Federal mortgage servicing laws that protect homeowners when it comes to foreclosure went into effect on January 10, 2014. But certain loan servicers don’t have to comply with many of these laws.
Read on to get basic information about the federal laws that help homeowners who are struggling to make mortgage payments, find out which servicers are exempt from most of these laws, and learn which laws all servicers have to follow. (To learn more about loan servicers and loan servicing in general, see What’s a Mortgage Servicer? and How Mortgage Servicing Works)
Federal Mortgage Servicing Laws: The Basics
Under Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), most mortgage servicers must take certain steps and provide specific protections to borrowers facing foreclosure. For example:
The servicer has to try to contact you to discuss loss mitigation (foreclosure avoidance) options no later than 36 days after you miss a payment and again within 36 days after each missed payment—even if the servicer previously contacted you. But if you’re in bankruptcy or have asked the servicer to stop communicating with you under to the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to this law, the servicer doesn’t have to try to make contact with you. (12 C.F.R. § 1024.39). (Learn about loss mitigation options in Avoiding Foreclosure: Basic Workout Options.)
The servicer has to send you a written notice no later than the 45th day after a missed payment—and once every 180 days thereafter as long as the loan is delinquent—to tell you about loss mitigation options. If you've filed bankruptcy or asked the servicer not to communicate with you, it generally has to send a special kind of letter, subject to some exceptions. (12 C.F.R. § 1024.39).
The servicer has to assign a single person or a team of personnel to help you with loss mitigation options by the time you’re 45 days late on your payment. (12 C.F.R. § 1024.40).
The servicer can’t begin start a foreclosure until you’re more than 120 days delinquent, unless the foreclosure is based on a violation of a due-on-sale clause or the servicer is joining the foreclosure action of a superior or subordinate lienholder. (12 C.F.R. § 1024.41).(To learn more, see How Soon Can Foreclosure Begin?)
If you send the servicer a complete application for a loss mitigation application before foreclosure starts, the servicer can’t start the foreclosure process unless it tells you that you’re not eligible for any loss mitigation option (and any appeal has been exhausted), you turn down all loss mitigation offers, or you don’t meet the terms of a loss mitigation option, like if you don’t make the payments on a trial modification. (12 C.F.R. § 1024.41).
If you send the servicer a complete application for a loss mitigation application after foreclosure starts—but more than 37 days before a foreclosure sale—the servicer can’t ask a court for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions mentioned above has been satisfied. (Be aware that the servicer generally doesn't have to review more than one loss mitigation application from you. But if you bring the loan current after submitting an application, the servicer must consider it.) (12 C.F.R. § 1024.41).
Small servicers are exempt from the majority of these requirements.
What’s a small servicer? A small servicer is defined as one that:
together with any affiliates, services 5,000 or fewer mortgage loans, and the servicer (or an affiliate) is the creditor or assignee for all of them, or
is a Housing Finance Agency, which is a government agency established to help meet the affordable housing needs of the residents of their states.
Which of the above laws don’t apply to small servicers? Small servicers don’t have to comply with the requirements previously discussed in this article, except:
A small servicer can’t start a foreclosure unless the borrower is more than 120 days delinquent (again, unless the foreclosure is based on a violation of a due-on-sale clause or the servicer is joining the foreclosure action of a superior or subordinate lienholder).
A small servicer can’t proceed to foreclosure judgment or get an order of sale, or conduct a foreclosure sale, if a borrower is performing under the terms of a loss mitigation agreement.
If you think your servicer is violating federal mortgage servicing laws, consider talking to a foreclosure attorney to discuss your options. If you want to learn about different ways to avoid a foreclosure or you need help completing a loss mitigation application, consider contacting a HUD-approved housing counselor.