On January 10, 2014, mortgage servicing rules issued by the Consumer Financial Protection Bureau (CFPB) went into effect. These rules protect borrowers when it comes to foreclosures. Under these rules, a mortgage servicer—the company that handles the loan account—can’t officially start a foreclosure until the borrower is more than 120 days delinquent on the payments. Also, this 120-day delay on starting a foreclosure applies in the case of a non-monetary breach of the mortgage contract.
In 2010, the federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the CFPB the authority to create new mortgage servicing rules.The CFPB’s final mortgage servicing rules were implemented under the Real Estate Settlement Procedures Act (RESPA), also known as Regulation X, and the Truth in Lending Act (TILA) known as Regulation Z. These rules, which went into effect on January 10, 2014, created established national mortgage servicing standards and imposed new requirements on lenders and servicers when it comes to foreclosures.
Under the rules, a servicer can’t make the first notice or filing required under applicable law for any judicial or nonjudicial foreclosure until the mortgage loan obligation is more than 120 days delinquent.
Delinquency example. Borrowers are considered “delinquent” starting on the date that a periodic payment sufficient to cover principal, interest, and—if applicable—escrow becomes due and unpaid, until the time when no periodic payment is due and unpaid. So, suppose your mortgage payment is due on January 1st, but you don’t send a payment to the servicer. You are one day delinquent on January 2nd, even if you get a grace period under the terms of your loan agreement. On January 31st, you’re 30 days delinquent, and so on. After 120 days of delinquency, the servicer may begin the foreclosure.
First foreclosure notice or filing in judicial foreclosures. In a judicial foreclosure, the first filing is the earliest document the servicer files with a court, like a complaint, petition, order to docket, or notice of hearing.
First foreclosure notice or filing in nonjudicial foreclosures. In a nonjudicial foreclosure, the first notice is the initial document a servicer records or publishes as part of the foreclosure process.
If your state’s foreclosure laws don’t require a court filing, or a recorded or published document, as part of the foreclosure process, the first notice is the earliest document that establishes, sets, or schedules a date for a foreclosure sale. (To learn more, see How Soon Can Foreclosure Begin?)
The 120-day foreclosure restriction also generally applies in the case of a non-payment related breach of the mortgage.
What’s a non-payment related breach? In addition to requiring a borrower to make payments to repay a loan, most mortgage contracts also require the borrower to do certain things—like pay property taxes if the loan isn’t escrowed—and refrain from doing certain things, like allowing the property to deteriorate or committing waste (causing damage that lowers the value of the home).
Example. Suppose your mortgage contract requires you to keep the home in a habitable condition. Also, your mortgage contract and applicable law allows a servicer to accelerate (call due) the mortgage loan due if you fail to maintain the home in good condition.
Say you let the home fall into disrepair and the property becomes uninhabitable. The servicer then accelerates the loan and requires you to pay the full balance of the mortgage debt on July 1. If you don’t pay off the loan by this deadline, you'll be one day delinquent on July 2. After 120 days of delinquency, the servicer may foreclose.
For more information, see the CFPB's Factsheet on Delinquency and the 2016 Mortgage Servicing Rule.
If you think your mortgage servicer has violated the 120-day rule, consider talking to a foreclosure attorney. If you have questions about ways to avoid a foreclosure, like by getting a mortgage modification, consider talking to a HUD-approved housing counselor.
To learn more about the federal mortgage servicing rules, including the 120-day rule, go to the CFPB website. Search for “mortgage servicing rules.”