A federal mortgage servicing law generally prohibits a servicer from moving for a foreclosure judgment or an order of sale after a borrower submits a complete loss mitigation application. But in a recent case, the U.S. Court of Appeals for the 11th Circuit held that a motion to reschedule a previously set foreclosure sale doesn't violate this law. (See Landau v. RoundPoint Mortgage Servicing Corporation, 925 F.3d 1365, 27 Fla. L. Weekly Fed. C 2045 (11th Cir. June 11, 2019)).
In September 2000, Rachel Landau took out a mortgage on her home in Florida. In June 2014, after Landau fell behind in mortgage payments, her lender filed a foreclosure action in Florida state court. The court granted the lender a judgment and order of foreclosure, which set a foreclosure sale for June 2, 2016. This sale date was continued (postponed) on several occasions because Landau was under evaluation for a loan modification. The foreclosure sale was eventually set to take place on October 5, 2016.
In the meantime, the lender transferred Landau's mortgage loan to a new servicer, RoundPoint Mortgage Servicing Corporation, and Landau submitted another loss mitigation application. RoundPoint then approved a trial modification plan for Landau. Because the previously-issued order of sale had set the foreclosure sale to take place during Landau's six-month trial modification period, RoundPoint filed a motion to reschedule the sale so the sale wouldn't be held unless Landau failed to comply with the trial modification plan.
Landau filed then a lawsuit against RoundPoint, arguing that the motion to reschedule the foreclosure sale violated the federal Real Estate Settlement and Procedures Act (RESPA). Specifically, Landau alleged that the servicer violated 12 C.F.R. § 1024.41(g), which prohibits a servicer from moving for an order of foreclosure sale after a borrower has submitted a complete loss mitigation application. Landau claimed that RoundPoint's motion to reschedule the foreclosure sale—rather than canceling the sale—amounted to a violation of RESPA. (To learn more about federal laws that protect borrowers in the foreclosure process, see Does My Loan Servicer Have to Comply With Federal Mortgage Servicing Rules?)
The district court disagreed and dismissed Landau's case. Landau then appealed.
The Court of Appeals agreed with the district court. The Appeals Court noted that the plain language of the law provides only that "a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale" after the borrower submits a complete application. (12 C.F.R. § 1024.41(g)). The statute doesn't, however, prohibit a servicer from moving to reset an already-scheduled foreclosure sale. Accordingly, the Court of Appeals affirmed the district court's dismissal of Landau's suit.
While this case might not seem like a victory for borrowers, it does further the consumer protection goals of RESPA. Here's why: If giving a borrower a loss mitigation option—like a trial modification plan—meant that a servicer would have to give up the ability to postpone a foreclosure sale (and instead cancel it, and start the foreclosure process over), servicers would have little reason to agree to such plans. In this case, the court noted that Landau's interpretation of 12 C.F.R. § 1024.41(g) would deter servicers from offering borrowers loss mitigation options if a foreclosure sale had already been scheduled.
If you think your servicer is violating federal mortgage servicing laws, consider talking to a foreclosure lawyer to discuss your options. If you want to learn about different alternatives to foreclosure or you need help completing a loss mitigation application, consider contacting a HUD-approved housing counselor.
Effective date: June 11, 2019