New Federal Foreclosure Laws Take Place January 2014
New Federal Foreclosure Laws Impose Requirement on Mortgage Loan Servicers to Protect Homeowners Facing Foreclosure
On January 11, 2014, new federal laws, known as the Dodd-Frank Act, will take affect that change the foreclosure process for mortgage servicers. The purpose of the new law is to:
- Better inform and assist borrowers of their options if they have become delinquent on their mortgage payments;
- Provide homeowners with better information about their home mortgage loan(s);
- Protect borrowers from errors and wrongful actions by their mortgage servicers.
Read on to understand all of the new law details.
Facing foreclosure can be daunting. We can help. Even though the new federal foreclosure laws provide borrowers with better lines of communication and transparency through the loss mitigation process, lenders are still not REQUIRED to provide loan modifications. We can provide 100% certainly that a foreclosure sale will be immediately and legally stopped by filing a Chapter 13 bankruptcy before the sale occurs. A Chapter 13 reorganization will still allow you to pursue a loan modification (with our help or with a HUD counselor) while also realizing other Chapter 13 program benefits for reducing other debt, such as:
Remove a second mortgage or home equity loan;
Optimal repayment terms to get you caught up on your mortgage: 0% interest payback on arrearages with no continued late penalties;
Consolidation, deference and likely reduction of other debts (credit cards, medical bills, personal loans, etc.) that may be interfering with your ability to maintain your mortgage payments.
This debt reduction can balance your budget and ensure you have the funds available to pay your monthly mortgage payment. Call us today at 866-261-8282 for free consultation with a licensed Michigan attorney. We offer same day legal advice on your foreclosure protection options. Schedule a phone consultation or in-office at any of our six Michigan locations: Detroit, Ann Arbor, Flint, Southfield, Dearborn or Warren.
Overview of Dodd-Frank Act – New Foreclosure Law Changes:
Here is an executive summary of the new foreclosure laws. Details of each bullet point are listed in the sections below.
Under the new laws, SERVICERS MUST:
- Refrain from starting a foreclosure proceeding on a borrower while there is a pending loan modification;
- Notify borrowers in their monthly statement if they become delinquent;
- Provide delinquent borrowers with options for foreclosure alternatives;
- Provide easy and ongoing access to employees responsible for helping them to prevent foreclosure;
- Offer a single application for all options to avoid foreclosure and must consider all of these options at once;
- Confirm receipt of application and promptly review;
- Provide a fair review process for borrowers seeking alternatives to foreclosure;
- Service may not proceed with a foreclosure until all other alternatives are considered;
- Servicer may not start a foreclosure sale if the borrower has a loss mitigation agreement, unless the borrower defaults;
- Specifically explain why they rejected a borrowers application if it is received more than 37 days before a foreclosure sale;
- Provide clear monthly mortgage statements;
- Provide early warning that an interest rate is going to adjust;
- Provide other options for borrowers to avoid expensive “force-placed” insurance;
- Promptly credit borrower’s payments and requests for a mortgage balance;
- Quickly acknowledge and correct errors or requests for information regarding their mortgage loan;
- Accurately maintain documents and information and provide access to such documents.
Background: What is a Mortgage Servicer and why is the New Foreclosure Law Directed at Them?
The intent of the law is to bring greater consumer protections to the mortgage servicing industry.
Mortgage Servicers are contracted by lenders to:
- Collect payments from borrowers;
- Typically handle customer service;
- Hold escrow accounts;
- Facilitate loan modifications and foreclosures.
In recent years, primarily exacerbated by the foreclosure crisis, there has been increased scrutiny with how mortgage servicers deal with borrowers. Since servicers are accountable to lenders and not borrowers, there is little incentive for them to meet borrower needs and provide good customer service. Mainly, they were ill-equipped to deal with the millions of borrowers who fell behind on their loans deepening the foreclosure crisis and frustrating homeowners who felt like they were getting the runaround.
What are the Specific Provisions of the Dodd-Frank Act?
The goal is ensure that borrowers behind on their payments receive a fair process to avoid foreclosure. Here are the specific changes to help borrowers:
Early Notice for Delinquency: Mortgage servicers are required to include information in the monthly statement about a delinquency if a borrower missed two consecutive payments. This notice must include:
- Date borrower first became delinquent;
- The dollar amount required to bring the account current;
- The dangers of failing to bring the account current.
Notice providing Foreclosure Alternatives: Mortgage servicers must communicate with borrowers that have missed two consecutive payments. They must:
- Send a written notice to the borrower of the delinquency within 15 days of the second missed payment;
- Provide written notice with potential options or examples of how a foreclosure could be avoided, such as:
- Change in interest rate;
- Extended loan terms;
- Forgiving or deferring principal loan debt;
- Or other negotiated payment plans.
- Offer housing counseling information in the written notice.
Restrict “Dual Tracking”: This is when a servicer pursues a foreclosure process while dually working with a borrower on a foreclosure alternative (loan modification, etc.). Many homeowners were confused by this practice and assumed they were protected from foreclosure if they were being considered for alternatives. Under the new law:
- Servicers cannot begin the foreclosure process until a borrower is 120 days delinquent on their mortgage. This is meant to give borrowers reasonable time to submit for a loan modification.
One Loss Mitigation Application: Servicers must accept one application for all available options to avoid foreclosure to borrowers who submit a timely and complete application. Borrowers must be considered for all foreclosure avoidance options at one time.
Application confirmation and prompt review: Servicers must let borrowers know, within five days of receipt, whether their application is complete as long as the application is received at least 45 days or more before a scheduled foreclosure sale. Servicers have 30 days to review complete loss mitigation applications and respond, as the complete application was received more that 37 days prior to a scheduled foreclosure sale date.
Servicers must allow borrowers ongoing and direct access to their personnel: Borrowers who have missed two payments must have ongoing, easy and direct access to servicer’s staff that can assist them to avoid a foreclosure. These employees ensure that the correct paperwork and documents are processed correctly. These personnel must have access to the homeowner’s records and provide accurate information concerning:
- The process of foreclosure and loss mitigation;
- Action items the borrower must perform to be evaluated for loss mitigation;
- The status of any application for loss mitigation that the borrower has submitted.
Fair Review Process: Servicers must provide a fair practice for homeowners seeking an alternative to foreclosure. In particular:
- Servicers must know investors (i.e. Freddie Mac, Fannie Mae, private banks, etc.) guidelines for accepting a loan modifications;
- Servicers must look at all available options allowed by the investor for which the borrower might be eligible, assuming the completed application is received within the specified deadlines;
- Servicers are not permitted to encourage borrowers to apply for options that are most favorable to the investor or the servicer.
No Foreclosure sale can proceed until all alternatives have been considered: If a borrower submits a completed loss mitigation application 37 days or more before a foreclosure sale, the servicer cannot conduct the foreclosure sale, enter an order for sale or move for foreclosure judgment. The completed application must first be evaluated and one of the following actions must occur before the servicer can complete the foreclosure sale:
- The servicer has informed the borrower of ineligibility for any loss mitigation option;
- The borrower has rejected any and all loss mitigation options presented by the servicer; or;
- The homeowner has failed to comply with the terms of agreement on a lost mitigation option.
No Foreclosure with an Agreement for Loss Mitigation: A servicer cannot start a foreclosure if they have a loss mitigation agreement with a borrower, unless the borrower defaults on the agreement.
Reason for Rejection: Servicers must explain the reason why they rejected a borrower’s loss mitigation application if their application is received more than 37 days before a foreclosure sale. Servicers cannot merely cite “investor requirements” as a reason for rejection, they must provide specific details. If there is an option for an appeal, the servicer must inform the homeowner that they have the option to appeal the decision to servicer personnel not involved with the original decision.
Clear Monthly Mortgage Statements: Servicers must include detail on:
- The amount and due date of the next payment;
- Summary of the mortgage terms, such as interest rate and principal amount due;
- A breakdown of each payment by principal, interest, fees and escrow;
- A recent transition activity summary, including an itemization of payments, charges and fees;
- Delinquency amount if the borrower has missed two consecutive payments as well as the amount needed to bring the account current and the risks for not doing so.
Advanced warning before interest rates change: Servicers must provide a notice before the first time an interest rate adjusts. This disclosure must include:
- An estimate of the new payment and interest rate and a comparison to the current rate and payment;
- An explanation of how this new payment is established, when the change will take effect and when future adjustments are schedule to take place;
- Whether a pre-payment penalty exists;
- Alternative options for a borrower to pursue if the new mortgage payments is no longer affordable and;
- Information on how to access housing counselors.
Alternatives to costly Force-Placed insurance: Servicers generally ensure that the borrower hold property insurance to protect their investment. If the homeowner does not carry such insurance or lets it lapse, the servicer will usually purchase insurance to protect their lender’s interest in the property and charge the borrower for the cost of this insurance. This is known as “forced-place” insurance and is typically more costly and less protection and coverage for the homeowner than they could purchase privately. The new laws require:
- The servicer must notify the borrower at least twice before charging the force-placed insurance – first at least 45 days before the charge will occur and at least 15 days before the date of the actual charge;
- The second notice must provide a good-faith estimate of how much the forced-placed insurance will cost;
- If the borrower provides evidence of the necessary insurance, the servicer must cancel the force-placed insurance within 15 days and refund the borrower for any periods of overlapping coverage;
- If the borrower has an escrow account to pay for homeowner’s insurance, the servicer is prohibited from acquiring forced-placed insurance where the servicer can continue the borrower’s insurance – even if this means the servicer must advance funds to the homeowner’s escrow account to do so.
Promptly credited payments: Servicers must credit a homeowner’s account on the date the payment is received, even if the payment does not cover outstanding fees.
- If a servicer places a partial payment into a “suspense account,” once the balance in this account is equal to a full payment, the servicer must credit it to the borrower’s account.
Prompt response for balance requests: Servicers must respond to a borrower’s request for an account balance within seven business days of a written request.
Error correction and prompt response: Servicers must acknowledge and respond to a borrower’s written request regarding certain errors or requests for information regarding their account. Specifically servicers must:
- Respond to notification of error(s) or information requests submitted in writing and acknowledge such requests within five (5) days;
- Within 30 – 45 days of receiving a notice of error or information request, the servicer must do one of the following:
- Correct the error and notify the borrower that the issue has been corrected;
- Conduct an investigation and notify the borrower if no errors occurred; or
- Notify the borrower that the information requested is not available.
- Examples of efforts that fall under this resolution requirement:
- Incorrect calculations of credits and payments;
- Incorrect payments (or non-payments) of taxes and insurance from escrow accounts;
- Inaccurate information regarding a borrower’s options to avoid foreclosure;
- Any other error related to the servicing of the borrower’s mortgage loan.
Accurate and Accessible Information and Documents: Servicers must maintain a borrower’s records until at least one year after the loan is paid off or transferred. Servicers must maintain these records such that they can be accessed easily in order to provide timely and accurate information to borrowers, investors and in the case of foreclosure proceedings, the court.
Small Servicer Exemptions
Servicers that service 5,000 mortgage loans or less and only service loans that they or an affiliate own or originated are exempt from some of the new rules. These exemptions include many of the procedural rules, including most of the requirements regarding the handling of loss mitigation applications.
Our Michigan Attorneys are Here to Help
Navigating through a foreclosure process, even with increased protections, can feel overwhelming. Don’t go it alone, we are a local law firm dedicated to foreclosure prevention and helping our clients find lasting debt resolution. We can help you to legally stop your foreclosure sale, set up optimal repayment terms as well as reduce and eliminate other debt that may have caused you to get behind on your mortgage in the first place.
Call us today at 866-261-8282 for a free consultation. We offer same day advice and same day legal protection.
Footnote: Content sourced from The Consumer Financial Protection Bureau (CFPB) website. The CFPB is responsible for implementing the Dodd-Frank Act provisions and has the power to adopt additional rules to protect homeowners as necessary.