120-Day Rule: Applicable to Breaches Other Than Non-Payment

The 120-day foreclosure restriction under federal law applies in the case of a non-payment related breach of the mortgage contract.

Under federal servicing rules that went into effect in 2014, a mortgage servicer—the company that handles your loan account—can’t make the first notice or filing required under state law for any judicial or non-judicial foreclosure until the payment is more than 120 days delinquent. (Borrowers are considered delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and escrow, if applicable, becomes due and unpaid, until such time as no periodic payment is due and unpaid.)

Recently, the Consumer Financial Protection Bureau clarified that the 120-day foreclosure restriction applicable to monetary defaults also applies in the case of a non-monetary breach of the mortgage agreement, like if you:

  • fail to pay property taxes when they aren’t escrowed
  • commit waste (cause damage that lowers the value of the home), or
  • fail to occupy the home if the mortgage requires it.

Here’s how the 120-day foreclosure restriction works in this type of situation: When the borrower commits a non-payment related breach, the servicer can accelerate the loan (call the full amount due) if the mortgage contract allows it. If the borrower doesn’t pay the accelerated amount on its due date, the delinquency begins. Assuming the property is the borrower’s principal residence, the servicer may not foreclose until the account is more than 120 days delinquent.

Effective: October 31, 2017