Federal Laws Protecting Homeowners With Mortgages: Foreclosure Protections

Federal rules protect homeowners when facing foreclosure.

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. In 2017, these rules changed to better protect homeowners. Keep reading to learn more about the CFPB rules and how they might help you if you're facing a foreclosure.

Dodd–Frank Act Imposed New Requirements on Servicers

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Real Estate Settlement Procedures Act (RESPA) of 1974, which is implemented by Regulation X, and the Truth in Lending Act (TILA), which is implemented by Regulation Z. These amendments govern how mortgage servicers handle certain residential mortgage loans.

The CFPB issued rules in January 2013 to implement the Dodd-Frank Act amendments to RESPA and TILA. The CFPB also issued various amendments to these rules in 2013 and 2014. Most of the rules went into effect on January 10, 2014, and certain amendments to the rules went into effect in 2017. (This article refers to all of these rules collectively as "rules.")

The rules are designed to protect consumers by:

  • ensuring mortgage servicers provide a borrower with assistance if the borrower is having difficulty making mortgage payments, and

  • protecting borrowers from wrongful actions by mortgage servicers.

(Various rules also protect homeowners with existing mortgages, though this article focuses on protections against foreclosure.)

What's a Mortgage Servicer?

A mortgage servicer is the company that collects monthly mortgage payments from borrowers on behalf of the owner of the loan, as well as tracks account balances, manages the escrow account, handles loss mitigation applications, and pursues foreclosure in the case of defaulted loans. (Learn the basics about foreclosures.)

Why the Need for Rules Protecting Homeowners?

During the foreclosure crisis that began around 2008-2009, the number of homeowners in financial distress increased exponentially and mortgage servicers simply couldn’t keep up with the increased demands for information and assistance. As a result, servicing errors were common and egregious. (Read more about abuses by the mortgage servicing industry.)

Servicers Must Provide Homeowners With Assistance

Under the rules, mortgage servicers are supposed to work with borrowers who are having trouble making monthly payments.

Early Intervention Requirements: Servicer Must Contact the Borrower By Phone (or In Person) and In Writing

If a borrower falls behind in payments, a servicer must attempt to contact the borrower to discuss the situation no later than 36 days after the delinquency, and again within 36 days after each subsequent delinquency, even if the servicer previously contacted the borrower. If appropriate, the servicer must tell the borrower about loss mitigation options—like a modification, short sale, or deed in lieu of foreclosurethat might be available to the borrower. ("Loss mitigation" is what servicers call the process of working out a way to avoid a foreclosure.)

No later than 45 days after missing a payment, the servicer must inform the borrower in writing about loss mitigation options that may be available. The servicer does not have to provide the written notice more than once during any 180-day period.

Continuity of Contact Requirements: Servicer Must Appoint Personnel to Help the Borrower

The servicer must assign personnel to help the borrower by the time the borrower falls 45 days delinquent. The personnel should be accessible to the borrower by phone and able to respond to borrower inquiries. When applicable, the servicer's personnel should help the borrower pursue loss mitigation options, like by advising the borrower about:

  • available loss mitigation programs
  • how to submit a complete loss mitigation application
  • the status of a submitted loss mitigation application
  • how to appeal (if the application is denied), and
  • the circumstances when the servicer may refer a file to foreclosure.

The servicer may assign a single person or a team to assist a delinquent borrower.

Restrictions on Dual Tracking

The rules restrict “dual tracking.” Dual tracking happens when a servicer simultaneously evaluates a borrower for a loan modification (or other loss mitigation option) while at the same time pursuing a foreclosure.

Restrictions on Starting Foreclosure

Mortgage servicers generally cannot start a foreclosure until a mortgage loan obligation is more than 120 days delinquent, which provides time for the borrower to submit a loss mitigation application. Specifically, under the rules, a servicer can't make the first foreclosure notice or filing required by state law until the borrower is more than 120 days delinquent. (A borrower is considered delinquent starting on the date a periodic payment sufficient to cover principal, interest, and, applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. )

What is the first foreclosure notice or filing? In a judicial foreclosure, this means the foreclosing party cannot file the lawsuit in court to start the foreclosure until you're more than 120 days behind. If the foreclosure is nonjudicial, the lender can't begin the foreclosure by recording or publishing the first notice until you're more than 120 days late in payments. (If your state’s foreclosure laws don’t require a court filing or any document to be recorded or published as part of the foreclosure process, the first notice is the earliest document that establishes, sets, or schedules a date for a foreclosure sale.)

Even if a borrower is more than 120 days delinquent, if that borrower submits a complete loss mitigation application before the servicer makes the first notice or filing required to initiate a foreclosure process, a servicer may not start the foreclosure process unless:

  • the servicer informs the borrower that the borrower is not eligible for any loss mitigation option (and any appeal has been exhausted)
  • the borrower rejects all loss mitigation offers, or
  • the borrower fails to comply with the terms of a loss mitigation option such as a trial modification.

To learn more about how foreclosure works in your state, see our Key Aspects of State Foreclosure Law: 50-State Chart.

Restrictions on Continuing Foreclosure After the Borrower Requests Help

If the servicer has already started a foreclosure and receives a borrower's complete loss mitigation application more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the three conditions mentioned above has been satisfied.

What Is a "Complete" Application?

Basically, a “complete” application means that you have submitted everything that the servicer requires to evaluate you for loss mitigation. The reason it's important to submit all of the required documentation is because the servicer is generally not required to take certain actions—like evaluating your application—or stop certain actions—like a foreclosure—until it receives the complete application.

Getting Help

If you're having trouble making your mortgage payments, consider submitting a loss mitigation application to your loan servicer. Once submitted, under the rules, the servicer has five days to tell you whether it needs more information—so long as you submit the application 45 days or more before a foreclosure sale—and, if so, what information it needs. Generally, the servicer is required to evaluate the application for all loss mitigation options within 30 days, as long as you submit the complete application more than 37 days before a foreclosure sale. Also, you may generally appeal a loan modification denial so long as the servicer received the complete loss mitigation application 90 or more days prior to a scheduled foreclosure sale.

If you have questions about the foreclosure process in your state or about the rules discussed in this article, consider talking to a foreclosure attorney. If you want to learn about different loss mitigation options or you need help with your loss mitigation application, consider contacting a HUD-approved housing counselor.

To learn more about the CFPB rules, go to www.consumerfinance.gov and search for "mortgage servicing rules."

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