

the servicer must respond prior to the date of a foreclosure sale or within 30 business days after

the servicer receives the notice of error, whichever is earlier. To qualify as this type of notice of

error, the notice must assert that the servicer either:

• initiated a foreclosure before the 120th day of delinquency in violation of

Regulation X § 1024.41 (f) or (j)2or

• moved for a foreclosure judgment or conducted a foreclosure sale in

violation of Regulation X § 1024.41(g) or (j).3

Thus, if the servicer receives this notice of error more than 7 days before a scheduled

foreclosure sale, the servicer may have to cancel or postpone the sale in order to comply with the

error notice response requirements.4 If the servicer receives this notice of error 7 or less days

before a scheduled foreclosure sale, a servicer is not required to comply with the response

obligations but must make a good faith attempt to respond to the borrower, orally or in writing,

and either correct the error or state the reason the servicer has determined that no error has

occurred. 5

For a detailed discussion of the RESPA requirements for notices of error, see § 9.2.2 of

NCLC’s Foreclosures (4th ed. 2012 and 2013 Supp.).

1 Reg. X, 12 C.F.R. § 1024.35(d) and (e).

2 This is a covered error under Regulation X § 1024.35(b)(9).

3 This is a covered error under Regulation X § 1024.35(b)(10).

4 Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) and § 1024.35(f)(2); Official Bureau Interpretation, Supplement 1 to Part

1024, ¶ 35(e)(3)(i)(B)-1. 5 Reg. X, 12 C.F.R. § 1024.35(f)(2).

98

Sample Language for the Notice of Error

Advocates should check that the address they use in preparing the notice is one given by

the servicer for notices of error, and not assume that the address used by the client to send

monthly payments is the proper designated address. 6

If the notice is sent by an attorney on

behalf of a client, it should include a written authorization from the client similar to that provided

below.7 Appropriate alterations based on your clients’ situation must be made before sending the

following sample notice:

[date]

[Mortgage servicer]

[Address]





servicing on the property located at [address]. My clients have authorized me to send this

request on their behalf (see Authorization below). As servicer of my client’s mortgage loan,

please treat this as a “notice of error” pursuant to the Real Estate Settlement Procedures Act,

subject to the response period set out in Regulation X, 12 C.F.R.§ 1024.35(e)(3)(i)(B).

[Alternative A – violation of § 1024.41(f)(1)]

You have asserted that my clients’ mortgage account became delinquent beginning on

[date]. On [date], you initiated a foreclosure proceeding against my clients by [filing a court

action, sending a notice of sale, etc.]. This action was taken when my clients’ mortgage account

was less than 120 days delinquent, in violation of Regulation X, 12 C.F.R.§ 1024.41(f)(1) [or

Regulation X, 12 C.F.R.§ 1024.41(j) if the servicer is a “small servicer.”].








Supp.).

99

To correct this error, you should immediately [cancel the scheduled foreclosure sale and

any related legal advertisement of the sale, or dismiss or move to dismiss the foreclosure court

action filed against my clients].

[Alternative B – violation of § 1024.41(f)(2)]

In [month/year], my clients submitted to you a complete loss mitigation application. This

complete application was received by you [during the 120-day pre-foreclosure review period

provided for under Regulation X, 12 C.F.R.§ 1024.41(f)(1) or before you initiated foreclosure by

making the first notice or filing]. However, on [date], you initiated a foreclosure proceeding

against my clients by [filing a court action, sending a notice of sale, etc.]. This action was taken

[even though my clients have not received a notice pursuant to Regulation X, 12 C.F.R.§

1024.41(c)(1)(ii) stating the outcome of your evaluation of their application; or prior to the time

my clients’ appeals rights expired; or even though my clients have not received a notice pursuant

to Regulation X, 12 C.F.R.§ 1024.41(h)(4) stating the outcome of their appeal of your denial of a

loan modification option; or before my clients had rejected the loss mitigation option you offered

them; or even though my clients have not failed to perform under the loss mitigation agreement

you entered into with them], in violation of Regulation X, 12 C.F.R.§ 1024.41(f)(2).

To correct this error, you should immediately [cancel the scheduled foreclosure sale and

any related legal advertisement of the sale, or dismiss or move to dismiss the foreclosure court

action filed against my clients].

[Alternative C – violation of § 1024.41(g)]

In [month/year], my clients submitted to you a complete loss mitigation application. This

complete application was received by you more than 37 days before the foreclosure sale you

scheduled on their home. However, on [date], the law firm representing you in the foreclosure

proceeding moved for a foreclosure judgment or order of sale [including making a dispositive

motion, such as a motion for default judgment, judgment on the pleadings, or summary

judgment]. This action was taken [even though my clients have not received a notice pursuant to

Regulation X, 12 C.F.R.§ 1024.41(c)(1)(ii) stating the outcome of your evaluation of their

application; or prior to the time my clients’ appeals rights expired; or even though my clients

have not received a notice pursuant to Regulation X, 12 C.F.R.§ 1024.41(h)(4) stating the

outcome of their appeal of your denial of a loan modification option; or before my clients had

rejected the loss mitigation option you offered them; or even though my clients have not failed to

perform under the loss mitigation agreement you entered into with them], in violation of

Regulation X, 12 C.F.R.§ 1024.41(g).

To correct this error, you should immediately instruct the law firm representing you in

the foreclosure proceeding to take all necessary actions to avoid the issuance of a foreclosure

judgment or order of sale [or vacate any foreclosure judgment or order of sale].8

8 If a servicer conducts a foreclosure sale in violation of Regulation X, 12 C.F.R.§ 1024.41(g), the borrowers have a

direct cause of action for violation of the regulation and may pursue remedies available under 12 U.S.C. § 2605(f).

See NCLC’s Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).

100

Thank you for taking the time to respond to this notice of error.

Very truly yours,

___________________

[attorney]


To: [servicer]










Very truly yours,

_____________________

[borrower 1]

_______________________

[borrower 2]

Copyright © 2014 National Consumer Law Center, Inc. All rights reserved.

101

Checklist for Reviewing RESPA Loss Mitigation Notices to Borrowers Review of written notices can be an important tool for assessing whether a servicer

complied with various requirements under the RESPA loss mitigation rules. Regulation X

requires that a servicer give the borrower written notices at distinct stages in the loss mitigation

and foreclosure process. The servicer’s failure to comply with these notice requirements may

give rise to a private right of action for the borrower. Failure to give the notice in and of itself is

a violation of the rules. In addition, the notice defect may signal a violation of other rules,

including the dual tracking restrictions, and lead to further liability for the servicer.

The basic range of RESPA damages may be recoverable for violation of any of these

written notice requirements.1 Failure to comply with these requirements may also violate other

statutes, regulations, consent decrees, and common law rules applicable to servicers’ business

practices. These non-RESPA claims may contain enforceable standards and offer a greater range

of relief, including the ability to seek injunctive relief to stop a pending sale.

The following checklist describes the Regulation X early intervention and loss mitigation

written notices and the questions to consider when reviewing them:

1. Pre-Foreclosure “Early Intervention” Notice2

�� Did the servicer give this written notice no later than the forty-fifth day of the

borrower’s delinquency?3

�� Did the notice encourage the borrower to contact the servicer?4

�� Did the notice provide the servicer’s telephone number for the continuity of

contact personnel assigned to the borrower, and the servicer’s mailing address?5

�� Did the notice provide, if applicable, a brief description of examples of available

loss mitigation options?6

�� Did the notice include either application instructions or information on how the

borrower may obtain more information about the loss mitigation application

process?7

�� Did the notice provide 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 toll-free phone number.8

1 12 U.S.C.§ 2605(f); NCLC Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).

2 See NCLC eReports, Jan. 2014, No. 5; NCLC Foreclosures, § 9.2.6.2 (4th ed. and 2013 Supp.), discussing the

early intervention written notice. 3 12 C.F.R. § 1024.39(b)(1) (effective Jan. 10, 2014).

4 12 C.F.R. § 1024.39(b)(2)(i)(effective Jan. 10, 2014).

5 12 C.F.R. § 1024.39(b)(2)(ii) (effective Jan. 10, 2014).

6 12 C.F.R. § 1024.39(b)(2)(iii) (effective Jan. 10, 2014).

7 12 C.F.R. § 1024.39(b)(2)(iv) (effective Jan. 10, 2014).

8 12 C.F.R. § 1024.39(b)(2)(v) (effective Jan. 10, 2014).

102

2. Five-Day Application Status Notice9

�� Did the servicer send the borrower within five business days of receipt of a loss

mitigation application a notice describing the documents and information needed

to complete the application (if the borrower’s application was received forty-five

days before a scheduled foreclosure sale and the servicer deemed the application

to be incomplete)?10

�� Did the notice described above include a “reasonable date” by which the borrower

must submit the missing documents and information?11

�� Did the servicer send the borrower within five business days of receipt of an

application a notice acknowledging that the application was complete (if the

borrower’s application was received forty-five days before a scheduled

foreclosure sale and the servicer deemed the application to be complete)?12

�� Did the notice include a statement that the borrower should consider contacting

servicers of any other mortgage loans secured by the same property to discuss

available loss mitigation options (if the borrower’s application was received forty-

five days before a scheduled foreclosure sale and the servicer deemed the

application to be either complete or incomplete)?13

3. Thirty-Day Evaluation and Loan Modification Denial Notice14

�� Did the servicer send the borrower within thirty days of receipt of a complete

application a notice stating the servicer’s determination of which loss mitigation

options, if any, are being offered to the borrower (if the servicer received a

complete application more than thirty-seven days before a foreclosure sale)?15

�� Did the evaluation notice described above inform the borrower of the amount of

time the borrower had to accept or reject a loss mitigation offer?16

�� Did the evaluation notice state the specific reasons for the denial of each

modification option and if applicable, that the borrower was not evaluated on

other criteria (if the servicer denied the borrower for any trial or permanent loan

modification option)?17

�� Did the evaluation notice identify the owner or assignee of the loan and the

specific requirement that was the basis for the denial (if a reason for denial of a

loan modification was a requirement set by an owner or assignee of the loan)?18

9 See NCLC eReports, Feb. 2014, No. 3; NCLC Foreclosures, § 9.2.8.2.2 (4th ed. and 2013 Supp.).

10 Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).

11 Reg. X, 12 C.F.R. § 1024.41(b)(2)(ii) (effective Jan. 10, 2014).

12 Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014).

13 Id.

14 See NCLC eReports, Feb. 2014, No. 3; NCLC Foreclosures, §§ 9.2.8.2.3 and § 9.2.8.2.4 (4th ed. and 2013

Supp.). 15





103

�� Did the evaluation notice state that the denial was based on a net present value

calculation and include the inputs used for the calculation (if the servicer denied a

loan modification option because of a net present value calculation)?19

�� Did the evaluation notice describe the borrower’s right to appeal the denial, the

deadline to make an appeal, and any requirements for making an appeal (if the

servicer denied the borrower for a loan modification option20

and the borrower’s

complete application was received at least ninety days before a scheduled

foreclosure sale)?21

4. Appeal Decision Notice22

�� Did the servicer make an appeal determination and provide the borrower with a

notice of the determination within thirty days of the borrower’s appeal request?23

�� Did the notice state how long the borrower has to accept or reject the offer, which

should be no earlier than fourteen days after the appeal determination notice is

provided to the borrower (if the servicer offered a loss mitigation option as part of

the appeal determination)?24

19




See NCLC eReports, Feb. 2014, No. 3 and Mar. 2014, No. 4; NCLC Foreclosures, § 9.2.8.5 (4th ed. and 2013

Supp.). 23


Id.

104


Loss Mitigation Procedures

Jan. 10, 2014 Effective Date

• Does not apply to applications received before effective date

• Applies to applications received after effective date even if borrower evaluated for loss mitigation before effective date

• 120 day ban on foreclosure referrals applies to mortgage loans that:– become delinquent on or after effective date, and

– are delinquent on effective date but for which foreclosure has not been initiated

111


• CFPB: nothing in § 1024.41 imposes duty on a

servicer to provide borrower with a specific loss

mitigation option

• Borrowers do not have private right of action

under § 1024.41 to enforce terms of agreement

between servicer and mortgage holder concerning

evaluation for loss mitigation options

• Borrowers do have private right of action to

enforce the procedural requirements in § 1024.41


• Nothing in § 1024.41 precludes borrowers from

enforcing substantive rights under state or other

federal laws for servicers’ failure to comply with

substantive standards of loss mitigation programs

• No preemption of other loss mitigation laws that give

borrowers greater protection

• Borrowers may use error correction procedures under

§ 1024.35 to address servicer’s failure to follow

procedures, including dual tracking protections

– and possibly for failure to correctly evaluate borrower for a

loss mitigation option

112

Application Received . . .

120 days of delinquency

Full evaluation, notice of incomplete application, and appeal rights

No referral to foreclosure

90 days or more before sale

Full evaluation, notice of incomplete application, and appeal rights

No foreclosure sale until application reviewed

45 days or more before sale

Full evaluation and notice of incomplete application


38 days before sale

Full evaluation


Date of Foreclosure Sale

• If date of foreclosure is not known, servicer may

use reasonable estimate

• If no foreclosure sale has been scheduled as of

date complete loss mitigation application is

received, the application is considered to be

received more than 90 days before any

foreclosure sale

• Dual track and other protections that apply based

on timelines remain in effect even if foreclosure

sale is later scheduled or rescheduled

113

Receipt of Application 45 Days

Before SaleServicer must:

• Conduct review to determine whether application is complete

• Within 5 business days of receiving application, provide written notice to borrower that:

• acknowledges application is complete, or

• describes documents and information needed to complete the application, and

• provides “reasonable date” by which borrower should submit missing documents and information

“Reasonable Date” to Complete?

• A “reasonable date” should preserve the

“maximum borrower rights,” except when it would

be impracticable (e.g., requesting docs in less

than 7 days), based on the following milestones:

– date when documents already submitted will be

stale

– date that is 120th day of delinquency

– date that is 90 days before a foreclosure sale

– date that is 38 days before a foreclosure sale

114

What is Complete Application?• All information the servicer requires from a borrower

in evaluating applications for the options available to the borrower

• Servicers have flexibility to establish their own application requirements, but must exercise “reasonable diligence” to obtain information needed to complete the application

– arguably requirements must be consistent with non-RESPA standards and guidelines for loss mitigation programs

• Application is complete if borrower provides all required information even if additional information not in the control of the borrower is required (e.g., credit report)

Evaluation of Complete Application

• If servicer receives complete loss mitigation

application more than 37 days before foreclosure

sale, servicer must within 30 days of receipt:

– Evaluate borrower for all loss mitigation options

available to the borrower

– Provide borrower with written notice of options being

offered to borrower

– Written notice of denial, including specific reasons for

the servicer’s decision for each option available to the

borrower

115

Facially Complete Application

• If borrower submits all missing documents and information as stated in the 5-day notice, or nothing additional is requested in the notice, the application is considered facially complete

– if servicer later discovers more information is needed or 5-day notice was incorrect, servicer must promptly request missing information

– servicer must treat application as complete for purposes of dual tracking provisions until borrower given reasonable opportunity to complete

– if borrower completes application within this period, application is considered complete as of date it was facially complete for most timelines under rule

Evaluation of Incomplete Application

Servicer may offer:

• A short-term payment forbearance (for payments due over no more than 6 months)

• Other loss mitigation option if application remains incomplete for a significant period of time

If forbearance provided,

servicer must:

• Not initiate or continue with foreclosure if borrower is performing under agreement

• Continue to comply with § 1024.41 and seek documents to complete application and review if later becomes complete

116

Loan Modification Denial

• If loan modification denial based on a requirement set

by loan owner or assignee, notice must identify owner

or assignee and specific requirement that was basis

for denial

• If loan modification denial based on net present value

test, notice must state this reason and include the

inputs used for the calculation

• Denial notice must also describe borrower’s right to

appeal, the deadline to appeal, and any requirements

for making an appeal, if applicable

Borrower’s Response

• If complete application received 90 days or more

before a foreclosure sale, servicer may require that

borrower accept or reject an offer no earlier than 14

days after offer made

• If a complete application received less than 90 days

but more than 37 days before a foreclosure sale,

servicer may require that borrower accept or reject

offer no earlier than 7 days after offer made

• If a borrower requests an appeal, deadline for

accepting option is extended until 14 days after

servicer provides the appeal determination notice

117

Loss Mitigation Review RightsDays Application

Received Before

Foreclosure Sale

≥ 90 ≥ 45 ≥ 38

Acknowledgment of

Application

Yes, must acknowledge within 5 business

days and provide deadline for supplying

additional documents

No

Time to Evaluate 30 days

Time to Appeal 14 days No appeal rights

Time to Accept

Loan Mod Offer14 days 7 days

Appeal Rights• Appeal rights apply only to decisions:

– involving eligibility for loan modifications

– made on complete (or facially complete) applications submitted 90

days or more before a scheduled foreclosure sale or during the 120-

day pre-foreclosure review period

• Borrower must request an appeal within 14 days after

servicer provides initial notice of determination

• Review must be by “different personnel than those

responsible for evaluating” application

• Servicer must decide appeal and provide notice of

determination to borrower within 30 days of appeal request

118

Dual-Tracking Protections Before Foreclosure Referral

• Servicers must not make first notice or filing required for foreclosure process until mortgage loan is more than 120 days delinquent

• If borrower submits complete application during 120-day period or before first notice or filing, a servicer can’t make first notice or filing until evaluation complete

• State foreclosure timelines pre-empted to the extent they allow an earlier commencement of foreclosure

• Protection does not apply if foreclosure based on borrower’s violation of a due on sale clause or if servicer is joining foreclosure action by a subordinate lienholder

What is First Notice or Filing?

• Where judicial foreclosure: the earliest

document required to be filed with court

• Where non-judicial foreclosure: the earliest

document required to be recorded or

published

• Where no court filing or document required

to recorded or published: the earliest

document that sets or schedules a

foreclosure sale date

119

Dual-Tracking Protections After Foreclosure Referral

• If borrower submits complete application after first notice or

filing but more than 37 days before foreclosure sale, servicer

may proceed with foreclosure process, but shall not:

– move for foreclosure judgment or order of sale, or conduct

sale, until decision given or borrower rejects offer or fails to

perform

– make a dispositive motion, such as motion for default

judgment, judgment on pleadings, or summary judgment,

which may directly result in a foreclosure judgment or order of

sale

• If such a motion has been made before receiving a complete

application, servicer must take reasonable steps to avoid a

ruling or issuance of an order

What if Application Received 37 Days

or Less Before Sale?

• Servicer may be obligated under non-RESPA applicable law

to evaluate a borrower’s application.

• Consistent with the general RESPA preemption rule, CFPB

explicitly stated in promulgating loss mitigation rule that

“servicers should comply with the most restrictive

requirements to which they are subject.”

• CFPB referred to National Mortgage Settlement and GSE

requirements and stated that “[n]othing in § 1024.41

prohibits or impedes a servicer from complying with these

requirements and servicers may be required to comply with

requirements that are more prescriptive than the regulations

implemented by the Bureau.”

120

Transfer Requirements

• New servicer must obtain loss mitigation documents and information submitted by borrower to former servicer and comply with § 1024.41

• If borrower’s complete application is being evaluated when mortgage is transferred, new servicer should “continue the evaluation to the extent practicable”

• Documents in a complete application are received for purposes of timelines as of date they were received by former servicer, not new servicer

Other Transfer Requirements

• Covered error for notice of error includes:

– Failing to transfer accurately and timely information relating to servicing of a borrower’s mortgage loan account to a transferee servicer

• Transfer policies and procedures consistent with § 1024.38(b)(4) (no right of action)– Transferor must timely and accurately transmit

information

– Transferee must be able to identify missing information

121

“Duplicative” Applications• Section 1024.41(i): “A servicer is only required to comply

with the requirements of this section for a single complete

loss mitigation application for a borrower’s mortgage loan

account”

• Does this really mean borrowers have only “one bite at the

apple,” regardless of when earlier application was submitted

or whether there haven been changed circumstances?

What Must Still Be Done for “Duplicative” Applications

• Exclusion does not apply if:

– Application is made to a different servicer – comment 41(i) states that transferee servicer must comply (but does this include transfers between affiliates or through merger?)

– Servicer provides short-term forbearance or other loss mitigation option on an incomplete application

– Servicer did not properly evaluate the borrower’s application

• Servicer must still comply with:

– Early intervention and continuity of contact requirements

– NOE or RFI related to subsequent application

– Investor standards

122

Loss Mitigation Exemptions• Loss mitigation procedures apply only to a mortgage

that is secured by the borrower’s principal residence

• Small servicers (5,000 or fewer loans)

– Must wait 120 days before initiating foreclosure

– Cannot initiate foreclosure after they have received a complete loss mitigation application

– Cannot initiate foreclosure if a borrower is performing under a loss mitigation agreement

– Exempt from all other loss mitigation procedures

• Reverse mortgages excluded from loss mitigation requirements

Using RESPA Error Resolution

• Potential loss mitigation covered errors:

– failing to provide accurate information regarding loss mitigation options and foreclosure

– failing to transfer accurate and timely information about borrower’s mortgage account to a transferee servicer, including loss mitigation information

– making the first notice or filing for any foreclosure process in violation of § 1024.41(f) or (j) - NOE

must be received more than 7 days before a

scheduled foreclosure sale

– moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of § 1024.41(g) or (j) - NOE must be received more

than 7 days before a scheduled foreclosure sale

123

TILA Rule on Periodic Mortgage Statements

Servicers of conventional mortgages typically have 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.1

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, is also generally not

provided by servicers on monthly statements.

The Dodd-Frank Act and the 2013 TILA Servicing Rule have changed this by requiring

that periodic statements be sent to borrowers on residential mortgage loans, other than fixed rate

loans in which coupon books are given to borrowers containing information substantially similar

to that required by the rule.2 Detailed account information, including helpful disclosures for

borrowers who are in default, must now be provided.

If prepared in accordance with the regulation, periodic statements will give consumers

significant information about their mortgage accounts. The disclosures provided on the

statements may also assist advocates in determining whether an account is actually in default and

whether a servicer has properly applied payments or improperly charged unauthorized fees.

Application of Periodic Statement Requirement

The requirement generally applies to mortgage loans that are closed-end consumer credit

transactions secured by a dwelling, subject to certain exemptions discussed below.3 A servicer

of such a mortgage loan is required to provide the consumer, for each billing cycle, a periodic

statement that meets the requirements discussed below.4 If a mortgage loan has a billing cycle

shorter than a period of thirty-one days, such as a bi-weekly billing cycle, a periodic statement

covering an entire month may be used.5 The periodic statement must be delivered or placed in

the mail within a “reasonably prompt time” after the payment due date or the end of any

“courtesy” or grace period provided for the previous billing cycle.6 The commentary notes that

delivering, emailing or placing the periodic statement in the mail within four days of the close of

the courtesy period of the previous billing cycle generally would be considered reasonably

prompt.7

1 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 prepetition). 2 15 U.S.C. § 1638(f); Reg. Z, 12 C.F.R. § 1026.41 (effective Jan. 10, 2014).

3 Reg. Z, 12 C.F.R. § 1026.41(a)(1) (effective Jan. 10, 2014).


5 Id. See also Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-2, effective Jan. 10, 2014 (“Such a

statement would separately list the upcoming payment due dates and amounts due, as required by § 1026.20(d)(1),

and list all transaction activity that occurred during the related time period, as required by paragraph (d)(4). Such

statement may aggregate the information for the explanation of amount due, as required by paragraph (d)(2), and

past payment breakdown, as required by paragraph (d)(3).”). 6 Reg. Z, 12 C.F.R. § 1026.41(b) (effective Jan. 10, 2014).

7 See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(b)-1 (effective Jan. 10, 2014).

124

When two consumers are joint obligors on a covered mortgage loan, the periodic

statement may be sent to either one of them. The commentary provides an example of a married

couple who jointly own a home and notes that the servicer need not send statements to “both the

husband and the wife; a single statement may be sent.”8 The commentary does not address how

the servicer should comply when it is notified that the joint obligors are separated or divorced,

and living apart.

The periodic statement requirement under Regulation Z § 1026.41 applies to servicers of

covered mortgage loan transactions. However, for purposes of the regulation, a “servicer”

includes the “creditor, assignee, or servicer, as applicable.”9 All of these parties are subject to

the requirement, though only one statement must be sent to the consumer each billing cycle.

When two or more parties are subject to the requirement, “they may decide among themselves

which of them will send the statement.”10

A creditor or assignee that does not currently own the

mortgage loan or the mortgage servicing rights is not subject to the § 1026.41 requirement to

provide a periodic statement.11

The servicer can provide the periodic statements electronically, but only if the consumer

gives affirmative consent to receive them in this manner.12

If statements are provided

electronically, the servicer may send a notification in lieu of the statement indicating that a

consumer’s statement is available, with a link to where the statement can be accessed.

Consumers who are currently receiving disclosures electronically from their servicer for their

mortgage account or some other account with the servicer shall be deemed to have consented to

receiving electronic statements and will not be sent paper statements unless they withdraw

consent.13

A consumer is not permitted to opt out of receiving periodic statements. However, the

commentary provides that “consumers who have demonstrated the ability to access statements

online” may opt out of receiving only the notifications that the statements are available.14

The

CFPB suggests that this ability may be demonstrated, for example, by consumers going to the

servicer’s website after receiving notification that their statements are available, viewing the

information about their account, and selecting a link or option to indicate they no longer wish to

receive notifications when new statements are available.

Form and Content of Periodic Statement

The disclosures required by the periodic statement rule must be made by the servicer

clearly and conspicuously in writing, or electronically if the consumer agrees, and in

a form that the consumer may keep.15

The CFPB has provided sample forms for periodic

statements that are found in appendix H-30 to Regulation Z.16

If a servicer makes proper use of

8 See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(a)-1 (effective Jan. 10, 2014).



11 Id.

12 See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-3 (effective Jan. 10, 2014).

13 See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-4 (effective Jan. 10, 2014).


15 Reg. Z, 12 C.F.R. § 1026.41(c) (effective Jan. 10, 2014).

125

these forms, it is deemed to have complied with the form and layout requirements of sections

1026.41(c) and (d).17

The regulation does not prohibit a servicer from adding to the disclosures or including

additional information or disclosures required by other laws, as long as the

additional information does not “overwhelm or obscure the required disclosures.”18

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.19

Each

of these categories is discussed more fully here:

(1) Amount due.20

This category must include: (i) payment due date; (ii) amount of any

late payment fee, and the date when that fee will be imposed if payment is not received; and (iii)

amount due, shown more prominently than other disclosures on the page (if the transaction has

multiple payment options, the amount due under each payment option). The information for this

category must be grouped together in close proximity and located at the top of the statement’s

first page.

(2) Explanation of amount due.21

This category must include: (i) monthly payment

amount, including a breakdown showing how much, if any, will be applied to principal, interest,

and escrow (if a mortgage loan has multiple payment options, a breakdown of each of the

payment options along with information on whether the principal balance will increase, decrease,

or stay the same for each option listed); (ii) total sum of any fees or charges imposed since the

last statement; and (iii) any payment amount past due. The information for this category must be

grouped together in close proximity and located on the statement’s first page.

(3) Past payment breakdown.22

This category must include: (i) total of all payments

received since the last statement, including a breakdown showing the amount, if any, that was

applied to principal, interest, escrow, fees and charges, and the amount, if any, sent to any

suspense or unapplied funds account and (ii) total of all payments received since the beginning

of the current calendar year, including a breakdown of that total showing the amount, if any, that

was applied to principal, interest, escrow, fees and charges, and the amount, if any, currently

held in any suspense or unapplied funds account. The information for this category must be

grouped together in close proximity and located on the statement’s first page.

16

These sample forms are reprinted in Appx. C.3, infra. 17

Reg. Z, 12 C.F.R. § 1026.41(c) (effective Jan. 10, 2014). 18

See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(c)-1 (effective Jan. 10, 2014). 19

Reg. Z, 12 C.F.R. § 1026.41(d) (effective Jan. 10, 2014). See Official Interpretation, Supplement 1 to Part 1026, ¶

41(d)-1 (effective Jan. 10, 2014; “Paragraph (d) requires several disclosures to be provided in close proximity to one

another. To meet this requirement, the items to be provided in close proximity must be grouped together, and set off

from the other groupings of items. This could be accomplished in a variety of ways, for example, by presenting the

information in boxes, or by arranging the items on the document and including spacing between the groupings.

Items in close proximity may not have any intervening text between them.”). 20

Reg. Z, 12 C.F.R. § 1026.41(d)(1) (effective Jan. 10, 2014). 21


Reg. Z, 12 C.F.R. § 1026.41(d) (effective Jan. 10, 2014).

126

(4) Transaction activity. This category must include a list of all the transaction activity

that occurred since the last statement. Transaction activity means any activity that causes a

credit or debit to the amount currently due. This list must include the date of the transaction, a

brief description of the transaction, and the amount of the transaction for each activity on the list.

Examples of the transactions that must be disclosed would include payments received and

applied, payments received and held in a suspense account, the imposition of any fees such as

late fees, and the imposition of any charges such as private mortgage insurance.23

The

description of any late fee charges includes the date and amount of the late fee, and the fact that a

late fee was imposed.24

If a partial payment is sent to a suspense or unapplied funds

account, this fact must be disclosed in the transaction description along with the date and amount

of the payment.25

(5) Partial payment information.26

If a statement reflects a partial payment that was

placed in a suspense or unapplied funds account, the statement must provide information

explaining what must be done for the funds to be applied. The information for this category

must be on the front page of the statement or, alternatively, may be included on a separate page

enclosed with the periodic statement or in a separate letter.

(6) Contact information.27

The servicer must provide a toll-free telephone number and,

if applicable, an electronic mailing address that may be used by the consumer to obtain

information about the consumer’s account. The information for this category must be located on

the front page of the statement.

(7) Account information.28

This category must include: (i) amount of the outstanding

principal balance; (ii) current interest rate in effect for the mortgage loan; (iii) date after which

the interest rate may next change; (iv) existence of any prepayment penalty that may be

charged;29

(v) website to access 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.

(8) Delinquency information.30

If the consumer is more than 45 days delinquent, the

statement must include: (i) date on which 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 showing, for the previous six months or the period since the last time

the account was current, whichever is shorter, the amount remaining past due from each billing

cycle or, if any such payment was fully paid, the date on which it was credited as fully paid; (iv)

notice indicating any loss mitigation program to which the consumer has agreed, if applicable;

(v) notice of whether the servicer has made the first notice or filing required by applicable law

for any judicial or non-judicial foreclosure process, if applicable; (vi) total payment amount

23

See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(d)(4)-1 (effective Jan. 10, 2014). 24






Prepayment penalty is defined in 12 C.F.R. § 1026.32(b)(6)(i). 30

Reg. Z, 12 C.F.R. § 1026.41(d)(8) (effective Jan. 10, 2014).

127

needed to bring the account current; and (vii) reference to the homeownership counselor

information disclosed in the above account information category. Information in this category

must be grouped together in close proximity and located on the first page of the statement or,

alternatively, on a separate page enclosed with the periodic statement or in a separate letter.

Coupon Book Exemption

The CFPB was compelled to include some form of exemption for creditors, assignees,

and servicers that provide coupon books to consumers, because the Dodd-Frank Act amendment

to TILA explicitly includes this exemption.31

However, to qualify for the exemption, the

statutory language requires the servicer to provide a coupon book that includes “substantially the

same information” required the statute.32

The Regulation X provision that implements the

exemption provides that the periodic statement requirement does not apply to fixed-rate loans if

the servicer:

• provides the consumer with a coupon book that includes on each coupon in the book the

amount due information required by section 1026.41(d)(1);

• provides the consumer with a coupon book that includes anywhere in the coupon book:

(i) the account information listed in section 1026.41(d)(7);33

(ii) the contact information

for the servicer required by section 1026.41(d)(6); and (iii) information on how the

consumer can obtain the explanation of amount due, past payment breakdown,

transaction activity and partial payment categories of information required by section

1026.41(d)(2) though (5);34

• makes available upon request to the consumer by telephone, in writing, in person, or

electronically if the consumer consents, the explanation of amount due, past payment

breakdown, transaction activity and partial payment categories of information required by

section 1026.41(d)(2) though (5); and

• provides the consumer the delinquency information required by section 1026.41(d)(8) in

writing, for any billing cycle during which the consumer is more than forty-five days

delinquent.35

Importantly, the CFPB did not draft the exemption so broadly as to exclude the additional

information provided to borrowers who are having payment problems. If the coupon book

exclusion otherwise applies, but the borrower is more than forty-five days delinquent, the

31

15 U.S.C. § 1638(f)(3). 32

Id. 33

Section 1026.41(d)(7)(i) requires the disclosure of the outstanding principal balance. If the servicer makes use of a

coupon book, it need only disclose the principal balance at the beginning of the time period covered by the coupon

book. See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(3)-4 (effective Jan. 10, 2014). 34

This information need not be provided on each coupon, but should be provided somewhere in the coupon book,

such as on or inside the front or back cover, or on filler pages in the coupon book. See Official Interpretation,

Supplement 1 to Part 1026, ¶ 41(e)(3)-3 (effective Jan. 10, 2014). 35

Reg. Z, 12 C.F.R. § 1026.41(e)(3) (effective Jan. 10, 2014).

128

servicer must provide the required delinquency information separately in writing, including an

account history for the delinquency period.

The commentary provides a description of a coupon book for purposes of the

exemption.36

A coupon book is a booklet provided to the consumer with a page for each billing

cycle during a set period of time, typically a one year period. The pages are designed to be torn

off and returned to the servicer with a payment. Additional information about the loan is often

included on or inside the front or back cover, or on filler pages in the coupon book.

Exemptions from Coverage

General. Servicers are not required to provide periodic statements to borrowers with

reverse mortgages,37

and timeshare plans.38

The regulation applies only to closed-end mortgage

loans, so open-end home loans such as HELOCs are exempted from coverage of the regulation.39

In addition, mortgage loans that are serviced by small servicers are exempt from the

requirements of the periodic statement regulation.40

Importantly there is no exemption for a

borrower in default.

Bankruptcy Exemption. In addition, no blanket exemption was initially provided for

borrowers in bankruptcy. Industry commenters suggested during the rulemaking proceeding 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.41

Applying a conflict analysis similar

to that set out in Randolph v. IMBS, Inc.,42

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. 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.43

36

See Official Interpretation, Supplement 1 to Part 1026, ¶ 41(e)(3)-2 (effective Jan. 10, 2014). 37

Reg. Z, 12 C.F.R. § 1026.41(e)(1) (effective Jan. 10, 2014). The definition of a reverse mortgage is provided at

12 C.F.R. § 1026.33(a). 38

Reg. Z, 12 C.F.R. § 1026.41(e)(2) (effective Jan. 10, 2014). 39

Reg. Z, 12 C.F.R. § 1026.41(a) (effective Jan. 10, 2014). 40

Reg. Z, 12 C.F.R. § 1026.41(e)(4) (effective Jan. 10, 2014). The definition of small servicer is discussed below. 41

See Section-by-Section Analysis, § 1026.41(d)(2), 78 Fed. Reg. 10,966 (Feb. 14, 2013). 42

368 F.3d 726 (7th Cir. 2004). 43

See Section-by-Section Analysis, § 1026.41(d)(2), 78 Fed. Reg. 10,966, 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.’ ”).

129

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 periodic statement requirements.44

The CFPB has indicated that the

bankruptcy exemption is still under consideration and that some portions of it may be revised or

repealed when a final exemption rule is issued.

Section 1026.41(e)(5) provides that a servicer is exempt from the periodic statement

requirements for a mortgage loan while the borrower is a debtor in a bankruptcy case.45

The

CFPB’s Official Interpretations for this section provide that the exemption applies for any

portion of the mortgage debt that is discharged in bankruptcy.46

This fails to recognize that many

consumers file chapter 7 for non-mortgage related reasons and continue to maintain payments on

the mortgage after receiving a discharge. These consumers typically do not enter into a

reaffirmation agreement with the mortgage holder because there is an exception to the discharge

injunction under section 524(j) of the Bankruptcy Code that permits the mortgage holder to

accept payments and service the loan in the ordinary course.47

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.48

Thus, the CFPB’s commentary is inconsistent with the policies of these loss

mitigation programs and the Bankruptcy Code, and hopefully will be reconsidered by the CFPB.

In addition, the CFPB’s Official Interpretations provide 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 providing periodic statements to both the husband and the wife.”49

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

commentary 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.

Small Servicer Exemption. The CFPB elected to exempt “small servicers” from several

of the requirements imposed on servicers by the 2013 TILA and RESPA Servicing Rules. The

definition of small servicer was placed in the Regulation Z provision that covers the periodic

statement requirement, and that definition is referenced in the other applicable regulations. A

small servicer, as defined by Regulation Z section 1026.41(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.”50

The small servicer definition also includes “Housing Finance Agencies, as defined

44

See 78 Fed. Reg. 62,993 (Oct. 23, 2013). 45


See Official Interpretations, Supplement 1 to Part 1026, ¶ 41(e)(5) - 2(ii) (effective Jan. 10, 2014). 47

11 U.S.C. § 524(j). 48

See Ch. 2, supra. 49

See Official Interpretations, Supplement 1 to Part 1026, ¶ 41(e)(5) - 3 (effective Jan. 10, 2014). 50

Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(A) (effective Jan. 10, 2014).

130

in 24 C.F.R. § 266.5,” without regard to the number of mortgage loans serviced by such

agencies.51

The following mortgage loans are not counted when determining whether a small servicer

services 5000 or fewer mortgage loans:

• Mortgage loans voluntarily serviced by the servicer for a creditor or assignee that is not

an affiliate of the servicer and for which the servicer does not receive any compensation

or fees;

• Reverse mortgage transactions; and

• Mortgage loans secured by consumers' interests in timeshare plans.52

The commentary to Regulation Z provides some explanation as to how the 5000

mortgage cap should be applied. If a servicer services any mortgage loans for which it or an

affiliate is not the creditor or assignee, it is not a small servicer. For example, a servicer that

owns mortgage servicing rights for mortgage loans that are not owned by the servicer or an

affiliate, or for which the servicer or an affiliate was not the entity to whom the obligations were

initially payable, is not a small servicer.53

Any mortgage loans obtained by a servicer or an affiliate as part of a merger or

acquisition, or as part of the acquisition of all assets or liabilities of a branch office of a creditor,

are considered mortgage loans for which the servicer or an affiliate is the creditor to which the

mortgage loan is initially payable.54

A branch office is either an office of a depository institution

that is approved as a branch by a Federal or State supervisory agency or an office of a non-

depository for-profit mortgage lending institution that takes mortgage loan applications from the

public.55

Both a master servicer and a subservicer56

must qualify as a small servicer to gain the

exemption.57

For example, if a master servicer satisfies the definition of a small servicer, but

retains a subservicer that does not, the subservicer is not a small servicer for the purposes of the

exemption and must comply with the requirements of a servicer.

In determining whether a small servicer services 5000 or fewer mortgage loans, the test is

based on the number of mortgage loans serviced by the servicer and any affiliates as of

January 1 for the remainder of the calendar year. A servicer that “crosses the threshold will have

six months after crossing the threshold or until the next January 1, whichever is later, to comply

with any requirements for which a servicer is no longer exempt as a small servicer.”

51

Reg. Z, 12 C.F.R. § 1026.41(e)(4)(ii)(B) (effective Jan. 10, 2014). 52

Reg. Z, 12 C.F.R. § 1026.41(e)(4)(iii) (effective Jan. 10, 2014). 53

Official Bureau Interpretation, ¶ 41(e)(4)(ii)-1 (effective Jan. 10, 2014). 54

Official Bureau Interpretation, ¶ 41(e)(4)(iii)-1 (effective Jan. 10, 2014). 55

Id. 56

These terms are defined in 12 C.F.R. § 1024.31. 57

Official Bureau Interpretation, ¶ 41(e)(4)(ii)-2 (effective Jan. 10, 2014).

131

The Commentary provides some examples of when a servicer “crosses the threshold” and

its qualification as a small servicer changes over time:

• A servicer that begins servicing more than 5000 mortgage loans on October 1, and

services more than 5000 mortgage loans as of January 1 of the following year, would no

longer be considered a small servicer on April 1 of that following year.

• A servicer that begins servicing more than 5000 mortgage loans on February 1, and

services more than 5000 mortgage loans as of January 1 of the following year, would no

longer be considered a small servicer on January 1 of that following year.

• A servicer that begins servicing more than 5000 mortgage loans on February 1, but

services less than 5000 mortgage loans as of January 1 of the following year, is

considered a small servicer for that following year.58

58

Official Bureau Interpretation, ¶ 41(e)(4)(iii)-2 (effective Jan. 10, 2014).

132


Periodic Mortgage Statements

Periodic Statements• Servicer must send statement for each billing cycle with

the following categories of information:

– amount due for the billing period

– explanation of amount due including fees imposed

– past payment breakdown

– transaction activity

– partial payment information

– contact and account information, and

– delinquency information, if applicable

• Disclosure required of payments servicer decides to hold

in suspense account rather than apply to account

133

Periodic Statements When Homeowner Is >

45 Days Late

Date consumer became delinquent;

Notification of possible risks, such as foreclosure, and expenses, if delinquency is not cured;

Account history for previous six months or since last time account was current, showing the amount remaining past due from each billing cycle;

Notice of any loss mitigation program to which the consumer has agreed;

Notice of whether the servicer has initiated foreclosure by making the first notice or filing required by state law;

Total payment amount needed to bring the account current; and

Either the CFPB list or the HUD list of homeownership counseling organizations and the HUD toll-free telephone number

Exemptions from Periodic Statements

Fixed rate mortgages if substantially similar information provided on coupon book

• Must still provide delinquency information, separately in writing, including an account history for the delinquency period

Small servicers

• Service 5,000 or fewer mortgage loans of which servicer or affiliate is creditor or assignee

State housing finance agencies

Reverse mortgages and timeshare plans

HELOCs

134

How to Count 5000 Mortgage “Small Servicer” Cap?

• Test is based on number of mortgage loans serviced by the servicer and any affiliates as of January 1 for remainder of calendar year– Servicer has six months after “crossing the

threshold” or until the next January 1, whichever is later, to comply with any requirements

• If servicer services any mortgage loans for which it or an affiliate is not the creditor or assignee, it is not a small servicer

• Both a master servicer and a subservicermust qualify as a small servicer

Bankruptcy & Default

• Statements not required for any borrower in bankruptcy or for any portion of debt discharged in bankruptcy

• For joint borrowers, exemption applies if any of the borrowers are in bankruptcy

Bankruptcy exemption

• Regulation contemplates that statement provided even if borrower more than 45 days delinquent

No default exemption

135

Damages?

• Probably not available under TILA

because in § 1638(f)

• Can you use a RESPA tool to dispute?

• Consumer fraud?

• Negligence?

136

RESPA Rule on 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.1 Section 1464 of the Dodd-

Frank Act, enacted in 2010, essentially codified the FRB rule.2 The CFPB has finalized

regulations implementing the prompt crediting provision of the Dodd-Frank Act.3 The CFPB

regulations became effective January 10, 2014.4 Prior to January 10, 2014, the FRB rule was in

effect.

Prompt Crediting Under FRB Rule

Under the FRB rule, a servicer must credit payments to the consumer’s loan account as of

the date of receipt. The rule applies to loans secured by a consumer’s principal dwelling.5 There

are two exceptions to the “same-day” requirement: (1) when a delay in posting does not result in

any charge to the consumer or in the reporting of negative information to a consumer reporting

agency;6 and (2) when a servicer specifies in writing requirements for the consumer to follow in

making payments but accepts a payment that does not conform to these requirements.7 In this

latter case, the servicer must credit the nonconforming payment within five days after receipt.

The date of receipt is the date when the payment (in whatever form) reaches the servicer.8 For

example, payment by check is received when the check reaches the servicer, not when the funds

are collected. Electronic fund transfers, preauthorized payment arrangements, and the like are

received when the servicer receives the transfer.

Payments should be credited based on the legal obligations between the parties to the

transaction, which are determined by applicable state or other law.9 In addition, the servicer may

specify reasonable requirements for making payments in writing. The Official Interpretations

list some examples: setting a cut-off hour for payment to be received; requiring that the payment

be accompanied by the account number or payment coupon; specifying that only checks or

money orders be sent by mail; requiring that payments be in U.S. dollars; specifying that the

consumer use a particular address.10

However, such requirements must not be difficult for most

consumers to follow. The Interpretations mention that a cut-off time of 5:00 p.m. for receipt of a

mailed check is reasonable.11

In the absence of servicer guidelines for making payments,

1 Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) [§ 226.36(c)(1)(i)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008). See

National Consumer Law Center, Truth In Lending § 9.4.3.2 (8th ed. 2012 and Supp.). 2 15 U.S.C. § 1639f, as amended by Pub. L. N. 111-203, § 1464, 124 Stat. 1376 (July 21, 2010).

3 See 78 Fed. Reg. 10,902 (Feb. 14, 2013) (effective Jan. 10, 2014).

4 See id. at 10,902.

5 Reg. Z, 12 C.F.R. § 1026.36(c)(1) [§ 226.36(c)(1)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008).

6 Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) [§ 226.36(c)(1)(i)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008); Official

Interpretations § 1026.36(c)(1)(i)-1 [§ 226.36(c)(1)(i)-1]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008). 7 Reg. Z, 12 C.F.R. § 1026.36(c)(2) [§ 226.36(c)(2)]; 73 Fed. Reg. 44,522, 44,604 (July 30, 2008).

8 Official Interpretations § 1026.36(c)(1)(i)-3 [§ 226.36(c)(1)(i)-3]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).

9 Official Interpretations § 1026.36(c)(1)(i)-2 [§ 226.36(c)(1)(i)-2]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).

10 Official Interpretations § 1026.36(c)(2)-1 [§ 226.36(c)(2)-1]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).

11 Official Interpretations § 1026.36(c)(2)-2 [§ 226.36(c)(2)-2]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008).

137

payments may be made at any location where the servicer conducts business, at any time during

normal business hours, and by cash, money order, draft, or other similar instrument in a properly

negotiable form, or by electronic fund transfer if so agreed by the consumer and the servicer.12

Prompt Crediting Under Dodd-Frank and RESPA Regulations

The Dodd-Frank Act also mandates that servicers credit periodic payments on consumer

credit transactions secured by a consumer’s principal dwelling as of the date of receipt.13

Like

the FRB rule there is an exception when a delay in crediting the payment does not result in any

charge to the consumer or in the reporting of negative credit information to a consumer reporting

agency.14

Neither the FRB rule nor the Dodd-Frank Act define the term “payment” for purposes

of the prompt crediting rule. The CFPB rule uses the term “periodic payment” and defines it as

the amount necessary to cover principal, interest, and escrow (if applicable) for a given billing

cycle.15

Though servicers may charge and collect fees for late payments, the prompt crediting

rule applies even if the payment does not include a late fee. The rule also applies if the

consumer’s payment does not include other fees or non-escrow payments that the servicer has

advanced on the consumer’s behalf.16

The CFPB rule offers new and specific guidance to servicers on how to deal with partial

payments (i.e., payments less than periodic payments).17

The final rule allows, but does not

require, servicers to place partial payments received into a suspense account, also known as an

unapplied fund account. Suspense accounts, however, may be used only if authorized by the

contract and permitted by state law.18

Funds must be applied from the suspense account when

the amount in suspense in equal to or greater than a periodic payment.19

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.20

12

Official Interpretations § 1026.36(c)(2)-3 [§ 226.36(c)(2)-3]; 73 Fed. Reg. 44,522, 44,614 (July 30, 2008). 13

15 U.S.C. § 1639f(a). 14

Id. 15

Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) (effective Jan. 10, 2014). Obligations for force-placed insurance or

delinquent taxes that have been paid through an escrow account are considered part of the periodic payment. See 78

Fed. Reg. 10,902, 10,954 (Feb. 14, 2013). If the mortgage loan has been accelerated, the periodic payment

constitutes at least the total amount owed for all principal and interest. See id. For accelerated loans the CFPB’s

analysis of the rule is unclear as to whether amounts for escrow advances and fees are part of the periodic payment. 16

Reg. Z, 12 C.F.R. § 1026.36(c)(1)(i) (effective Jan. 10, 2014). 17

Reg. Z, 12 C.F.R. § 1026.36(c)(1)(ii) (effective Jan. 10, 2014). 18

Official Interpretations § 1026.36(c)(1)(ii)-1; 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). The CFPB omitted

language from the proposed rule that would have required periodic payments to be credited to the oldest outstanding

delinquency. The Bureau removed this language after concluding that it may conflict with state law and that the

problem is mitigated through other means. 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013). 19

Reg. Z, 12 C.F.R. § 1026.36(c)(1)(ii)(B) (effective Jan. 10, 2014); Official Interpretations § 1026.36(c)(1)(ii)-

1(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). 20

Reg. Z, 12 C.F.R. §§ 1026.36(c)(1)(ii)(A), 1026.41(d)(3)(i), (ii) (effective Jan. 10, 2014); Official Interpretations

§ 1026.36(c)(1)(ii)-1(iii), 1026.41(d)(3)-1; 78 Fed. Reg. 10,902, 11,019-20 (Feb. 14, 2013). See § 9.6.4, infra

(discussion of periodic mortgage statements). Servicers not required to send periodic statements are exempt from

this provision requiring disclosure of the amount of funds held in the suspense account on the periodic statement.

See 78 Fed. Reg. 10,902, 10,955 (Feb. 14, 2013).

138

A separate subsection of the Dodd-Frank Act and the CFPB rule address non-conforming

payments.21

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.22

Any non-conforming payment must be credited within five days of

receipt. As with the FRB rule, the servicer may specify reasonable requirements for making

payments in writing.23

Failure to comply with these written payment instructions may result in a

non-conforming payment. What constitutes reasonable requirements remains unchanged from

the FRB rule to the CFPB rule.24

There is no exception to the prompt crediting rules when the borrower is in bankruptcy or

in a trial loan modification.25

There is also no specific exception to the rule for small servicers.26

21

15 U.S.C. § 1639f(b); Reg. Z, 12 C.F.R. § 1026.36(c)(1)(iii) (effective Jan. 10, 2014). 22

See 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013). 23

Official Interpretations § 1026.36(c)(1)(iii); 78 Fed. Reg. 10,902, 11,019 (Feb. 14, 2013). 24

See § 9.3.5.2, supra (setting forth examples of reasonable requirements). 25

See 78 Fed. Reg. 10,902, 10,956 (Feb. 14, 2013) (“[w]hile the Bureau understands the requirement that the pre-

petition and postpetition accounts must be kept separate during a bankruptcy, the Bureau believes that if sufficient

funds accrue in either account to make a periodic payment due, those funds should be applied.”). 26

Small servicers are exempt from some of the CFPB’s mortgage servicing rules. See § 9.1.4.3, supra. Small

servicers are defined as servicers that service 5000 mortgage loans or less and only service mortgage loans the

servicer or an affiliate owns or originated.

Note that small servicers are not required to provide periodic mortgage statements and as a result they are

exempt from the requirement to disclose funds held in suspense pursuant to § 1026.36(c)(1)(ii)(A).

139

Duty to Provide Timely Mortgage Payoff Statements

An amendment to the Truth in Lending Act made by the Dodd-Frank Act requires that

accurate payoff statements be provided to consumers.1 Regulations implementing this

amendment issued by the Consumer Financial Protection Bureau (CFPB) are effective on

January 10, 2014. For any loan secured by the consumer’s dwelling, the creditor, assignee or

servicer,2 as applicable, must provide an accurate statement of the total outstanding balance

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.3 The statement must provide the payoff amount as of a

specified date. With limited exceptions discussed below, the payoff statement must be provided

within a reasonable time, but no later than seven business days after a creditor, assignee or

servicer receives a written request. Payoff statements for high-cost mortgages are treated under a

different timeline and must be provided within five business days of receiving a request for such

statement.4

Broad Coverage of Rule

Coverage of the payoff statement rule is significantly broader than the other 2013 RESPA

and TILA Servicing Rules. The language of the Dodd-Frank Act amendment makes the payoff

statement requirement applicable to all “home loans,” a term not defined by the Act that is

presumably broader than “residential mortgage loans.”5 The final regulation implements the

statutory language by providing that the requirement applies to any consumer credit transaction

secured by a “consumer’s dwelling.”6 Thus, the rule applies even 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.

Request by Agent

The written request for a payoff statement may be sent by a person acting on behalf of the

consumer. The Commentary to Regulation Z notes that a person acting on behalf of the

consumer may include the consumer’s representative, such as an attorney, a non-profit consumer

counseling or similar organization, or a creditor with which the consumer is refinancing and

which requires a payoff statement to complete the refinancing.7 However, the Commentary

further indicates that a creditor, assignee or servicer can take “reasonable measures” to verify the

identity of the consumer’s agent or representative and that the seven-day response period does

not begin until a request is received from a “verified party.”8 Thus, if a creditor, assignee or

servicer must verify authorization that a third party is acting on behalf of the consumer, it will

1 15 U.S.C. § 1639g, as amended by Pub. L. No. 111-203, § 1464, 124 Stat. 1376 (July 21, 2010).

2 “Servicer” has the same meaning as in the regulations promulgated under RESPA. See NCLC Foreclosures, §

9.1.4.1 (4th ed. and 2013 Supp.). 3 12 C.F. R. § 1026.36(c)(3) (effective Jan. 10, 2014).

4 15 U.S.C. § 1639; 78 Fed. Reg. 6966 (Jan. 31, 2013) (effective Jan. 10, 2014).

5 See 15 U.S.C. § 1602(cc)(5), as amended by Dodd-Frank (defining “residential mortgage loan” to exclude open-

end, home-secured credit). 6 12 C.F. R. § 1026.36(c)(3) (effective Jan. 10, 2014).

7 Official Interpretations, 12 C.F.R. § 1026.36(c)(3)-1.

8 Id. See also 78 Fed. Reg. 10,957 (Feb. 14, 2013).

140

have seven business days from when a verified request is received to provide the payoff

statement. A verified request sent by a borrower’s attorney or other representative typically will

include an authorization signed by the borrower.

Comparison with Current Rule

Prior to January 10, 2014, servicers are required to provide payoff statements pursuant to

an amendment to Regulation Z made by the CFPB’s predecessor, the Federal Reserve Board,

that became effective on October 1, 2009. Servicers must provide an accurate statement of the

amount necessary to pay off an account in full after receiving a request from the consumer or the

consumer’s agent.9 Under most circumstances the payoff statement must be provided within five

business days of receipt of the consumer’s request.10

Unlike the CFPB’s final rule, the request

need not be in writing. In addition, the requirement applies only to servicers, whereas the

obligation to comply with the CFPB’s final rule applies the creditor, assignee or servicer of the

loan, as applicable.

Limits on Duty

The Commentary to Regulation Z states that a creditor, assignee or servicer may specify

reasonable requirements that a consumer must follow in making payoff requests.11

For example,

a creditor, assignee or servicer can require that requests be directed to a mailing address, email

address, or fax number specified by the creditor, assignee or servicer, or can impose any other

reasonable requirement or method. If the consumer does not follow these requirements, the

Commentary indicates that a longer timeframe for responding to the request would be

reasonable. This suggests that a request that is not sent to a designated address or does not

follow reasonable requirements, but is otherwise received by the creditor, assignee or servicer, is

nevertheless a valid payoff request that must be complied with, though over a longer time period.

Numerous industry commenters stated that they needed more 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.12

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 shared appreciation

mortgage, or because of natural disasters or similar circumstances, the payoff statement must be

provided within a reasonable time.13

No definition of “reasonable time” is provided.

9 12 C.F.R. 1026.36(c)(1)(iii); 73 Fed. Reg. 44,522, 44,604 (July 30, 2008). See also National Consumer Law

Center, Truth In Lending § 9.4.3 (8th ed. 2012). The FRB’s rule was issued under its authority to prohibit unfair

and deceptive acts and practices in connection with mortgage loans. 10

Official Interpretations, 12 C.F.R. § 1026.36(c)(1)(iii)-1. 11

Official Interpretations, 12 C.F.R. § 1026.36(c)(3)-2. 12

See 78 Fed. Reg. 10,957 (Feb. 14, 2013). 13

12 C.F.R. § 1026.36(c)(3)(effective Jan. 10, 2014).

141

The final rule also provides that a creditor or assignee that does not currently own the

mortgage or the mortgage servicing rights for the loan is not subject to the requirement to

provide a payoff statement.14

Unlike many other servicing requirements, the CFPB did not include in the final rule an

exemption for community banks, credit unions, and small servicers. The CFPB noted that small

servicers have not had difficulty in complying with the FRB’s existing rule, and no compelling

justification was put forth during the rulemaking proceeding to warrant an exclusion.15

Interaction with RESPA--Right to Dispute Accuracy of Payoff Statement

As of January 10, 2014, the failure to provide an accurate payoff statement based on a

TILA request is subject to error resolution under RESPA. 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.16

Servicers, however, need not treat a borrower’s request for payoff balances as a request for

information under RESPA.17

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.18

No Preemption of State Law

Many states have enacted laws dealing with payoff statements. Summaries of these state

laws are provided in NCLC’s Foreclosures, Appendix D.2. 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.19

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 these state laws. 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. These entities 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 and the shorter

seven business day Regulation Z requirement would control.

14

Id. 15

See 78 Fed. Reg. 10,958 (Feb. 14, 2013). 16

12 C.F.R. 1024.35(e)(3)(a) (effective Jan. 10, 2014). For a discussion of error notices under RESPA, see NCLC

Foreclosures, § 9.2.2 (4th ed. and 2013 Supp.). 17

See 12 C.F.R. 1024.36(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. 18

See 12 C.F. R. § 1024.36(g) (effective Jan. 10, 2014); NCLC Foreclosures, § 9.2.2.7 (4th ed. and 2013 Supp.). 19

See 78 Fed. Reg. 10,957 (Feb. 14, 2013).

142

Although not explicitly addressed by the CFPB, Regulation Z should not preempt the

remedy provisions of any applicable state payoff statement law, and the remedies under TILA

should not be viewed as exclusive. Thus, if a creditor, assignee, or servicer is required under

state law to provide a payoff statement in less than seven business days, and there has been a

violation of that state law, the consumer should be able to pursue any applicable remedies

available under the state payoff statement statute. If in this example the creditor, assignee, or

servicer also fails to provide the statement within seven business days after receipt of the request,

then the TILA private remedies additionally should be available to the consumer, including

actual and statutory damages, and attorney fees.20

20

15 U.S.C. § 1640(a). See also NCLC Foreclosures, § 9.6.6 (4th ed. and 2013 Supp.).

143

Interest Rate and Payment Change Notices For most adjustable rate mortgages, consumers must be notified about upcoming interest rate

changes that will affect their payments. Advance notice of interest rate and payment changes permits

borrowers to adjust their finances to account for any increase in payment, gives borrowers the opportunity

to explore other options (e.g., refinancing, sale), and allows borrowers to work with their servicer if

expected increases are unaffordable. Regulations related to interest rate change notice have existed for

more than twenty-five years.1 In 2010, the Dodd-Frank Act added new statutory requirements for hybrid

adjustable rate mortgages,2 and recently the CFPB significantly amended the interest rate change notice

provisions in Regulation Z. The CFPB regulations became effective January 10, 2014.3 A more detailed

discussion of the TILA payment change notice requirements is provided in § 5.13.3 of National

Consumer Law Center, Truth In Lending (8th ed. and Supp.).

In general, interest rate and payment change notices are required for adjustable rate, closed-end

consumer transactions secured by the consumer’s principal dwelling.4 Notices must be sent to consumers

even if they are in default and regardless of whether they are debtors in a bankruptcy case. Small

servicers5 are not exempt from the change notice requirements.

6 Required disclosures under both the old

and new rules include the current interest rate, the new interest rate, and the new payment.7 If the new

payment is insufficient to fully amortize the loan balance, the disclosure must also state the payment

amount that would fully amortize the loan balance. Regulation Z requires additional disclosures related to

how the new interest rate and payment are determined, prepayment penalties, interest-only or negatively

amortizing loans and hybrid adjustable rate loans.8 The new rules also make clear that responsibility for

providing the change notices lies with the creditor, the assignee, or the servicer.9

For adjustments occurring before January 10, 2014, the general rule requires notices to be

provided to consumers at least twenty-five, but not more than 120, days before the first payment at the

adjusted level is due.10

The Regulation Z amendment effective January 10, 2014 increases the minimum

advance notice to consumers, thus giving them more time to prepare for any anticipated increases in

payments. Under the amended rule, notices must be provided to consumers at least sixty, but no more

than 120, days before the first payment at the adjusted level is due.11

There are exceptions to these timing

requirements under both the old and new rules.12

1 Reg. Z, § 1026.20(c) [§ 226.20(c)]. See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and

Supp.). 2 Pub. L. No. 111-203, § 1418 (July 21, 2010), codified at 15 U.S.C. § 1638a. See National Consumer Law Center,

Truth In Lending § 5.13.3 (8th ed. and Supp.). 3 See 78 Fed. Reg. 10,902 (Feb. 14, 2013) (effective Jan. 10, 2014).

4 Reg. Z, 12 C.F.R. § 1026.20(c). There are exceptions to the general rule under both the old rule and the new CFPB

rule. See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.). 5 Small servicers are exempt from some of the CFPB’s mortgage servicing rules. See § 9.1.4.3, supra. Small

servicers are defined as servicers that service 5000 mortgage loans or less and only service mortgage loans the

servicer or an affiliate owns or originated. 6 78 Fed. Reg. 10,902, 11,009 (Feb. 14, 2013).

7 See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.).

8 Reg. Z, 12 C.F.R. §§ 1026.20(c)(2), 1026.20(d) (effective Jan. 10, 2014).

9 Reg. Z, 12 C.F.R. § 1026.20(c) (effective Jan. 10, 2014).

10 Reg. Z, § 1026.20(c) [§ 226.20(c)].

11 Reg. Z, 12 C.F.R. § 1026.20(c)(2) (effective Jan. 10, 2014).

12 See National Consumer Law Center, Truth In Lending § 5.13.3 (8th ed. and Supp.).

144

Mortgage Transfer of Ownership Notices When defending against a foreclosure or challenging servicing abuses it is important to

know not only who the servicer is, but also who is the current owner of the mortgage. The

identity of the current mortgage owner, however, may not always be apparent. Many mortgages

today are assigned by the loan originator to a purchaser on the secondary market. Very often the

mortgage owner at the time of foreclosure (or even shortly after the loan closing) is not the bank

or mortgage company that originated the loan. When mortgages are pooled and sold through the

securitization process, the ownership of the loan is typically transferred to a trust. A trustee,

usually a commercial bank, acts on behalf of the trust and investors.

The Truth In Lending Act requires that borrowers be notified whenever their mortgage

loan is sold, transferred, or assigned.1 The new owner or assignee must notify the borrower in

writing, within thirty days after the loan is sold or assigned, of its identity, address, telephone

number, and the date of transfer and location where the transfer is recorded.2 In addition, the

new owner must disclose how the borrower may reach an agent or party with authority to act on

behalf of the new owner, and any other relevant information.3

The Act applies to any consumer credit transaction that is secured by the principal

dwelling of a consumer.4 This includes loans secured by manufactured homes that are a

consumer’s principal dwelling. The TIL Official Interpretations make clear that closed-end

mortgage loans as well as open-end mortgage loans, such as home equity lines of credit, are

covered by the rule.5 The disclosure requirements do not apply to mortgage loans on investment

property and those not primarily for personal, family, or household purposes. The Final Rule

provides that if multiple covered persons jointly acquire the loan, a single disclosure must be

provided on behalf of all covered persons, not separate disclosures.6

The law became effective upon enactment, May 20, 2009.7 Failure to comply with these

requirements gives rise to a private right of action, which includes recovery of actual damages,

statutory damages, costs, and attorney fees.8 Borrowers may be entitled to statutory damages of

up to $4000 each time the rule is not complied with.

1 15 U.S.C. §§ 1641(g)(1)(A)/-/(E). See also Kishimoto v. H&R Block Mortgage Corp., Inc., 2011 WL 1135158 (D.

Haw. Mar. 24, 2011); Thepvongsa v. Reg’l Tr. Servs. Corp., 2011 WL 307364 (W.D. Wash. Jan. 26, 2011). 2 Borrower’s knowledge of the transfer does not abrogate the new owner’s duty to send the required notice. See

Richardson v. Rosenberg & Assoc., L.L.C., 2014 WL 823655 (D. Md. Feb. 27, 2014). 3 15 U.S.C. § 1641(g)(1)(C), (E).

4 15 U.S.C. § 1641(g)(2); Reg. Z, 12 C.F.R. § 1026.39(a)(2). See also Zirogiannis v. Dreambuilder Invs., L.L.C.,

782 F. Supp. 2d 14 (E.D.N.Y 2011) (dismissing, with leave to amend, complaint for failure to allege that the

property was the consumer’s principal dwelling, within the definition of TILA). 5 12 C.F.R. pt. 1026, supp. I, § 1026.39(a)(1) cmt. 2 (hereinafter cited as Official Interpretations § 1026.39(a)(1)-2).

6 Reg. Z § 1026.39(b)(5); Official Interpretations § 1026.39(d)(1)(i)-1.

7 Court have repeatedly held that application of 1641(g) is not retroactive, therefore it applies only to transfers after

May 20, 2009. See Jara v. Aurora Loan Serv., 852 F. Supp. 2d 1204 (N.D. Cal. 2012); Bradford v. HSBC Mortgage

Corp., 829 F. Supp. 2d 340 (E.D. Va. 2011). 8 15 U.S.C. § 1640(a); 11.2.5.6, infra. See generally National Consumer Law Center, Truth in Lending, § 11.6.9.3

(7th ed. 2010 and Supp.) (discussing assignee liability for failing to comply with these provisions).

145

To implement the statutory requirements for mortgage transfer notices, the Federal

Reserve Board issued an interim final rule on November 20, 2009, which initially became

effective on an optional basis on that date.9 Compliance with the interim final rule became

mandatory on January 19, 2010. A Final Rule was then issued, which became effective on

January 1, 2011.10

Persons Subject to the Notice Requirement

TILA applies to persons to whom an obligation is initially made payable and that

regularly engage in extending credit. However, section 1641(g)’s new transfer notice

requirement is not limited to loan originators and applies to persons that acquire ownership of an

existing debt. Thus, the rule uses the term “covered person” rather than “creditor” to describe

persons subject to its requirements.11

A “covered person” is an owner of the mortgage loan who has acquired legal title to the

debt obligation.12

The person must also acquire more than one mortgage loan in any twelve-

month period.13

The Official Interpretations clarify that a party may become a covered person by

acquiring a partial interest in a mortgage loan.14

All persons that jointly acquire a mortgage loan

are subject to the disclosure requirement.15

Further, an acquiring party that is a separate legal

entity from the seller or transferor of the mortgage must provide disclosures even if the parties

are affiliates.16

Industry groups had urged the Board to reverse its position taken in the interim rule that

acquisitions through merger were subject to the rule. The Board concluded that an exemption for

acquisition transfers was inconsistent with the purpose of the statute. The Final Rule therefore

applies even if ownership is transferred to a different legal entity based on a merger, acquisition,

or reorganization.17

The Board also rejected an industry proposal for a longer compliance period

for transfer by mergers.

It is the acquisition of a legal interest in the loan note that triggers the obligation to

comply, regardless of whether the security interest has been assigned or who the assignee of the

mortgage or mortgagee may be.18

Defendants in several cases have argued that the notice

9 See 74 Fed. Reg. 60,143 (Nov. 20, 2009).

10 See 75 Fed. Reg. 58,489 (Sept. 24, 2010).

11 See Valrie v. NationStar Mortg., L.L.C., 2012 WL 369455 (S.D. Ala. Jan. 18, 2012) (applying regulation and

rejecting defendant’s argument that TILA definition of “creditor” should be used), adopted by, 2012 WL 369288

(S.D. Ala. Feb. 3, 2012). But see Henson v. Bank of America, 935 F. Supp. 2d 1128 (D. Colo. 2013) (finding no

liability under 1641(g) where servicer did not originate the loan despite allegation that servicer was also assignee). 12

Reg. Z, 12 C.F.R. § 1026.39(a)(1). In states that use deeds of trust, it is important to distinguish between the

trustee named in the deed of trust and the trustee of the securitization trust (usually a large bank). The latter is

usually the owner of the debt obligation and qualifies as a “covered person.” By contrast, the trustee named in the

deed of trust is typically a third party with no interest in the debt obligation. 13

Id. 14

Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(i). 15

Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(ii). 16

Official Interpretations to Reg. Z § 1026.39(a)(1)-(2)(iii). 17

Official Interpretations to Reg. Z § 1026.39(a)(1)-4. 18

See Giles v. Wells Fargo Bank, 519 Fed. Appx. 576 (11th Cir. 2013) (per curium) (section 1641(g) applies upon

transfer of note not security instrument).

146

obligation had not been triggered because only the mortgage had been assigned. Courts in these

cases have generally refused to dismiss the cases at the pleading stage where it is not clear

whether some interest in the note may also have been transferred.19

By specifying that legal title must be acquired, the rule does not apply to a person who

acquires only a beneficial interest or security interest in the loan.20

For example, if the owner of a

mortgage loan uses the loan as security to obtain financing, the lender providing the financing is

not a “covered person” under the rule. It is not clear whether the rule will permit evasion of the

statutory requirement when there have been transfers of the debt obligation, but legal title is

purportedly retained by the Mortgage Electronic Registration System (MERS).21

However, as a

nominee only, MERS generally claims to hold title to the mortgage, but not the note.22

Transfers

of the note’s ownership within the MERS system, as opposed to simply the beneficial interest in

the security instrument, should be subject to the rule.23

A party that assumes credit risk without acquiring legal title to loans is not covered by the

rule.24

Thus, an investor that acquires mortgage-backed securities, pass-through certificates, or

participation interests and does not directly acquire legal title in the underlying mortgage loans is

not covered. This was apparently intended to exempt entities such as Ginnie Mae when it serves

as a guarantor of securities and obtains equitable title to loans. However, if the issuer of the

securities defaults and Ginnie Mae then acquires legal title to the loans, Ginnie Mae would be

required to comply with the rule.

19

See, e.g., Bernardi v. Deutsche Bank Nat’l Trust Co., 2013 WL 163285 (N.D. Cal. Jan. 15, 2013) (declining to

dismiss claim because of open question as to whether assignment of deed of trust can effect transfer in ownership of

loan). Cf. Connell v. CitiMortgage, Inc., 2012 WL 5511087 (S.D. Ala. Nov. 13, 2012) (transfer of debt obligation,

not assignment of mortgage triggers § 1641(g) obligation; MERS assignment purporting to convey “note and

indebtedness secured by the Mortgage” did not trigger obligation where assignor (MERS) had no interest in debt to

assign); Stennett v. Citimortgage, Inc., 2012 WL 1003485 (S.D. Fla. Feb. 29, 2012); Foley v. Wells Fargo Bank,

849 F. Supp. 2d (S.D. Fla. 2012); Valrie v. NationStar Mortg., L.L.C., 2012 WL 369455 (S.D. Ala. Jan. 18, 2012),

adopted by, 2012 WL 369288 (S.D. Ala. Feb. 3, 2012); Squires v. BAC Home Loans Servicing, L.P., 2011 WL

5966948 (S.D. Ala. Nov. 29, 2011) (allegation in complaint that “beneficial interest in the Plaintiffs’ mortgage and

note was assigned to [defendant]” was sufficient at 12(b)(6) stage); In re Ahmadi, 467 B.R. 782 (Bankr. M.D. Pa.

2012) (refusing to dismiss claim based on defendant’s claim that it became owner of loan before effective date of §

1641(g) amendment where assignment of mortgage was dated after effective date). Cf. Marzan v. Bank of New

York Mellon, 2011 WL 2357658 (D. Haw. June 9, 2011) (expressing confusion over conflict between recorded

assignment of mortgage and mortgage loan transfer disclosure notice, which noted transfer of “mortgage loan” more

than seven months after recorded assignment). 20

Official Interpretations to Reg. Z § 1026.39(a)(1)-2. See McCray v. Federal Home Loan Mortgage Corp., 2014

WL 293535 (D. Md. Jan 24, 2014) (transfer of beneficial interest in loan from MERS does not trigger obligations

under § 1641(g)). 21

See, e.g., Sakala v. BAC Home Loans Serv., L.P., 2011 WL 719482 n.8 (D. Haw. Feb. 22, 2011) (declining to

consider MERS and BAC’s argument that the recorded assignment of mortgage “did not transfer any ownership

interest in the underlying debt” and thus there was no requirement to issue a § 1641(g) notice). See also § 5.9, supra

(information about MERS). 22

Mortgage Elec. Registration Sys., Inc. v. Estrella, 390 F.3d 522, 524/-/525 (7th Cir. 2004). 23

The Board did not address this issue in the final rule. 24

Official Interpretations to Reg. Z § 1026.39(a)(1)-3(i).

147

The rule also provides an exception for mortgage servicers in certain situations,

consistent with the TILA assignee liability provision in 15 U.S.C. § 1641(f)(2).25

If the servicer

holds legal title to the loan or the obligation is assigned to the servicer “solely for the

administrative convenience of the servicer in servicing the obligation,” the servicer is not a

“covered person” under the rule.26

This servicer exemption should not apply to transfers to

MERS, however, since MERS is not a servicer and claims no rights to any payments made on

the mortgage loans or to any servicing rights related to mortgage loans.27

Servicers remain

obligated, however, to respond to borrower requests under section 1641(f)(2) for the name,

address, and telephone number of the loan owner.

An exception to the disclosure requirement is also provided for temporary holders of

mortgage loans. If a covered person sells or transfers legal title to the mortgage loan on or

before the thirtieth calendar day after the covered person acquired the mortgage loan, the covered

person is not required to provide the disclosure.28

The transferee in that situation who

subsequently becomes a covered person would be required to give the disclosure if the loan is

not transferred again within thirty days. The Commentary clarifies that if a covered person

transfers only a partial interest within the thirty-day period after it acquires a mortgage loan, it

must still comply with the disclosure requirements so long as it retains a partial interest in the

loan on the thirtieth day.29

The FRB suggests this exception will prevent borrowers from being confused by multiple

disclosures they would receive if the various entities that might briefly hold a mortgage loan

during the securitization process were required to comply. However, the exception makes it

difficult to use § 1641(g) notices to determine the chain of title of a mortgage. Practitioners may

need to investigate intermediate transfers to determine who should receive rescission notices or

whether a proper chain of title leads to the current holder.30

Timing of Disclosure Requirement

Section 1641(g) provides that the disclosures must be given “not later than 30 days after

the date on which the mortgage loan is sold or otherwise transferred or assigned to a third

party.”31

The interim rule had used the “acquisition date” as the date of transfer, which was

deemed to be the date recognized in the books and records of the acquiring person. Due to

Board concerns about compliance based on the different accounting methods used for

25

See Greer v. Ocwen Loan Servicing, L.L.C., 2014 WL 1593355 (W.D. Wash. Apr. 21, 2014) (servicer not liable

for 1641(g) violation where borrower failed to plead facts showing servicer owned the loan). 26

Reg. Z, 12 C.F.R. § 1026.39(a)(1). See Reed v. Chase Home Fin., L.L.C., 723 F.3d 1301 (11th Cir. 2013)

(servicer not covered where it obtained assignment for administrative purposes). 27

See § 5.9, supra. 28

Reg. Z, 12 C.F.R. § 1026.39(c)(1). 29

Official Interpretations to Reg. Z § 1026.39(c)(1)-2. 30

Similarly, there is an exception for repurchase agreements. If a mortgage loan is transferred to a covered person in

connection with a repurchase agreement, and the transferor that is obligated to repurchase the loan continues to

recognize the loan as an asset on its own books for accounting purposes, the covered person acquiring the loan is not

required to provide the disclosures. However, if the transferor does not repurchase the mortgage loan, the acquiring

party must make the disclosures within thirty days after the date that the transaction is recognized as an acquisition in its

books. Reg. Z, 12 C.F.R. § 1026.39(c)(2). 31

15 U.S.C. § 1641(g)(1).

148

recognizing acquisitions, the Final Rule clarifies that the disclosures must be provided on or

before the thirtieth day following the “date of transfer” which may be either the acquisition date

recognized by the transferee, or the date recognized by the transferor.32

Similarly, either date

may be stated on the disclosure as the date of transfer.

Persons Entitled to Receive Disclosure

The interim rule provided that if more than one consumer were liable on the mortgage,

disclosures were to be sent to any consumer who is “primarily liable.” No definition of

“primarily liable” was provided. Consumer groups asked the Board to require that transfer

notices be provided to all consumers obligated on the loan note, and to any consumer who would

be entitled to a notice of rescission on the transaction. The Board declined to adopt this

suggestion. Ignoring consumer comments that pointed out that a co-obligor in a divorce or

separation may never receive a notice mailed to only one borrower at the dwelling address, the

Board found that additional copies to multiple obligors would typically be sent to the same

address and would not “significantly enhance consumer protection.” The Board also concluded

that sending notice to non-obligors entitled to rescind would “create operational difficulties”

because the person acquiring the loan might not know which parties had a right to rescind when

the loan was made. Thus, no change was made in the Final Rule and the transfer notice may be

sent to any consumer who is primarily liable.33

Content of Required Disclosures

Identification of the loan. The disclosure must identify the loan that was acquired or

transferred.34

To provide flexibility, the Commentary permits a covered person to use any

information that would reasonably inform a consumer.35

Examples given include providing the

property address along with the pre-transfer account number, the account number alone (if

previously provided to the consumer such as on a monthly statement), or the date when the credit

was extended and the original loan amount or credit line.

New owner’s identity, address, and telephone number. The covered person acquiring

the loan must disclose its name, address, and telephone number.36

This information must be

provided even if there is another party who is servicing the loan.37

If a single disclosure is

provided for more than one covered person, the information shall be provided for each of them.38

However, if one of the covered persons in that case has been authorized to receive the

consumer’s notice of the right to rescind and to resolve issues concerning loan payments, the

disclosure may state the name, address, and telephone number only for that covered person.39

The covered person may, at its option, provide an e-mail or website address, but is not required

32

Reg. Z § 1026.39(b)(2). 33

Reg. Z § 1026.39(b)(3). 34

Reg. Z § 1026.39(d). 35

Official Interpretations to Reg. Z § 1026.39(d)-1. 36

Reg. Z § 1026.39(d)(1). 37

A different statute, the Real Estate Settlement Procedures Act, requires the borrower to be notified if servicing of

the loan is transferred from one entity to another. 12 U.S.C. § 2650(b). See § 9.2.3.3, supra. 38

Reg. Z § 1026.39(d)(1)(i). 39

Reg. Z § 1026.39(d)(1)(ii); Official Interpretations to Reg. Z § 1026.39(d)(1)(i)-1.

149

to do so.40

Transfer date. The covered person must disclose the date that the loan was transferred.41

The rule permits disclosure of either the acquisition date or the date of transfer recognized in the

books and records of the transferring party.42

Several courts have dismissed claims under section 1641(g) because the borrower has not

alleged the precise date when the loan was transferred.43

One court has correctly pointed out that

this places the borrower in a “Catch–22 type of situation” because the exact date of the transfer

was never disclosed and the information is totally within the control of the defendant.44

The

better view is that the borrower should be permitted to conduct discovery to determine the exact

date when loan ownership was acquired by the defendant.

Agent’s contact information. The interim rule had required that the notice identify a

person (or persons) authorized to receive legal notices on behalf of the covered person and

resolve issues concerning the consumer’s payments on the loan. Industry groups complained

that the “legal notice” requirement was too vague.

The interim rule also provided that a covered person could comply with this requirement

by simply providing the phone number for the agent, if the consumer can use the phone number

to obtain the agent’s address. Consumer groups pointed out that borrowers may mistakenly use

the telephone number to attempt rescission or to dispute servicer errors, unaware that an oral

communication with the agent will not effectuate rescission or be treated as a qualified written

request under RESPA.45

The Board responded in the Final Rule by changing the “legal notice” requirement and

also requiring that the agent’s address be included in the disclosure. The Final Rule requires that

the disclosure provide the name, address, and telephone number for the agent or other party

having authority to receive a rescission notice and resolve issues concerning loan payments.46

It

does not require contact information for an agent or other party if the consumer can use the

covered person’s contact information for these purposes. The Commentary provides that,

although a covered person is not required to designate an agent or other party, the name, address,

and telephone number for the agent or other party must be provided if the consumer cannot

contact the covered person to rescind or resolve payment disputes.47

If multiple agents are listed,

the notice must state which one is authorized to receive a rescission notice and which one is

authorized to resolve payment disputes.48

If the same person handles both rescission notices and

payment disputes, the disclosure need only state that the consumer may contact that person about

40

Official Interpretations to Reg. Z § 1026.39(d)(1)-1. 41

Reg. Z § 1026.39(d)(2). 42

Reg. Z § 1026.39(b)(2). 43

See, e.g., Deerinck v. Heritage Plaza Mortg. Inc., 2012 WL 1085520 (E.D. Cal. Mar. 30, 2012); Derusseau v.

Bank of Am., 2012 WL 1059928 (S.D. Cal. Mar. 28, 2012). 44

Humphreys v. Bank of Am. Corp., 2012 WL 1022988, *10 (W.D. Tenn. Mar. 26, 2012) (refusing to dismiss §

1641(g) claim); see also Pugh v. Bank of America, 2013 WL 3349649 (W.D. Tenn. July 2, 2013). 45

12 U.S.C. § 2605(e). 46

Reg. Z § 1026.39(d)(3). 47

Official Staff Commentary to Reg. Z § 1026.39(d)(3)-1 48

Id.

150

questions concerning the account without specifically mentioning rescission or payments.49

The

covered person may provide the agent’s email or website address, but is not required to do so.50

Recording location. Section 1641(g) provides that the notice must disclose “the location

of the place where transfer of ownership of the debt is recorded.”51

Because the statute refers to

debt ownership, the Board construed the requirement in the interim rule as applying only if

transfer of ownership has been recorded. Consumer groups suggested in comments that this

interpretation would render the rule meaningless since transfers of debt ownership are generally

not recorded in public land records, and that the Board should require disclosure of the location

where the covered person’s security interest in the property is located.

After considering the costs and benefits of providing more detailed information, the

Board chose to retain the original approach. The Final Rule requires the covered person to

disclose where transfer of ownership of the debt to the covered person is or may be recorded, or,

alternatively, that the transfer of ownership has not been recorded in public records at the time

the disclosure is provided.52

Optional disclosures. Section 1641(g) provides that the party acquiring a loan shall

notify the borrower of “any other relevant information regarding the creditor.”53

The Board

sought comment on whether the rule should include any additional requirements. The Final Rule

does not impose any additional requirements and provides that covered persons may, at their

option, include any other information regarding the transaction.54

The Commentary notes that a

covered person may provide any information considered relevant or helpful to consumers, such

as informing consumers that the location where they should send mortgage payments has not

changed.55

Private Remedies for Violation of Transfer Notice Requirement

Failure to comply with the transfer notice requirements gives rise to a private right of

action, which includes recovery of actual damages, statutory damages, costs, and attorney fees.56

Borrowers may be entitled to multiple statutory damages of up to $4000 per violation each time

the rule is not complied with.

If no section 1641(g) notice is given, the violation occurs upon the expiration of the

thirty-day period in which disclosure should have been provided.57

TILA requires any action

49

Id. 50

Official Staff Commentary to Reg. Z § 1026.39(d)(3)-2. 51

15 U.S.C. § 1641(g)(1)(D). 52

Reg. Z, § 1026.39(d)(4). See Reardean v. Federal Home Loan Mortg. Corp., 2014 WL 774939 (W.D. Tex. Feb.

24, 2014) (Section 1641(g) does not require new owner to record transfer); Altier v. Federal Nat. Mortgage Assn.,

2013 WL 6388521 (N.D. Fla. Dec. 6, 2013) (same). 53

15 U.S.C. § 1641(g)(1)(E). 54

Reg. Z, § 1026.39(e). 55

Official Interpretation, § 1026.39(e)-1. 56

15 U.S.C. § 1640(a). See generally National Consumer Law Center, Truth in Lending, § 11.6.9.3 (7th ed. 2010

and Supp.) (discussing assignee liability for failing to comply with these provisions). 57

See Squires v. BAC Home Loans Serv., L.P., 2011 WL 5966948 (S.D. Ala. Nov. 29, 2011) (claim accrues after

30-day period runs, not on date of transfer).

151

pursuant to section 1641 to be brought within one year from the date of the violation.58

The short

statute of limitations may present a challenge for borrowers who do not discover that their loan

was transferred within a year of the transfer date. These borrowers should consider avenues to

toll the limitations period such as equitable tolling and fraudulent concealment.59

The recovery of statutory damages for violation of the TILA transfer notice requirements

is not dependent upon an award of actual damages. Thus, a section 1641(g) claim should not be

dismissed at the pleading stage for failure to allege actual damages if the borrower is at a

minimum seeking statutory damages.60

One court rejected a creditor’s argument, based on the

statutory language in section 1640(a)(2)(A) setting damages at twice the finance charge, that

statutory damages cannot be recovered in a section 1641(g) action because the violation does not

involve the assessment of a finance charge against the borrower.61

Relying in part upon the

Supreme Court decision in Mourning v. Family Publications Service, Inc.,62

and the statutory

language in 1640(a)(2)(A)(iv) establishing a floor of $400 in statutory damages, the court held

that TILA statutory penalties may be assessed for violation of a TILA disclosure requirement

even in cases where no finance charge is implicated by the violation. Plaintiffs in such cases

would be entitled to at least the minimum $400 statutory penalty for a section 1641(g)

violation.63

The court also questioned, without deciding the issue, whether the finance charge

“in connection with the transaction” for purposes of TILA statutory damages would need to be

related to the section 1641(g) violation, noting that there were certainly finance charges imposed

in the underlying mortgage transaction that possibly could be used in calculating damages under

the statutory formula.64

58

15 U.S.C. § 1650(e). 59

See generally National Consumer Law Center, Truth in Lending, § 12.2.3.2 (7th ed. 2010 and Supp.). However, a

number of courts have rejected equitable tolling arguments where the underlying assignment was recorded in the

local land records. See, e.g., Sokol v. JP Morgan Chase Bank, N.A., 2013 WL 6623897 (N.D. Cal. Dec. 16, 2013)

(and cases cited). 60

Wise v. Wells Fargo Bank, 850 F. Supp. 2d 1047 (C.D. Cal. 2012); Foley v. Wells Fargo Bank, 849 F. Supp. 2d

1345 (S.D. Fla. 2012); Salmo v. PHH Mortg. Corp., 2012 WL 84222 (C.D. Cal. Jan. 11, 2012); Brown v.

CitiMortgage, Inc., 817 F. Supp. 2d 1328 (S.D. Ala. 2011). But see Bishop v. JPMorgan Chase & Co, 2013 WL

3177826 (D. Del. 2013) (misapplying Third Circuit decision, Vallies v. Sky Bank, 591 F.3d 152 (3d. 2009), related

to actual damages under TILA); Soares v. ReconTrust Co., 2012 WL 1901234 (N.D. Cal. May 25, 2012); Conley v.

Bank of New York Mellon Corp., 2012 WL 406911 (D. Haw. Feb. 7, 2012) (dismissing claim on basis that plaintiff

did not allege detrimental reliance upon an inaccurate or incomplete disclosure). 61

Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328 (S.D. Ala. 2011); see also Fowler v. U.S. Bank Nat. Assn., --

F.Supp. 2d --, 2014 WL 850527 (S.D. Tex. Mar. 4. 2014). But see Beall v. Quality Loan Serv. Corp., 2011 WL

1044148 (S.D. Cal. Mar. 21, 2011) (holding with little analysis that failure to allege actual damages or finance

charge related to the violation precluded liability under § 1641(g)). 62

411 U.S. 356, 367, 93 S. Ct. 1652 (1973). 63

Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328, 1333/-/34 (S.D. Ala. 2011). See also Cloud v. EMC Mortg.

Corp., 2012 WL 1432594 (D. Or. Apr. 25, 2012) (awarding minimum $400 in statutory damages, $7334 in attorney

fees, and $517 in costs for servicer’s § 1641(f)(2) violation for failing to notify borrower of owner of obligation);

Foley v. Wells Fargo Bank, 849 F. Supp. 2d 1345 (S.D. Fla. 2012) (adopting reasoning set forth in Brown). 64

Brown v. CitiMortgage, Inc., 817 F. Supp. 2d 1328, 1336 (S.D. Ala. 2011).

152


Other TILA Servicing Rules

Prompt Crediting of Payments

• Servicer must credit “periodic payment” upon receipt, unless:– no charge to consumer and

– no negative credit reporting; or

– borrower doesn’t follow instructions about how to pay

• “Periodic payment” – defined as amount sufficient to cover principal, interest, and escrow for billing cycle

• No pyramiding of late fees - same as FTC Credit Practices Rule

153

Prompt Crediting of Payments

• Partial payments may be placed into a suspense account and not treated as accepted– suspense account may be used only if authorized by

contract and permitted by state law

– when funds held in suspense account are equal to or greater than a periodic payment, they must be applied

– must disclose on periodic statement, if provided

• Non-conforming payments (do not comply with payment instructions) are treated as accepted and must be credited within 5 days of receipt

• No small servicer or bankruptcy exemption

Payment Change Notices(Effective January 10, 2014)

• CFPB found no conflict with 21 day payment change notice requirement in Bankr. Rule 3002.1(b)– sending TILA notice earlier than required under bankruptcy law “enhances consumer protection by providing these

consumers with additional time to adjust to an increase in their mortgage payments.”

Initial Rate Reset Notice

12 C.F.R. §1026.20(d)

Payment Change Caused by

Rate Reset

12 C.F.R. §1026.20(c)

When 210 to 240 days before the first

payment after the rate reset

60 to 120 days before the

change, unless

• Not possible, and then 25

days before the change, or

• Within 210 days (7 months) of

closing

What Interest rate ending; Effective date of new rate; When future changes

will occur; Current & future interest rates; Current & future payments;

Explanations about how the rate and payment are determined, and

allocated (if not fully amortizing)

Housing counseling notice;

Telephone number to call for

anticipated difficulties with

payments; Information on

refinancing or modifying

154

Payment Change Notices

• CFPB found no conflict with 21 day payment

change notice requirement in Bankr. Rule

3002.1(b)

– sending TILA notice earlier than required under

bankruptcy law “enhances consumer protection

by providing these consumers with additional

time to adjust to an increase in their mortgage

payments.”

Payoff Statements – TILA Request

• Payoff statements must be sent within 7 business days after written request received

• Reg. X 1024.36(a) - servicers need not treat request for payoff balances as RESPA request for information– RESPA ban on servicer fees for response to

information requests does not apply

• Failure to provide accurate payoff statement based on a TILA request is subject to error resolution under RESPA

155

Payoff Statements – TILA Request

• Rule applies to all loans secured by a consumer’s dwelling, including open-end loans (HELOCs) and reverse mortgages

• CFPB refused to create a blanket exemption for loans in default, foreclosure, or bankruptcy.– if servicer is unable to provide a payoff statement

within 7 days because loan is in bankruptcy or foreclosure, or loan is a reverse mortgage, or because of natural disasters, payoff statement must be provided within a “reasonable time,” which is not defined.

Transfer of Ownership Notices

• “Covered person” must, within 30 days of

acquiring an interest in the loan, make the

required disclosures

• Given only to primarily liable borrower

• 15 U.S.C. §1641(g) & 12 C.F.R. § 1026.39

156

Covered Person

Legal ownership of debt obligation

Includes partial interests

Includes mergers

Excludes ownership of less than 30 days

Excludes servicer if transfer “solely for the administrative convenience of the servicer in servicing the obligation”

Content of Required Disclosure

Loan identity

Identity, address, and telephone number of covered person

Acquisition date

Agent’s contact information

Recording location

157

TILA Remedies

• Actual Damages, Costs and Attorney’s

Fees

• Statutory Damages: twice the finance

charge, up to $4,000 for closed-end

mortgage violations• Statutory damages are not available for violations

involving the periodic statement requirement

• TILA § 1640 refers to “creditor”, which is

typically the loan originator

158

Private Remedies for RESPA Servicing Violations

I. State-law claims. A. Negligence & negligent misrepresentation: may need special relationship or non-party

to contract (i.e., servicer) - Petty v. Countrywide Home Loans, Inc., CIV.A. 3:12-6677,

2013 WL 1837932 (S.D.W. Va. May 1, 2013)

B. Promissory Estoppel: Coleman v. JP Morgan Chase Bank, N.A., CIV.A. 3:14-0183,

2014 WL 1871726 (S.D.W. Va. May 8, 2014)

C. UDAP: Crilley v. Bank of Am., N.A., CIV. 12-00081 LEK, 2012 WL 1492413 (D. Haw.

Apr. 26, 2012)

D. Fraud: Petty v. Countrywide Home Loans, Inc., CIV.A. 3:12-6677, 2013 WL 1837932

(S.D.W. Va. May 1, 2013)

E. Misrepresentation in Debt Collection (FDCPA/State Consumer Act): for FDCPA

must show "debt collector"

F. Tort of Outrage/Intentional Infliction of Emotional Distress

G. Tortious interference with contract: Coleman v. JP Morgan Chase Bank, N.A., CIV.A.

3:14-0183, 2014 WL 1871726 (S.D.W. Va. May 8, 2014)

H. Unclean hands.

I. Unjust enrichment: Stroman v. Bank of Am. Corp., 852 F. Supp. 2d 1366 (N.D. Ga.

2012)

J. Failure to reinvestigate under FCRA: Stroman v. Bank of Am. Corp., 852 F. Supp. 2d

1366 (N.D. Ga. 2012)

K. Conversion (failing to credit payments): Stroman v. Bank of Am. Corp., 852 F. Supp.

2d 1366 (N.D. Ga. 2012)

L. Lack of standing. M. Breach of Contract.

1. FHA: Kersey v. PHH Mortgage Corp., 682 F. Supp. 2d 588, 596 (E.D. Va. 2010)

vacated, 3:09CV726, 2010 WL 3222262 (E.D. Va. Aug. 13, 2010)

2. VA: Ranson v. Bank of Am., N.A., CIV.A. 3:12-5616, 2013 WL 1077093 (S.D.W. Va.

Mar. 14, 2013)

3. Trial Period Plan: Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 563 (7th Cir.

2012)

4. Final modification/forbearance

5. Breach of deed of trust/note re: right to cure, foreclosure process, interference with

right to reinstate, payment application: Stroman v. Bank of America Corp., 852

F.Supp.2d 1366, 1377 (N.D.Ga.2012) (plaintiff sufficiently plead breach of contract

when “[d]efendants ... failed to apply her payments properly according to the terms of

the contract.”).

II. Pre-suit investigation / actions A. Assisting in loss mitigation — balancing the considerations of…

1. Timing: the need to submit a timely loss mitigation application in the face of the

choreography and deadlines imposed by the loss mitigation procedures under

Regulation X — 12 C.F.R. § 1024.41; with,

2. Conflict: being a witness in your own case;

159

B. Transmitting a compliant QWR (NOE/RFI)

1. Facts in QWR. Allege facts to support allegation of error in the QWR.

2. Consider having client send the first QWR. Hiring a lawyer to perform a follow-up

to non-responsive servicer can represent an element of actual damages. (See below.)

3. Balance the considerations of…

a) Getting specific information you need (and protecting your file); with,

b) Pleasing a judge: avoiding “shot-gun” requests, demonstrating that you’ve done

your homework when accusing the servicer of having committed an error; and,

c) Presenting an exhibit to a jury of dubious sophistication or objectivity.

4. Correct address. Triple confirm the correct address to which to send a QWR.

If you contend this letter has been sent to an address not designated by you for receipt of notices of error in accordance with the procedures under § 1024.35 of Regulation X then please immediately inform this office as to the correct contact address, and provide this office with the URL for any website that you maintain on which is listed the appropriate contact address.

5. Agency. If you send the QWR identify yourself as an “agent” of the borrower under

12 U.S.C. § 2605(e)(1)(A), and include a smart looking or servicer-specific third-

party-authorization form signed by each borrower/homeowner;

6. Duplicative request. Don’t risk accusation of having sent duplicative request.

Perform due diligence on whether a previous QWR has already been sent. Be sure to

include “new, material information and items that you may not have previously

reviewed in connection with your investigation of any prior notice of a similar error

or QWR.” Such information should be described as being reasonably likely to change

any prior determination about the noticed error(s). (Ref. 12 C.F.R. § 1024.35(g)).

7. Request the identity and contact information for a human point of contact.

“Please provide the name and telephone number of a person with whom we can

discuss this matter.” [cite]

8. Request supporting documents. “If you determine that no error has occurred, we

would request copies of any document or information relied upon by you in making

your determination that no error has occurred. You must comply with this request

within 15 business days of notifying this office of your determination. (Ref. 12 C.F.R.

§ 1024.35(e)(4).) If you contend that a we must make a new request for such

documents then please so advise this office immediately so that we may comply.”

9. Credit issues.

a) Consider FCRA notice to CRAs and any person reporting to a CRA.

b) Surveillance on credit reporting. Client should monitor credit reports.

c) In QWR advise servicer of responsibility regarding credit reporting.

Please be advised that for 60 days after receipt of this Notice of

Error, you must not furnish adverse information to any consumer

160

reporting agency regarding any payment, including any allegedly

overdue payment, owed by our client(s) that is the subject of this

Notice of Error under 12 C.F.R. § 1024.35(i).

C. Venue / SOL

1. A RESPA claim under § 2605, 2607, or 2608 may be brought “in the United States

district court or in any other court of competent jurisdiction, for the district in which

the property involved is located, or where the violation is alleged to have occurred,

within 3 years in the case of a violation of section 2605 of this title and 1 year in the

case of a violation of section 2607 or 2608 of this title from the date of the occurrence

of the violation, except that actions brought by the Bureau, the Secretary, the

Attorney General of any State, or the insurance commissioner of any State may be

brought within 3 years from the date of the occurrence of the violation.” See 12

U.S.C. § 2614.

2. State law SOL issues & use of discovery rule & laches

D. Proving a pattern & practice. “A single alleged RESPA violation is insufficient to

establish a ‘pattern or practice.”1 One court has noted that the “pattern and practice”

language in RESPA and other federal statutes is not a “term of art but rather is defined

according to the usual meaning of the words,” and that it suggests a “standard or routine

way of operating.”2

1. Past practice with this client (i.e., multiple failures to respond to QWR, provide

accurate notices, etc.)

2. Foreclosure records

3. Former clients

4. Clients of other attorneys (bankruptcy attorneys, legal aid, consumer attorneys)

5. Discovery:

a) Names of other borrowers: Marks v. Global Mortgage Group, Inc., 218 F.R.D.

492, 495-97 (S.D.W. Va. 2003); Robinson v. Quicken Loans Inc., CIV.A. 3:12-

0981, 2013 WL 1704839 (S.D.W. Va. Apr. 19, 2013)

b) Policies & procedures (company’s written policies, or through Rule 30(b)(6)

representative testimony)

E. Attorneys’ Fees. Have your time-keeping and billing system set up to differentiate

between attorneys, paralegals, and other support staff. Enter into a standard hourly-rate

attorney-client employment agreement.

F. Pre-Suit Investigation.

1. Homework. Client to collect all notices, statements, correspondence, phone records,

cancelled checks, etc.

1 Lawther v. Onewest Bank, No. C 10-0054 RS, 2010 U.S. Dist. LEXIS 131090 at *20-21 (N.D. Cal. Nov. 30,

2010). 2 Cortez v. Keystone Bank, 2000 WL 536666 (E.D. Pa. May 2, 2000).

161

2. Transmit spoliation notices. For example Bank of America contends that it destroys

its e-mails that are over 90 days old. Send out formal demand to preserve such

evidence, including Electronically-Stored Information (“ESI”) before you even

suspect litigation is possible.

3. Recording phone calls with servicer’s agents. Client should be encouraged to

record conversations with servicer surreptitiously if consistent with applicable law

and ethics rules. Know whether you are in a state that is a one- or two-party recording

state. Know whether surreptitious recording can expose counsel to ethical sanctions

or other legal liability.

4. Running title. Check down publicly recorded instruments — both instruments of

conveyance and liens — to preserve the chain of title.

5. Web-based resources.

a) MERS Loan Locator. Identify servicer / owner of the loan. https://www.mers-

servicerid.org/sis/index.jsp

b) Fannie Mae Loan Lookup. https://knowyouroptions.com/loanlookup

c) Freddie Mac Loan Lookup. https://ww3.freddiemac.com/corporate/

d) SEC lookup publicly-issued securitized trusts. http://www.sec.gov/index.htm

e) Federal Reserve financial institution information.

http://www.ffiec.gov/nicpubweb/nicweb/SearchForm.aspx

f) State-based Division of Banking website for registration etc.

III. Damages / Relief

A. Actual damages. Trend towards requiring actual, but not onerous, damages as a sine qua

non of a RESPA claim. Remember that RESPA is remedial. “As a remedial statute,

RESPA is construed broadly to effectuate its purposes.” Marais v. Chase, 736 F.3d 711,

719 (2013).

1. Defined. The term “actual damages” is not defined within RESPA. 12 U.S.C. § 2602

(2006) (definitions do not list "actual damages" or even "damages"). The common

meaning of damages is “[a]n amount awarded to a complainant to compensate for a

proven injury or loss; damages that repay actual losses.” BLACK'S LAW DICTIONARY

(9th ed. 2009). RESPA authorizes the plaintiff to recover “all provable injuries that

are the result of [Servicer’s] response to receiving the QWR. Or, to put a finer point

on it, all expenses, costs, fees, and injuries fairly attributable to [Servicer’s] failure to

respond appropriately to the QWR, even if incurred before the failure to respond, are

included.… In addition, such damages include any losses or injury resulting from

damaged credit as a result of [Servicer’s] possible improper reporting to consumer

reporting agencies.3

2. Causation. Actual damages must be proximately caused by the misconduct at issue.

3. Examples of Economic Damages:

3 Marais v. Chase Home Fin., LLC, Case No. 2:11-cv-314 (S.D. Ohio, June 4, 2014).

162

a) Actual uncorrected servicing error. Misapplication of payments and failure to

correct those damages.4

b) Lost equity in home. Demonstrate causal relationship between failure of servicer

to provide requested information and plaintiffs’ inability to cure the default or

avoid foreclosure. 5

c) Attorney’s fees directly related to follow-up to QWR. “Had [the servicer]

properly responded in the first instance, Plaintiff would not have incurred those

additional [attorney’s] fees, as no follow-up would have been required. As

discussed above, attorney's fees are generally not available for bringing suit on an

alleged RESPA violation unless other actual damages are established, and the

Court does not include the fees incurred by Plaintiff in bringing this lawsuit as

actual damages. However, the Court finds that Plaintiff has identified a disputed

fact as to whether or not he is entitled to reimbursement of just those fees incurred

in his attempts to get a response to his QWR.”6

d) Photocopies, facsimile costs, postage, mileage for travel. To send a qualified

written request7 or to submit repeated loss mitigation packages or correspondence

to servicer. 8

e) Credit damage. Damages include any losses or injury resulting from damaged

credit as a result of [Servicer’s] possible improper reporting to consumer

reporting agencies.9 (See pleading caveats below.)

f) Accounting issues (i.e., amount claimed due is wrong)

g) Accrued arrears or fees caused by delay

h) moving expenses or improper REO procedures

i) Payments made to former servicer after effective date of transfer.10

4. Emotional Distress.

a) Presumed to be part of RESPA damages? Because RESPA “is remedial

consumer protection statute,” courts are finding that RESPA’s actual damages can

include emotional distress.11

“Plaintiffs arguably may recover for non-pecuniary

damages, such as emotional distress and pain and suffering, under RESPA.”

McLean v. GMAC Mortg. Corp., 398 Fed. App’x. 467, 471 (11th Cir. 2010)

4 Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430, 447–48 (E.D.N.Y., 2013).

5 Carr v. U.S. Bank, 2012 WL 5949798 (D. Colo. Nov. 28, 2012); Wanger v. EMC Mortg. Corp., 127 Cal. Rptr. 2d

685 (Cal. Ct. App. 2002) (foreclosure may be included in actual damages awarded under § 2605(f)(1), regardless of

whether foreclosure was wrongful, if borrower can show that foreclosure occurred as a result of the servicer’s failure

to deliver notice of servicing transfer). 6 Soriano v. Countrywide, Case No.: 09-CV-02415-LHK (N.D. Ca. April 11, 2011).

7 Cortez v. Keystone Bank, 2000 WL 536666 (E.D. Pa. May 2, 2000); In re Tomasevic, 273 B.R. 682 (Bankr. M.D.

Fla. 2002). 8 Marais v. Chase Home Finance LLC, 736 F.3d 711 (6th Cir. 2013) (remanding for district court to consider

borrower’s argument that the expenses she incurred in preparing her qualified written request became actual

damages when servicer failed to respond). 9 Marais v. Chase Home Fin., LLC, Case No. 2:11-cv-314 (S.D. Ohio, June 4, 2014).

10 Wanger v. EMC Mortg. Corp., 127 Cal. Rptr. 2d 685 (Cal. Ct. App. 2002).

11 Catalan v. GMAC Mortg. Corp., 629 F.3d 676 (7th Cir. 2011); McLean v. GMAC Mortg. Corp., 398 Fed. Appx.

467 (11th Cir. 2010) (unpublished); Palmer v. MGC Mortg., Inc., 2013 WL 6524648 (E.D. Pa. Dec. 10, 2013).

163

(citing Banai v. Sec’y U.S. Dep't of HUD, 102 F.3d 1203, 1207 (11th Cir.1997) (a

case under the Fair Housing Act)).12

b) In some jurisdictions, whether one must satisfy the more stringent requirements of

an IIED claim in the context of a wrongful foreclosure action is not clear.13

Just in

case, you may want to allege emotional distress as if it were a free-standing claim.

(1) Intentional Infliction of Emotional Distress. High threshold of proof of

conduct, but lower threshold of proof of damages. Elements are “(1) extreme

and outrageous conduct; (2) intentional or reckless infliction of emotional

distress; and (3) actual result to plaintiff of severe emotional distress.” Rice v.

Janovich, 742 P.2d 1230, 1238 (Wash. 1987). See Vawter v. Quality Loan

Serv. Corp. of Washington, 404 F. Supp. 2d 1115, 1128 (W.D. Wash. 2010)

(dismissing claim against a bank and MERs because their “actions in

connection with the nonjudicial foreclosure process, as alleged . . . do not

involve physical threats, emotional abuse, or other personal indignities aimed

at the [plaintiffs]”).

(2) Negligent Infliction of Emotional Distress. Lower threshold of proof of

conduct, but a higher threshold of damages and causation. Elements of

Negligent IED are “negligence, that is, duty, breach of the standard of care,

proximate cause, and damages, and . . . the additional requirement of objective

symptomology… [i.e.,] objective symptoms that are ‘susceptible to medical

diagnosis and proved through medical evidence.’” Strong v. Terrell, 195 P.3d

997, 982–83 (Wash. Ct. App. 2012).

c) Evidence. Rely on experts and/or plaintiff’s testimony & testimony of collateral

witnesses (family members, work colleagues, etc.); actual therapy or medical /

expert testimony is desirable and could be necessary for a negligent infliction

case.

B. Civil Penalties / Statutory Damages

1. UDAP/state consumer act

2. RESPA:

a) Up to $2000 for each violation for pattern or practice “as the court may allow”;

12 U.S.C. § 2605(f);

b) Pattern and practice is a precondition for statutory award (see pleading

requirements below in Part IV) but statistical analysis is not (yet) necessary;

c) Class cap of the lesser of $1 million or 1% of servicer’s net worth.

3. Trivial clams. Don’t assert “trivial” claims and assume you will be entitled to

statutory damages. See Graziano v. Harrison, 950 F.2d 107, 114 (3d Cir.1991)

(courts interpreting FDCPA language authorizing “statutory damages as determined

12

See Buckentin v. SunTrust Mortgage Corp., 928 F. Supp. 2d 1273, 1293-94 (N.D. Ala. 2013). 13

See, e.g., Blackburn v. BAC Home Loans Servicing, LP, 914 F. Supp. 2d 1316, 1330 (M.D. Ga., 2012) (noting

dicta that wrongful-foreclosure “plaintiff did not need to meet the more stringent requirements of an IIED claim”).

164

by the court” find that “in the instance of a single, trivial, and unintentional violation

of the Act, it is within the court's discretion to decline to award statutory damages at

all.”) Emanuel v. Am. Credit Exchange, 870 F.2d 805, 809 (2d Cir.1989).

C. Equitable relief

1. Rescission of foreclosure and/or injunction against foreclosure

2. Requirement that a modification or loss mitigation be properly considered

3. Requirement that a promised modification be provided

4. Strict performance with contract

5. Issues with equitable relief:

a) Proof of value of home may be an element of your equitable claim.

b) “Clean hands” i.e., pay what is acknowledged to be due.

c) Consider the original closing — was it a drive by? Were documents prepared by a

state-barred attorney? May go to the issue of whether the lender / servicer had

clean hands in an equity-balancing scenario.

D. Attorney’s fees, expenses of litigation, and costs.

1. Available with RESPA (and FDCPA, FCRA, etc.), state statutes (UDAP & consumer

act), and possibly intentional torts

2. Prepare ahead:

a) Client contract in writing and at set hourly rates based on prevailing rates in your

jurisdiction.

b) Know the lodestar rule for quantifying attorney’s fees.

c) Track your time and that of your staff.

d) Use a spreadsheet to break down attorney / paralegal time according to different

counts being prosecuted.

e) Consider supporting affidavit of attorney to review your billing when it’s being

submitted.

3. Costs include filing fees, travel expenses, expert witness expenses, deposition costs,

etc.

E. Nominal damages.

1. For cases where economic damages can’t or may be difficult to be quantified to

recognize "the violation of a right, not to compensate for actual injury.” Adam v.

Wells Fargo Bank, N.A. Civil Action No. ELH-09-2387 (D. Md., 2012).

2. “[I]n light of Wells Fargo's breach of the Modification, [Plaintiff] is entitled to an

award of nominal damages. ‘[I]t is well settled that where a breach of contract occurs,

one may recover nominal damages even though he has failed to prove actual

damages.’” Id. (citing Taylor v. NationsBank, N.A., 365 Md. 166, 175, 776 A.2d 645,

651 (2001)).

3. Importance of nominal damages is that it might provide a hook of prevailing-party or

actual damages on which to hang an award of attorney’s fees or even punitive

165

damages. “[a] plaintiff achieves ‘prevailing party’ status by recovering any judgment,

even for nominal damages.”14

F. Punitive damages.

1. Availability:

a) Punitive damages might be recoverable in a RESPA claim. See National

Consumer Law Center, Fair Debt Collection § 6.5.1 (7th ed. 2011 and Supp.)

b) Usually available for intentional torts or intentional/malicious conduct that is

prohibited by statute

2. Distinguished from actual damages. “Compensatory damages ‘are intended to

redress the concrete loss that the plaintiff has suffered by reason of the defendant's

wrongful conduct.’… By contrast, punitive damages serve a broader function; they

are aimed at deterrence and retribution.”15

3. Elements. Typically must have an award of actual (or even nominal) damages before

punitives may be considered. They may be awarded “to punish [defendants] for their

outrageous conduct and to deter them, and others like them, from engaging in similar

conduct in the future if you find by a preponderance of the evidence that [the

defendants] acted intentionally or recklessly. Guidance Endodontics v. Dentsply Int’l,

Inc., 749 F. Supp.2d 1235 (D.N.M., 2010)

4. Constitutional limitations.

a) Due Process. The Due Process Clause of the Fourteenth Amendment prohibits the

imposition of grossly excessive or arbitrary punishments on a tortfeasor. The

reason is that “[e]lementary notions of fairness enshrined in our constitutional

jurisprudence dictate that a person receive fair notice not only of the conduct that

will subject him to punishment, but also of the severity of the penalty that a State

may impose.”16

b) Guideposts of review. “[C]ourts reviewing punitive damages [must] consider three

guideposts: (1) the degree of reprehensibility of the defendant's misconduct; (2)

the disparity between the actual or potential harm suffered by the plaintiff and the

punitive damages award; and (3) the difference between the punitive damages

awarded by the jury and the civil penalties authorized or imposed in comparable

cases.” 17

5. Evidence of net worth.

a) Theoretically admissible… “[E]vidence of a tortfeasor's wealth is traditionally

admissible as a measure of the amount of punitive damages that should be

14

Dominguez v. Quigley's Irish Pub, Inc., 897 F.Supp.2d 674 (N.D. Ill., 2012) (FLSA claim) (citing Johnson v.

Daley, 339 F.3d 582, 587 (7th Cir.2003). 15

State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003). 16

State Farm, 538 U.S. at 416–17. 17

State Farm, 538 U.S. at 418.

166

awarded.” City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 270, 101 S.Ct.

2748, 2761, 69 L.Ed.2d 616 (1981).

b) But, beware enhanced pleading requirements. “[M]erely setting forth conclusory

allegations in the complaint is insufficient to entitle a claimant to recover punitive

damages [under Florida law.]” The facts at the basis of a punitive damages claim

must be specifically pleaded. See Porter v. Ogden, Newell & Welch, 241 F.3d

1334, 1341 (11th Cir. 2001).

c) Net-worth discovery is not automatic.

(1) Prima facie proof. Some courts require the plaintiff to prove prima facie

punitive-damages case to be entitled to discovery of net worth. See, e.g.,

Porter v. Ogden, Newell & Welch, 241 F.3d 1334, 1340 (11th Cir. 2001).

(2) In camera option. “[M]any federal courts allow for pretrial discovery of an

alleged tortfeasor’s financial condition, but there is authority for delaying

discovery until after the trier of fact has determined the question of liability.

See, e.g., Brink's Inc. v. City of New York, 717 F.2d 700, 707 (2d Cir.1983).

Therefore, all defendants will be required to furnish to the court in camera

well before trial an accurate statement of their respective net worths, certified

by a certified public accountant pursuant to generally accepted accounting

principles. The said reports will be furnished by the court to counsel for

plaintiff immediately upon any finding of liability by the jury on a federal

claim if there has been an evidentiary basis other than the financial worth of a

defendant for the imposition of punitive damages against that defendant.”

Wilson v. Gillis Adver. Co., 145 F.R.D. 578, 582 (N.D. Ala. 1993)

d) Nominal damages permit higher ratios. Nominal damages aren’t subject to same

limiting ratios relative to punitives as are compensatory damages. Single-digit

ratio between punitive and compensatory damages is not constitutionally

mandated in cases involving nominal damages. Arizona v. Asarco LLC (9th Cir.

2013).

IV. Filing Suit.

A. Venue selection

1. Section 2605(f) claims may be brought in state or federal court. 12 U.S.C. § 2614.

a) Strategic decision: for nonjudicial foreclosure should one file in federal court or

anticipate removal? Whether to move to remand? State-specific, and even judge-

specific considerations.

b) Colorado River abstention. If there’s a pending “parallel lawsuit” in a state court

─ such as a state foreclosure action ─ should one consider filing a RESPA-based

action in federal court? Colorado River Water Conservation District v. United

States, 424 U.S. 800 (1976).

2. Statutory jurisdictional issues for GSEs.

167

a) Ginnie Mae can only be sued in Court of Federal Claims (and will be represented

by US Attorney’s office)

b) Fannie Mae can be sued in any court

c) Freddie Mac has automatic federal court jurisdiction

3. For servicing only claims, can usually file suit where the defendant does business; not

required necessarily to file where home is located

B. Timing of suit.

1. Before / after foreclosure sale?

a) First-party buyer (i.e. credit bid by original servicer or investor)

b) Third-party buyer (BFP issues, timing of recording lis pendens)

2. Before / after bankruptcy stay?

a) Adversary Proceeding in BK Court?

b) Stern v. Marshall, core jurisdiction issues regarding bankruptcy court’s

adjudication of a counterclaim outside the context of ruling on a creditor's proof

of claim.18

c) Risk of equity of redemption / right of reversion being cut off by f/c sale.

C. Key Allegations in Pleadings.

1. Twombly / Iqbal “plausible” pleading standard. The Supreme Court’s narrow

interpretation of Fed. R. Civ. P. 8’s pleading standard colors everything. Bell Atlantic

Corp. v. Twombly, 550 U.S. 544 (2007), Ashcroft v. Iqbal, 556 U.S. 662 (2009).

2. Introduction. Briefly educate the court regarding the essence of your case and the

purpose of RESPA: “[to] insure that consumers throughout the Nation are provided

with greater and more timely information on the nature and costs of the settlement

process and are protected from unnecessarily high settlement charges caused by

certain abusive practices that have developed in some areas of the country.’ 12 U.S.C.

§ 2601(a).’”19

3. The nature of the defendant ─ allege that the defendant is a servicer of federally-

related mortgage loan.20

a) “Loan servicing” means “receiving any scheduled periodic payments from a

borrower pursuant to the terms of any loan . . . and making the payments of

principal and interest and such other payments with respect to the amounts

18

“Article III of the Constitution provides that the judicial power of the United States may be vested only in courts

whose judges enjoy the protections set forth in that Article. We conclude today that Congress, in one isolated

respect, exceeded that limitation in the Bankruptcy Act of 1984. The Bankruptcy Court below lacked the

constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of

ruling on a creditor's proof of claim.” Stern v. Marshall, 131 S. Ct. 2594, 2620 (2011). 19

Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430 (E.D.N.Y. 2013) 20

Claims must be brought against servicers of covered loans (“federally related mortgage loan” as defined under 12

U.S.C. § 2602) under 12 U.S.C. § 2605. See Lingad v. Indymac, 682 F. Supp. 2d 1142, 1151 (E.D. Cal. 2010)

(“Plaintiff has not alleged that [Defendant] is either a lender or a loan servicer to whom the requirements of section

2605 apply. Plaintiff merely alleges that he ‘is not certain at this time exactly which of Defendants was actually the

servicer of [his] [l]oan at any given time.”)

168

received from the borrower as may be required pursuant to the terms of the loan.”

12 U.S.C. § 2605(i)(3).

b) Federally-related mortgage loan. 12 U.S.C. § 2602 defines a “federally related

mortgage loan.”

On information and belief, Servicer services numerous federally-related mortgage

loans in that they are secured by a lien on residential real property designed

principally for the occupancy of from one to four families, and in that they are

made by “creditors” which make or invest in residential real estate loans

aggregating more than $1 million per year.

4. Description of the “Home.”

a) Provide a proper legal (metes and bounds) description of the home. (Sometimes

when the legal description is relevant to a claim for improper procedure this can

be a critical averment.)

b) Allege value of home for equitable relief purposes and for damages measurement.

(This should also be demonstrated at trial.)

5. Vicarious liability. Allege vicarious liability (principal and agent). “On information

and belief, any act (or failure to act) of Servicer described in this complaint was

performed within the scope of its agency for Fannie Mae; and, therefore, Fannie Mae

is vicariously liable for any act performed by Servicer for which Servicer is found to

be liable to the plaintiffs.

6. History of the transaction.

a) Chain of title: vesting deed into plaintiff / security deed / deed of trust /

assignments;

b) Key terms of the instruments, i.e. Paras. 19 & 22 of the Fannie Security Deed;

c) Identify corresponding promissory note / terms of loan.

d) Servicing history.

(1) Mutual deviations

(2) Waiver

(3) Estoppel

(4) Loss mitigation

(5) Detailed history of communications and transactions with servicer

7. Alleging elements of RESPA claims. For any one of the following RESPA breaches

the plaintiff is entitled to an award of actual damages under 12 U.S.C. §

2605(f)(1)(A).

a) Actual damages. Describe and quantify with particularity. See Discussion on

Damages in Parts II and III above.

b) QWR-specific allegations. Claims for violation of QWR / NOE / RFC should

include allegation that (1) written request made, (2) date sent, (3) how delivered,

169

(4) to which address / whom sent, (5) that letter was labeled as a qualified written

request, and (6) describing how contents satisfied 12 U.S.C. § 2605(e)(1)(B).21

c) Pattern or practice. Must allege more than one violation in the servicing of just

one plaintiff's loan to satisfy the pattern-or-practice requirement. “[V]iolations of

RESPA by AHMSI alleged in the amended complaint ‘constitute a pattern or

practice of noncompliance’ within the meaning of 12 U.S.C. § 2605.’” Kapsis v.

Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430 (E.D.N.Y. 2013).22

Pleadings: Servicer has engaged in a pattern or practice of non-compliance

with the requirements of the mortgage servicer provisions of RESPA in at

least the occasions described in this Count and as contemplated under 12

U.S.C. § 2605(f).”

[Describe with specificity the pattern or practice.]

Accordingly the plaintiff is entitled to recover from the defendants “any

additional damages, as the court may allow, in the case of a pattern or

practice of noncompliance with the requirements of [12 U.S.C. § 2605] not to

exceed $2,000, for each such occasion under 12 U.S.C. § 2605(f)(1)(B).

d) Causation. “[E]ven if a RESPA violation exists, Plaintiff must show that the

losses alleged are causally related to the RESPA violation itself to state a valid

claim under RESPA.”23

Demonstrate actual damages proximately caused by

Servicer’s RESPA violation in a non-conclusory way.24

Damages is an element of

21

Allege facts demonstrating that a proper QWR / NOE / RFI was made. State the date it was sent, how it was

delivered, its contents, and how it otherwise complied with 12 U.S.C. § 2605(e)(1)(B). See, e.g., Lucero v.

Diversified Inv., Inc., 2010 WL 3463607, at *4 (S.D.Cal. August 31, 2010) (“[B]ecause [the plaintiffs] do not allege

the contents of the QWR or attach it to their Complaint, it is unclear whether Plaintiffs included enough information

for the servicer to identify them, or asked for information covered by 12 U.S.C. § 2605.”); Williams v. Am.'s

Servicing Co., 2011 WL 1060652 (M.D.Fla. Mar. 22, 2011) (dismissing complaint because plaintiffs did not allege

“when they sent the QWR ... [or] that the QWR contained sufficient information to enable defendant to determine

the ‘name and account of the borrower’ ”); Carrillo v. Bank of New York, 2009 WL 5708925, at *4 (S.D.Fla. Dec.

22, 2009) (dismissing RESPA claim because plaintiff did not “allege to whom his request was addressed ... [or] the

subject matter of the written correspondence”); Correa v. BAC Home Loans Servicing LP, 2012 WL 1176701, at *7

(M.D.Fla. Apr. 9, 2012) (finding that a pro se plaintiff had “barely allege[d] sufficient facts” where she stated the

date the correspondence was mailed, to whom it was addressed, and that it was labeled as a qualified written

request). Costine v. BAC Home Loans, 946 F. Supp. 2d 1224, 1232-33 (N.D. Ala. 2013). 22

Caveat: in other contexts, such as Title VII employment litigation, in which courts hold that “pattern-or-practice”

suggests “widespread acts of [in Title VII cases] intentional discrimination against individuals.… [proof of] more

than sporadic acts of discrimination; rather, they must establish that intentional discrimination was the defendant's

‘standard operating procedure.” These will rely heavily on “statistical evidence.” Robinson v. Metro–N. Commuter

R.R. Co., 267 F.3d 147, 158 (2d Cir.2001); see also Bell v. EPA, 232 F.3d 546, 553 (7th Cir.2000) (describing

statistical evidence as the “core” of a prima facie pattern or practice case); Attenborough v. Constr. & Gen. Bldg.

Laborers' Local 79, 691 F.Supp.2d 372, 388–89 (S.D.N.Y.2009) (“[S]tatistical evidence is critical to the success of

a pattern-or-practice disparate treatment claim.”). 23

Lal v. American Home Servicing, Inc., 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010) (citing 12 U.S.C. §

2605(f)(1)(A). 24

Kapsis v. Am. Home Mortg. Servicing Inc., 923 F. Supp. 2d 430, 447–48 (E.D.N.Y., 2013).

170

the allegations in a complaint. See Stevens v. CitiGroup, Inc., 2000 U.S. Dist.

LEXIS 18201 (E.D. Pa. Dec. 15, 2000) (§ 2605(b) claim dismissed when

borrower failed to plead existence of damages flowing directly from servicer’s

failure to provide servicing transfer notice). See in-depth discussion of ways of

supporting causation above.

8. Credit damages. Demonstrate that information received by a credit reporting agency

from the servicer was reported to a third party.25

In addition, some courts have held

that the borrower must allege actual harm based upon the inaccurate reporting, such

as a denial of credit, in order to avoid dismissal.26

9. Attorney’s fees and costs. The plaintiff is entitled to recover from the defendant all

costs of this action, and “attorney’s fees incurred in connection with such action as

the court may determine to be reasonable under the circumstances, under 12 U.S.C. §

2605(f)(3).” Be sure to allege alternative bases for an award of attorney’s fees, such

as state-law claims. Keep Rule 11 in the back of your mind.

10. Humanize your client. Tell a compelling story, but without hyperbole or

condescension.

D. Property Preservation. Keep your client in possession.

1. TRO / Injunction.

2. Lis Pendens.

V. Pretrial Discovery.

A. Overall strategy. Discovery in federal courts is a good place to both gain and lose

strategic advantage.

1. Do your homework and aggressively request and demand supplementation of any

potential evidence that can be used to support a motion or otherwise at trial.

2. The timing of expert disclosures bears careful consideration.

B. GETTING — avoid surprises.

1. Self-authenticating records. Minimize surprise / fabrication:

Please Identify by author, date and specific act, event, condition, opinion and/or

diagnoses contained within any statement, memorandum, report, record, and/or

Electronically Stored Information that Servicer may either refer to, file, or move to

admit into evidence in connection with any motion or at trial under Federal Rules of

Evidence 803(6) or 902(11).

25

See Johnstone v. Bank of Am., 173 F. Supp. 2d 809 (N.D. Ill. 2001). 26

See Guidi v. Paul Fin., LLC, 2014 WL 60253 (N.D. Cal. Jan. 7, 2014) (unreported) (conclusory statements that

improper credit reporting resulted in damage to credit score were insufficient; plaintiffs did not provide information

as to “when such reporting occurred, to which agencies the reporting was made, or whether information regarding

any overdue payment was included in such a report”); Durland v. Fieldstone Mortg. Co., 2011 WL 805924 (S.D.

Cal. Mar. 1, 2011) (mere allegation of negative credit rating insufficient); Padgett v. OneWest Bank, 2010 WL

3239350 (N.D. W. Va. Aug. 16, 2010).

171

2. Records custodians. “Please Identify any Person who has custody or control of any

item Identified in response to the foregoing interrogatory, and any other Person —

including any “qualified person” under Federal Rule of Evidence 902(11) — who

may have custody or control of BANA’s Documents and business records.

3. Any potential exhibit. “Please identify any Document that Servicer intends to refer

to, to file, or to move to admit into evidence in connection with any motion, at any

hearing, or at any trial related to the Action.” Caveat: United States v. Wilson, 249

F.3d 366, 375-76 (5th Cir. 2001) (holding that, although foreign bank records were

not admissible under the business records exception because there was no custodian

available to testify, the district court properly admitted the documents under Rule 807

because "bank documents, like other business records, provide circumstantial

guarantees of trustworthiness because the banks and their customers rely on their

accuracy in the course of business"), abrogated on other grounds by Whitfield v.

United States, 543 U.S. 209 (2005).

4. Servicing history.

a) MERS Milestone reports;

b) Data from all internal servicing platforms (databases).

c) Life of loan reports.

d) Escrow accounting.

5. Get loss mitigation / default history.

a) All correspondence.

b) Contract-relevant documents.

Please Identify each Document or Communication that Servicer contends

satisfied its obligations related to the pre-acceleration notices and

information required to be transmitted under ¶¶ 19 or 22 of the Security

Deed.

6. Policies & Procedures

a) Internal manuals, etc.

b) Pooling & servicing agreement to show servicer motivations (not to assert third

party standing).

7. Affirmative defenses. “Please state the factual basis supporting Servicer’s contention

that [Homeowner’s] claims are barred or reducible under the “doctrines of

ratification, recoupment, novation, waiver, laches, estoppel, unclean hands or

mootness.” Prepare to move to dismiss or move for summary judgment regarding

affirmative defenses.

C. GIVING — make your initial disclosures. Under Fed. R. Civ. P. 26(a)(1)(A)(iii) the

plaintiff should provide “a computation of each category of damages claimed,” with

172

enough wiggle room to modify these calculations as the proceedings develop. Caveat:

“Rule 37 requires virtually automatic preclusion of information not disclosed pursuant to

Rule 26(a)(1).”27

Identify your expert(s) early.

VI. Practice Pointers.

A. Cost-Benefit analysis. To pay for a U-Haul or to hire a lawyer to challenge the

foreclosure? Client relations should honor the “Law of Lowered Expectations.”

B. Settlement. Preserve creative settlement options. Do your best to acquaint your opposing

counsel with your client and to humanize your client ─ such as at informal negotiations,

courthouse hallways, hearings, mediations, etc.

C. Negate homeowner as intervening cause. “Because Plaintiff failed to pay her fully

monthly payments, a reasonable jury could find that Plaintiff's failure to do so,

irrespective of [AHMSI]'s actions, caused her default and eventual foreclosure.”

McGinnis v. AHMSI, Civil Action No. 5:11-CV-284 (M.D. Ga. 2013).

D. Dry Powder. Client should bank mortgage installment payments if they are not being

paid into court registry.

E. Shotgun pleadings. Avoid sanctions for “shotgun pleading.”Carefully identify the

factual predicates for your legal claims. Don’t incorporate giant swaths of your factual

allegations into each count in your complaint.28

F. Date calculations. See, e.g., 12 C.F.R. § 1024.35(e)(3)(C) may date calculations exclude

“legal public holidays, Saturdays, and Sundays.”

G. Servicer’s duty of diligence. Keep in mind that a servicer has no duty to modify a loan.

12 C.F.R. § 1024.41(a). The servicer’s evaluation of a modification is “in the sole

discretion of [the] servicer.”29

However, the servicer is obligated to “exercise reasonable

diligence in obtaining documents and information to complete a loss mitigation

application.” 12 C.F.R. § 1024.41(b).

27

Webb v. Chase Manhattan Mortg. Corp., 2:05-cv-548, 2008 U.S. Dist. LEXIS 42559, *40 (S.D. Ohio May 28,

2008) (Smith, J.) 28

Anderson v. Dist. Bd. of Trustees of Cent. Fl. Comm. Coll., 77 F.3d 364, 366 (11th Cir.1996) ( “[Plaintiff's]

complaint is a perfect example of ‘shotgun’ pleading in that it is virtually impossible to know which allegations of

fact are intended to support which claim(s) for relief.”) (internal citation omitted); Pelletier v. Zweifel, 921 F.2d

1465, (11th Cir.1991) (describing “quintessential shotgun pleadings” complete with “rambling recitations” and

“factual allegations that could not possibly be material” that force the “district court [to] sift through the facts

presented and decide for [itself] which were material to the particular cause of action asserted”), Strategic Income

Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1296 (11th Cir. 2002). 29

Official CFPB Interpretation: Definition of “evaluation.” The conduct of a servicer’s evaluation with respect to

any loss mitigation option is in the sole discretion of a servicer. A servicer meets the requirements of §

1024.41(c)(1)(i) if the servicer makes a determination regarding the borrower’s eligibility for a loss mitigation

program. Consistent with § 1024.41(a), because nothing in section 1024.41 should be construed to permit a

borrower to enforce the terms of any agreement between a servicer and the owner or assignee of a mortgage loan,

including with respect to the evaluation for, or provision of, any loss mitigation option, § 1024.41(c)(1) does not

require that an evaluation meet any standard other than the discretion of the servicer.

173

Attorney Fee Petition Checklist

(Koontz v. Wells Fargo Order, Mar. 29, 2013)

The original motion must include the following:

1. Affidavits from each attorney billing time

o Provide range of market rate

o Identify individuals who have informed you that this is the market rate

o State that these rates are in fact billed and received by local attorneys in

connection with the type of work at issue (consumer credit law)

o Maybe append CV

o years of graduation from college, law school, other distinctions (include years of

clerkship terms, etc.)

o appellate experience

o lectures/speaking engagements & publications

o when hired by MSJ

o type of law practiced over course of career

o NOTE: any affidavit from a senior attorney should include statements about the

education, skills, training, and reputations of the other attorneys seeking fees

o Exercised billing judgment

2. Affidavits from each paralegal billing time

3. Contemporaneous time records from Timeslips

o Describe with specificity, i.e., brief description of documents reviewed or drafted

o Organizing, calendaring, and copying are not billable.

o Do not include references to multiple tasks in one entry.

4. Orders awarding fees

o Include any order awarding the fee seeker fees

o But best – contested, with consideration of Aetna factors

5. Invoices for costs

6. Peer affidavits

o State hourly billing rates for consumer cases for them or members of their firm

o State that they personally know the reputations, skills & training of each of the

attorneys moving for fees

o Characterize the fee applicant’s experience & work favorably

o State that fee is appropriate for consumer credit law

o State that professional reputation of counsel is good in the community

o Ben Bailey, John Poffenbarger, Dave Grubb, Rob Bastress, Tony Majestro . . .

7. Motion/memo:

174

o even if federal court, should apply West Virginia law (and federal law to the

extent it doesn’t conflict)

o thorough review of federal and state law through 3/28/13 in the Koontz opinion

o reference United States Consumer Law Attorney Fee Survey Report (find at NCLC

website) [n. 2 in Koontz opinion sets forth courts recognizing the survey) &

Laffey Matrix

o Request enhancement for:

o success

o Novelty & difficulty of case

o “MSJ is the sole legal services organization in West Virginia providing

legal assistance at no cost to low-income recipients with complex credit

issues and claims. It is simply not feasible for most private bar attorneys

to take on these types of cases and MSJ fills a void in this much needed

and specialized practice area.” Cite to Cole.

175

MORTGAGE SERVICING CLAIMS CHART

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) and TRUTH IN LENDING ACT (TILA)


CLAIM CITATIONS RIGHT

OF ACTION

REMEDY1 APPLICATION

STATUTE OF LIMITATION

EXEMPTIONS

RESPA

Duty to Make Timely

Payments Out of Escrow

12 U.S.C. §

2605(g)

Reg. X,

Subparts B

and C

12 C.F.R. §§

1024.17(k)

and

1024.34(a)

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

open-end (as to §

1024.17) and

closed-end loans

on principal and

non-principal

residence

3 years

12 U.S.C.

§ 2614

borrower more

than 30 days

overdue (except

must pay

borrower’s

hazard insurance

rather than force

place) - 12 C.F.R.

§ 1024.17(k)(1),

(2), (5)(i)

Duty to Provide Annual Escrow

Statements

12 U.S.C. §

2609(c)(2)

Reg. X, Subpart

B

12 C.F.R. §

1024.17(i)

open-end and

closed-end loans

on principal and

non-principal

residence

borrower more

than 30 days

overdue, or in

foreclosure or

bankruptcy - 12

C.F.R. §

1024.17(i)(2)

Duty to Perform Escrow

Analysis and Calculate

Proper Escrow

Payment

12 U.S.C. §

2609(a)

Reg. X,

Subpart B

12 C.F.R. §

1024.17(c)

open-end and

closed-end loans

on principal and

non-principal

residence

1 If a remedy or right of action is not listed, the failure to comply with a servicing provision may possibly be pursued as a breach of

contract or state UDAP statute violation. See NCLC Foreclosures, Chapter 8.

176

Requirements for Escrow Surpluses

Reg. X, Subpart

B

12 C.F.R. §

1024.17(f)

open-end and

closed-end loans

on principal and

non-principal

residence

borrower more

than 30 days

overdue - 12

C.F.R. §

1024.17(f)(2)(ii)

Requirements for Escrow Shortages

Reg. X, Subpart

B

12 C.F.R. §

1024.17(f)

open-end and

closed-end loans

on principal and

non-principal

residence

Requirements for Escrow Deficiencies

Reg. X, Subpart

B

12 C.F.R. §

1024.17(f)

open-end and

closed-end loans

on principal and

non-principal

residence

borrower more

than 30 days

overdue - 12

C.F.R. §

1024.17(f)(4)(iii)

Duty to Provide Notice

of Escrow Shortage or Deficiency

12 U.S.C. §

2609(b)

Reg. X, Subpart

B

12 C.F.R. §

1024.17(f)(5)

open-end and

closed-end loans

on principal and

non-principal

residence

Duty to Provide

Transfer of Servicing

Statement and 60-day

Payment Safe Harbor

12 U.S.C. §

2605(b)-(d)

Reg. X, Subpart

C

12 C.F.R. §

1024.33(b)

and (c)

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

closed-end loans

on principal and

non-principal

residence

3 years

12 U.S.C.

§ 2614

Duty to Respond to

Notice of Error and


12 U.S.C. §

2605(e)

Reg. X,

Subpart C

12 C.F.R. §§

1024.35 and

1024.36

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

closed-end loans

on principal and

non-principal

residence

3 years

12 U.S.C.

§ 2614

177

Duty to Respond to Request for Identity of Mortgage

Owner

12 U.S.C. §

2605(k)(1)(D)

Reg. X,

Subpart C

12 C.F.R. §

1024.36(d)

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

closed-end loans

on principal and

non-principal

residence

3 years

12 U.S.C.

§ 2614

General Servicing

Requirements

Reg. X, Subpart

C

12 C.F.R. §

1024.38

closed-end loans

on principal and

non-principal

residence

small servicer;

reverse

mortgage;

qualified lender2

- 12 C.F.R. §

1024.30(b)

Early Intervention

Requirements

Reg. X, Subpart

C

12 C.F.R. §

1024.39

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

closed-end loans

on principal

residence

3 years

12 U.S.C.

§ 2614

borrower in

bankruptcy;

small servicer;

reverse

mortgage;

qualified lender -

12 C.F.R. §

1024.30(b) and §

1024.39(d)

Continuity of Contact

Requirements

Reg. X, Subpart

C

12 C.F.R. §

1024.40

closed-end loans

on principal

residence

small servicer;

reverse

mortgage;

qualified lender -

12 C.F.R. §

1024.30(b)

Duty to Comply with


Reg. X, Subpart

C

12 C.F.R. §

1024.41

12 U.S.C.

§ 2605(f)

and

§ 2614

actual

damages,

costs and

attorney’s

fees; plus

$2,000 per

violation if

pattern and

practice of

non-

compliance

closed-end loans

on principal

residence

3 years

12 U.S.C.

§ 2614

small servicer

(except per §

1024.41(j) must

not initiate

foreclosure if

borrower

performing on

loss mitig. option

and if not more

than 120 days

delinquent);

reverse

mortgage;

qualified lender -

12 C.F.R. §

1024.30(b)

2 A “qualified lender” is defined in 12 C.F.R.§ 617.7000 (referring to mortgage loans made under the Farm Credit System).

178

TILA

Duty to Send Interest Rate and Payment

Change Notices

15 U.S.C. §

1638a

Reg. Z, 12

C.F.R. §

1026.20(c) and

(d)

15 U.S.C.

§ 1640(a)

actual

damages,

plus twice

finance

charge (up

to $4,000

for closed-

end

mortgage),

costs and

attorney’s

fees

adjustable rate,

closed-end loans

on principal

residence

1 year

15 U.S.C. §

1640(e)

ARMs with term

of 1 year or less

Duty to Promptly

Credit Payments

15 U.S.C. §

1639f

Reg. Z, 12

C.F.R. §

1026.36(c)(1)

15 U.S.C.

§ 1640(a)

actual

damages,

plus twice

finance

charge (up

to $4,000

for closed-

end

mortgage),

costs and

attorney’s

fees

closed-end loans

on principal

residence

1 year

15 U.S.C. §

1640(e)

Ban on Pyramiding of

Late Fees

Reg. Z, 12

C.F.R. §

1026.36(c)(2)

15 U.S.C.

§ 1640(a)

actual

damages,

plus twice

finance

charge (up

to $4,000

for closed-

end

mortgage), 3

costs and

attorney’s

fees

open-end and

closed-end loans

on principal

residence

1 year

15 U.S.C. §

1640(e)

Duty to Provide

Timely Payoff Statement

15 U.S.C. §

1639g

Reg. Z, 12

C.F.R. §

1026.36(c)(3)

15 U.S.C.

§ 1640(a)

actual

damages,

plus twice

finance

charge (up

to $4,000

for closed-

end

mortgage),

costs and

attorney’s

fees

open-end and

closed-end loans

on principal and

non-principal

residence

1 year

15 U.S.C. §

1640(e)

3 Because this requirement is found only in Reg. Z, some courts may find that no statutory damages are available. See NCLC Truth in

Lending, § 11.6.8 (8th

ed. 2012 and Supp.).

179

Duty to Send Periodic

Mortgage Statements

15 U.S.C. §

1638(f)

Reg. Z, 12

C.F.R. §

1026.41

15 U.S.C.

§ 1640(a)

actual

damages,

costs and

attorney’s

fees

closed-end loans

on principal and

non-principal

residence

1 year

15 U.S.C. §

1640(e)

borrowers in

bankruptcy;

small servicer;

reverse

mortgage;

timeshares;

fixed-rate

mortgages with

qualifying

coupon books

180

Related Publications FROM NATIONAL CONSUMER LAW CENTER®

2012 FOURTH EDITION WITH 2013 SUPPLEMENT FORECLOSURES: Conference price: $190 $145 and you’ll receive the 2014 Fifth Edition this August, free!

"This is the best book out there for in-depth legal research on the subject of foreclosure. ... The best discussion anywhere on how to challenge mortgage servicer abuses." -- Stephen Elias, Esq. Author, The Foreclosure Survival Guide (Nolo Press)

2012 FIRST WITH 2013 SUPPLEMENT MORTGAGE LENDING Conference price: $170 $125 and you’ll receive the 2014 Second Edition this August, free!

• New underwriting standards and the ability-to-repay requirement • New restrictions on loan steering • Limits on flipping and new requirements on appraisers • Restrictions on mortgage broker practices and compensation • Third party charges, including title insurance, private mortgage insurance,

and attorney fees • Application of federal and state laws to interest rates, balloon payments,

prepayment penalties, negative amortization, and other loan terms • Extent of federal preemption of state laws and new standards for National

Bank Act preemption

2012 EIGHTH EDITION WITH 2013 SUPPLEMENT TRUTH IN LENDING: Conference price: $240 $195!

The definitive Truth in Lending treatise from the nation's TILA experts, now updated to include dramatic recent changes, many that go into effect in January, 2014. The treatise also now cites to both the CFPB and FRB versions of Regulation Z and includes analysis of all new Regulation Z changes -- 14 different Federal Register sets of changes to Regulation Z and its Interpretations in 2013 alone!

Visit the NCLC Publications Table to see more NCLC Titles and redeem your conference discount.

― Conference Discounts are only valid for orders placed at the booth, and expire at the end of the conference ―