Federal Laws That Protect Homeowners During Foreclosure

Federal laws protect homeowners when facing foreclosure.

During the foreclosure crisis that began around 2008, the number of homeowners in financial distress increased exponentially and servicers simply couldn't keep up with the increased demands for information and assistance. As a result, servicing errors were common and egregious. So, on January 10, 2014, new federal laws that protect homeowners in the foreclosure process went into effect.

These laws protect consumers by:

  • ensuring servicers provide assistance if a borrower is having difficulty making mortgage payments, and
  • protecting borrowers from wrongful actions by servicers.

Keep reading to learn more about these federal laws and how they might help you if you're facing a foreclosure.

Servicers Now Must Provide Homeowners With Assistance

Now, under federal law, 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. But, if you filed for bankruptcy or asked the servicer to stop communicating with you under the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to this law, the servicer doesn't have to try to contact you by phone or in person.

No later than 45 days after missing a payment, the servicer must inform the borrower in writing about loss mitigation options that might be available, and must do so again no later than 45 days after each payment due date so long as the borrower remains delinquent. The servicer does not, however, have to provide the written notice more than once during any 180-day period. If you've filed bankruptcy or asked the servicer not to communicate with you, it generally has to send a modified letter, subject to some exceptions. (For more information, see What Happens When You Miss a Mortgage Payment.)

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 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

Federal law also restricts "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

Servicers generally can't start a foreclosure until the loan obligation is more than 120 days delinquent, which provides time for the borrower to submit a loss mitigation application. 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 can't file a lawsuit in court to start the foreclosure until you're more than 120 days behind. If the foreclosure is nonjudicial, the foreclosing party 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. (Learn more in How Soon Can Foreclosure Begin?)

Further restrictions on starting a foreclosure. Even if a borrower is 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, the servicer can't 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.

The servicer doesn't have to review multiple applications after you become delinquent on the loan. But if you bring the loan current after submitting an application, you may submit another.

Applicability of the Laws

These laws apply to mortgage loans that are secured by a property that is the borrower's principal residence. The determination of principal residence status depends on the specific facts and circumstances regarding the property and applicable state law. For example, a vacant property might still be a borrower's principal residence under certain circumstances, like when a servicemember relocates due to permanent change of station orders and was living at the property as his or her principal residence immediately prior to displacement, intends to return to the property at some time in the future, and doesn't own any other residential property.

In most cases, the laws don't apply to:

  • HELOCs and other open-end lines of credit
  • small servicers
  • reverse mortgage transactions, and
  • loans for which the servicer is a qualified under the Farm Credit Act of 1971.

Getting Help

If you're having trouble making your mortgage payments, consider submitting a loss mitigation application to your loan servicer. Once submitted, under federal law, 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. Remember, the servicer is required to review you for a loss mitigation option only once, unless you bring the loan current after submitting your complete application.

If you have questions about the foreclosure process in your state or about the laws 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.

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