Mortgage servicers collect and process loan payments from homeowners, as well as handle loss mitigation applications, and manage foreclosures for defaulted loans. But servicing errors, like charging unwarranted fees and dual tracking, are common.
So, to try to remedy this issue, the federal government and certain states, like New York, have passed laws regulating servicers and how they handle distressed mortgage loans. Some of New York's laws provide even more protections than federal mortgage servicing laws.
New York's Mortgage Loan Servicer Business Conduct Rules are located in Part 419 of the Compilation of Codes, Rules and Regulations. These laws govern the business conduct of loan servicers that operate in the state. Most of the laws discussed in this article are already in place, though some amended parts go into effect on March 17, 2020.
The laws apply to first- and subordinate-lien regular mortgages and reverse mortgage loans. Unlike federal mortgage servicing laws, New York's servicing law doesn't provide an exemption for small servicers, open-end lines of credit, or reverse mortgage loans.
If you live in New York and you're facing a foreclosure, the state's regulations on how servicers operate might be useful to you. A few of the laws that could help you are described below; if the servicer violates any of these regulations, you might have a defense to the foreclosure.
New York law requires the servicer to clarify its current schedule of standard or common fees. The servicer must maintain and must make the schedule available on its website, and to a borrower upon request. The schedule has to:
Under the amended law, attorneys' fees charged in connection with a loss mitigation option, reinstatement, or loan satisfaction must be reasonable and customary for work that an attorney actually performs. The fee and a breakdown of the tasks performed must be disclosed to the borrower before entering into the agreement governing the loss mitigation option, reinstatement, or loan satisfaction.
Also, under the law's amendments, the servicer can't charge late fees if the borrower is making timely trial-period payments and can't charge a property valuation fee more than once during 12 months. But the servicer may charge a reasonable fee for a property valuation to facilitate a borrower's loss mitigation application if the servicer has already provided, without charge, one property valuation within the preceding 12-month period.
State law requires a servicer to provide a clear and conspicuous disclosure to borrowers in its monthly mortgage statement or annual coupon book, annual statement, and any website that the servicer maintains that provides:
New York law also requires servicers to establish and maintain procedures and systems to respond to and resolve borrower complaints and inquiries. (3 N.Y.C.R.R. § 419.6). New York's law, unlike the federal Notice of Error law, doesn't include an exemption from the resolution procedures if a complaint is duplicative, overbroad, or untimely.
New York law requires a servicer to make reasonable and good-faith efforts to give borrowers information about appropriate loss mitigation options.
For example, New York law, like federal law, requires a servicer to assign a single point of contact (SPOC) to delinquent borrowers. New York's amended law requires the servicer to assign a SPOC to borrowers who are at least 30 days' delinquent or who have requested a loss mitigation application (or earlier at the servicer's option). (3 N.Y.C.R.R. § 419.7). Under federal law, the servicer has to appoint a SPOC no later than when the borrower is 45 days' delinquent. (12 C.F.R. § 1024.40).
Under both the federal and amended New York law, the servicer has to send the borrower a written notice about loss mitigation no later than the 45th day of a borrower's delinquency. But in New York, the servicer has to provide more information in the notice, including:
If the borrower files for bankruptcy, however, the servicer is exempt from these notice requirements. But New York law doesn't contain an exemption from these notice requirements if a borrower provides a cease communication notice under the Fair Debt Collection Practices Act. (Federal mortgage servicing laws do provide a partial exemption in this situation.)
Under New York law, a servicer is prohibited from engaging in unfair, deceptive, or abusive business practices or misrepresenting or omitting any material information in connection with the servicing of a mortgage loan. For instance, the servicer can't move for a judgment of foreclosure and sale or conduct a foreclosure sale if the borrower is in compliance with a trial modification, forbearance, or repayment plan, or if all the parties have agreed to a short sale or deed in lieu, and proof of funds or financing has been supplied to the servicer. (3 N.Y.C.R.R. § 419.10).
This article describes just a few of the protections that New York law gives to people facing a foreclosure. If you think your servicer is violating state or federal mortgage servicing laws or is treating you unfairly, consider talking to a foreclosure attorney to discuss your options and rights. A local foreclosure lawyer can give you more information about foreclosure protections under both New York and federal law.
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.