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Foreclosure Law Created by the Revamped Regulations X & Z

Posted on: May 8th, 2014 by Charles Faquin No Comments
Mortgage and Foreclosure Law

New mortgage servicer regulations affecting foreclosure law.

Amendments to Regulation X & Z

In 2013, the Consumer Financial Protection Bureau issued a new set of rules to regulate the mortgage servicing industry. These new rules, which became effective on January 10, 2014, were created through a series of amendments to Regulation X that implements the Real Estate Settlement & Procedures Act (RESPA) and Regulation Z that implements the Truth In Lending Act (TILA).

Loss Mitigation Applications Affecting Foreclosure Law

Some of the new rules regulate mortgage servicers in a way that restricts their conduct under state foreclosure laws and procedures. These rules govern the proper handling of a “loss mitigation application” that forces the servicer to consider the borrower for loan modification, forbearance, short sale, deed-in-lieu, etc. For example, under the new rules, if a loss mitigation application is received 45 days or more before a foreclosure sale, the servicer must give written notice within 5 days about whether the application is complete or provide a reasonable due date for the borrower to submit any necessary missing documents/information. If the foreclosure sale date has not been scheduled upon receipt of the complete application, the application is considered to be received more than 90 days prior to any sale – allowing the right to appeal the decision on a loan modification.

WARNING: New Foreclosure Law

WARNING: New Foreclosure Laws Explicit Content for Mortgage Servicers

No More “Dual-Tracking”

A portion of the new rules were designed to prevent the deceptive (and infamous) “dual tracking” process, whereby a servicer would pursue loss mitigation options with the borrower while simultaneously conducting the foreclosure process. For example, now a servicer may not initiate the state foreclosure process (usually done by registered mail on or before first publication under Tennessee foreclosure law) until the mortgage is more than 120 days delinquent. If a loss mitigation application is submitted before beginning the foreclosure or within the 120 day period, then a servicer cannot initiate the foreclosure process.

Also, if the foreclosure process has already been initiated and the borrower has submitted a complete loss mitigation application more than 37 days before the scheduled sale, then the servicer may not foreclose (or auction the home under TN’s non-judicial foreclosure laws) until the borrower has been evaluated for all loss mitigation options and written notice has been provided to the borrower with specific reasons for the decisions on each option. The servicer response must be made within 30 days or less. Additionally, if a servicer receives a proper written “notice of error” from the borrower regarding violation of the 120 day rule or any dual track provisions more than 7 days before the foreclosure sale, then foreclosure is prohibited until the servicer has properly responded to the notice of error.

Private Right of Action

If the mortgage servicer fails to comply with the rules, then a homeowner may bring a private cause of action against a mortgage servicer under Section 2605(f) of RESPA. A successful action provides for actual damages, attorney’s fees, and costs; and if a pattern or practice of non-compliance is found, then up to $2,000 per violation. You can bring an action in state, federal, or even bankruptcy court – if you are currently in a Chapter 13 Plan there may be no filing fee(!).

For More Information

These servicing laws are complex, and this is merely an illustration of how some of the new rules regulate foreclosure law and processes. For more information on the new rules, visit the new rules page at the CFPB website.

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