Federal laws protect homeowners in the foreclosure process. These laws help consumers by ensuring loan servicers provide assistance if a mortgage borrower is having difficulty making the loan payments and protecting borrowers from servicers' wrongful actions.
Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), requires most mortgage servicers to take certain steps and provide specific protections to borrowers facing foreclosure.
Under this federal law, servicers are supposed to work with borrowers who are having trouble making monthly payments by, among other things:
Soon after the borrower misses a payment, the 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 foreclosure, that 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. (12 C.F.R. § 1024.39).
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.
However, the servicer doesn't have to provide the written notice more than once during any 180-day period. If you've filed for bankruptcy or asked the servicer not to communicate with you, it generally has to send a modified letter, subject to some exceptions. (12 C.F.R. § 1024.39).
The servicer must assign personnel to help the borrower by the time the borrower falls 45 days delinquent. (12 C.F.R. § 1024.40). The personnel should be accessible to the borrower by phone and able to respond to the borrower's inquiries.
When applicable, the servicer's personnel should help the borrower pursue loss mitigation options by advising the borrower about:
The servicer may assign a single person or a team to assist a delinquent borrower.
Federal law also restricts "dual tracking." Dual tracking happens when a servicer simultaneously evaluates a borrower for a loan modification (or another loss mitigation option) while at the same time pursuing a foreclosure.
Servicers generally can't start a foreclosure (that is, make the "first notice or filing" required to begin the process) until the loan obligation is 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).
This 120-day period provides time for the borrower to submit a loss mitigation application.
When does a borrower become 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.
So, when can a foreclosure begin? In a judicial foreclosure, the foreclosing party can't file a lawsuit in court to start the foreclosure until you're more than 120 days delinquent. 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 delinquent on 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, the servicer can't start the foreclosure process unless:
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 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 and then reapply, the servicer must consider your new application. (12 C.F.R. § 1024.41).
These laws apply to mortgage loans that are secured by a property that is the borrower's principal residence. The principal residence status determination depends on the property's specific facts and circumstances and applicable state law.
A vacant property might still be a borrower's principal residence under certain circumstances. For example, when a servicemember who relocated due to a permanent change of station orders and was living at the property as a principal residence immediately before displacement intends to return to the property in the future and doesn't own any other residential property.
In most cases, the laws don't apply to:
A "small servicer" is defined as one that:
Small servicers don't have to comply with the requirements previously discussed in this article, except:
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 generally get 14 days to appeal a loan modification denial as long as the servicer received the complete loss mitigation application 90 or more days before a scheduled foreclosure sale. If a complete loss mitigation application is received less than 90 days before a foreclosure sale but more than 37 days before a foreclosure sale, the servicer must give you at least seven days to accept or reject a loss mitigation offer. 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 your state's foreclosure process or the laws discussed in this article, consider talking to a foreclosure attorney.
Consider contacting a HUD-approved housing counselor to learn about different loss mitigation options or if you need help with your application.