Foreclosure Defense Training
February 5-6, 2014
Chicago, Illinois
Trainers:
Diane E. Thompson, Tara Twomey & Daniel P. Lindsey National Consumer Law Center and Legal Assistance Foundation
ABOUT THE NATIONAL CONSUMER LAW CENTER
Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation,
expert witness services, and training.
ACKNOWLEDGMENTS
Thanks to the Office of the Illinois Attorney General for making the funding available. Thanks to Legal Assistance Foundation for sponsoring this training.
Thanks to Daniel Lindsey of the Legal Assistance Foundation for organizing the training, handling registration and other logistics, and helping develop the agenda.
Thanks to McDermott, Will & Emery, LLP for providing the space for the training and arranging the logistics.
Thanks to Illinois Legal Aid Online and especially Stephanie Villinski for arranging for online availability of the training. Thanks also to Illinois Legal Aid Online for assistance with
registration.
Thanks to National Consumer Law Center staff members Jessica Hiemenz for coordinating the event and Beverlie Sopiep for compiling and formatting the materials.
© 2014 National Consumer Law Center® - Materials included in this book cannot be copied or reproduced in any way without the express written permission of NCLC®.
Speakers Bio
Diane E. Thompson has represented low-income homeowners since 1994. She is currently of
counsel with the National Consumer Law Center, where she is the co-author of the NCLC treatise Truth in Lending and a contributing author to Mortgage Lending. She is a co-author of NCLC’s report, At a Crossroads: Lessons from the Home Affordable Modification Program
(HAMP), a co-author of The Truth, the Whole Truth, and Nothing But the Truth: Fulfilling the Promise of Truth In Lending, 25 Yale J. Reg. 181 (2008), and the author of Foreclosing Modifications, 86 Wash. L. Rev. 755 (2011). From 1994 to 2007, Ms. Thompson represented
individual low-income homeowners in East St. Louis at Land of Lincoln Legal Assistance Foundation. While there, Ms. Thompson served as the Homeownership Specialist, providing assistance to casehandlers representing homeowners in 65 counties in downstate Illinois, and the Supervising Attorney of the Housing and Consumer Unit of the East St. Louis office. She has served on national and local boards, including the National Community Reinvestment Coalition's Board and the Metropolitan St. Louis Equal Housing Opportunity Council's Board. She was a member of the Consumer Advisory Council of the Federal Reserve Board from
2003-2005. Between 1995 and 2001, Ms. Thompson served as corporate counsel to the largest private nonprofit affordable housing provider in the East St. Louis metropolitan area. She received her B.A. from Cornell University and her J.D. from New York University.
Tara Twomeyis currently Of Counsel to the National Consumer Law Center and the Amicus Project Director for the National Association of Consumer Bankruptcy Attorneys. She is currently a Lecturer in Law at Stanford, and has previously lectured at Harvard and Boston College Law Schools. Ms. Twomey is a former Clinical Instructor at the Hale and Dorr Legal Services Center of Harvard Law School where her practice focused, in part, on sustainable homeownership for low- and moderate-income homeowners. She is a contributing author of several books published by the National Consumer Law Center including, Foreclosures:
Defenses, Workouts and Mortgage Servicing and Bankruptcy Basics. Ms. Twomey is also a co-principal investigator, along with Professor Katherine M. Porter of the University of Iowa, for a national study examining mortgage claims in consumer bankruptcy cases.
Daniel P. Lindsey is a Supervisory Attorney in the Consumer Practice Group at LAF (f/k/a
Legal Assistance Foundation of Metropolitan Chicago). Mr. Lindsey has practiced housing and consumer litigation for over 20 years. For the past 13 years, he has specialized in assisting homeowners victimized by predatory lending, foreclosure rescue fraud, and other forms of mortgage lending and servicing abuse. He also practices in bankruptcy court and seeks to
enforce homeowner protections under the Home Affordable Modification Program and other loss mitigation programs. Mr. Lindsey has been active in seeking better policies and laws to protect homeowners, including testifying before local, state, and federal policymakers. A 1985 graduate of Davidson College and a 1990 graduate of Harvard Law School, Mr. Lindsey has taught law school courses on housing law and predatory lending, and in 2011 worked for the National Consumer Law Center. He has recently served on a state legislative task force and Illinois Supreme Court rules committee, both focusing on foreclosure issues, and he is a member of the Illinois Residential Mortgage Board.
Table of Contents
Agenda………1
Telling One Loan Mod from Another………5
The New CFPB Mortgage Servicing Rules………18
NCLC e-Report: New RESPA Rules Change Qualified Written Request Procedure…………24
NCLC e-Report: New CFPB Servicing Regulations………46
NCLC e-Report: New RESPA Early Intervention Requirements for Borrowers in Default………53
NCLC e-Reports: New RESPA “Continuity of Contact” Requirements for Borrowers in Default………59
Using Bankruptcy to Save Homes in Foreclosure Update 2014………65
Bankruptcy Code Sections………72
Case Citations………79
What’s New in Loan Modifications………80
New CFPB Mortgage Loan Origination Rules………98
Tenants in Foreclosure………121
Illnois Homeowner (and Tenant) Civil Procedure Statutory Protections………127
Keep Chicago Renting Ordinance………134
New Supreme Court Foreclosure Rules PowerPoint………142
National Consumer Law Center Foreclosure Defense Training
Chicago, Illinois February 5-6, 2014
Day 1
8:30 – 9:45 Welcome, Introductions, and Reports from the Programs (Global perspective)
9:45 – 10:45 Telling One Loan Mod from Another Non-GSE HAMP 1 & 2
Fannie Mae HAMP & Standard Mod Freddie Mac HAMP & Standard Mod FHA-HAMP
10:45 - 11:00 Break
11:00 – 12:30 The New CFPB Servicing Rules Background
What they are/what is changing
12:30 – 1:30 Lunch
1:30 – 2:15 Using the New CFPB Servicing Rules Tips/brainstorming on how we can use them 2:15 - 2:30 Break
2:30- 3:30 Mediation Panel
Overview of what’s out there now
Experiences/what’s working/tips/strategies
Discussion – establishing new or modifying existing programs 3:30 – 3:45 Break
Day 2
8:30-9:30 Bankruptcy 102 Stripping mortgage liens Avoiding judicial liens Avoiding tax deeds
9:30-10:30 What’s New in Loan Modifications Heirs
Capitalization of arrears under FHA-HAMP LEP guidance
Tax issues
Chase & Ocwen settlement 10:30-10:45 Break
10:45-12:30 New Loan Origination Rules QM or Not
Loan Originator Compensation Escrow
Appraisals 12:30-1:30 Lunch
1:30-1:45 Discussion: Working with Housing Counselors What Housing Counselors Can OfferExperiences? How Can We Make This Work Better?
Best Practices?
1:45 – 2:15 Tenants in Foreclosure Updates/issues/experiences 2:15-2:30 Break
2:30 – 3:15 New Illinois Supreme Court Foreclosure Rules Overview of rules
Issues raised
Monitoring – are they being followed, what are people’s experiences Strategizing – how can we use them
3:15 – 4:00 Case Study/ Case Review Hypothetical
Issue Spotting Claims
©National Consumer Law Center 2014
Telling One Loan Mod from
Another
Diane E. Thompson February 2014
What We’ll Cover
• Non-GSE HAMP 1 & 2
• Fannie Mae HAMP & Standard Mod
• Freddie Mac HAMP & Standard Mod
• FHA-HAMP
• Brief review of programs, then
side-by-side comparison
HAMP 2
• HAMP 2 allows second bite at the apple
• Formulaic restructuring of payments, not
driven by affordability target
• Landlords can get HAMP 2, not just
homeowners
Fannie & Freddie
• Under FHFA’s, moving towards “Servicing
Alignment”
• Still some divergences
• Standard & streamlined mod
GSE Standard Modification
• Like HAMP Tier 2, formulaic
restructuring of mortgage
• GSE Standard Modification
–
freddiemac.com/singlefamily/service/sta
ndard_modification.html
–
efanniemae.com/sf/servicing/fmmod/ind
ex.jsp
5
FHFA Streamlined Modification
• Required for loss mit reviews as of July 1, 2013
• Automatic offer to borrowers 90 days delinquent
– Income documentation not required
– Borrower Assistance Form/Application not required
• Borrowers who send in application must be
reviewed for HAMP
• FICO must be <720
• Most modification terms similar to FHFA
standard mod
FHFA New Streamlined
Modification Terms
• Modification need not lower payment
• No affordability target
• Uniform interest rate, loan term
• Limited principal forbearance
• Can receive HAMP modification if default
GSE Foreclosure Timelines/
Foreclosure Postponements
• Borrower submits application within 30 days of
post-referral solicitation letter
• Borrower submits > 30 days after post-referral
solicitation letter
– > 37 days before sale – 15-37 days before sale – <15 days before sale
– 35 days after referral, no mandatory stops unless loss mitigation option offered, no stops for review or escalations
Foreclosure Timelines/
Foreclosure Postponements
• Servicers face penalties for delaying completion of
sales
• 120/150 day from onset of delinquency must refer
to foreclosure
• Must complete foreclosure within time frame set
for specific state; limited exceptions
• State-by-State time frames, penalties
• IL - 480 days from last installment due to
foreclosure sale (Tex. & Miss. – 300 days; NY –
820 days)
• Standard allowable attorney’s Fee: IL - $1750
9
Where to Find Fannie’s Rules
• Fannie Mae 2012 Servicing Guide, Parts VII & VIII
•
efanniemae.com/; allregs.com
Where to Find Freddie’s Rules
• Freddie Mac Single Family Seller/Servicer Guide, Vol. 2, Chs. 64-66
• Freddiemac.com; allregs.com
11
FHA
• Loss mitigation hierarchy
– Forbearance
– Loan modification
– FHA-HAMP
• If none of these work, then the servicer is
supposed to consider “non-home retention
options”
FHA-HAMP
• Basic program description in HUD
Mortgagee Letter 2009-23 (July 30, 2009)
• FHA-HAMP substantially revised in HUD
Mortgagee Letter 2012-22 (Nov. 16, 2012)
• And again in HUD Mortgagee Letter
2013-32
FHA-HAMP: The Basic Concept
• If standard FHA modification does not reduce the payment by at least 10%, then FHA-HAMP allows for a deeper loan modification or a partial claim, or a loan mod
• The total partial claim, including arrearages of up to 12 months principal, interest, taxes, and insurance (PITI) plus legal fees and costs related to a
canceled foreclosure action, and deferred principal, may not exceed 30 percent of the unpaid principal balance as of the default date.
• No formal NPV test.
Borrower Eligibility
HAMP Tier 1 HAMP Tier 2
GSE HAMP GSE Standard Mod FHA-HAMP Who Is Eligible? Only homeowners Small landords and homeowners Homeowners with GSE loans
GSE loans Homeowners with FHA-insured mortgages Second Bite at
the Apple?
No Yes (but only on Tier 1, not Tier 2) No Yes, after 12 months Yes, after 24 months & change in circumstances Hardship Required No Yes, if mortgage on rental property
Yes Yes Yes
Borrowers in Bankruptcy Eligible?
Yes Yes for Freddie Mac, no for Fannie Mae
Yes
Imminent default
Yes, servicer defined Yes, GSE defined, must involve death, divorce, or disability unless indicator is “1”
Yes, ML 2013-32
Loan and Property Eligibility
HAMP Tier 1 HAMP Tier 2
GSE HAMP GSE Standard Mod
FHA-HAMP
Loan originated
Before January 1, 2009 Before January 1, 2009 12 months before default 12 months before default
MTM-LTV No limit, though NPV will forbid significant equity No limit, though NPV will forbid significant equity 80%, until April 1, 2014 No limit
Mod Application
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Application Form
RMA Form 710 No standard form Where Rules Are hmpadmin.com, MHA Handbook, Chapter II Seller-Servicer Guide, available through web
sites Mortgagee Letters, available at HUD’s website When Does the Program End? Applications have to be received by Dec. 31, 2015 TPP by 3/1/2016 Never (Streamlined mods end 12/1/15) Never In Active Litigation?
Yes, although escalations may be limited
Yes No, except CCPA claims
Yes
Mod Solicitation
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Solicitation Required?
Yes No Yes Yes
Time for Solicitation Within 61 days of missed payment
None 31-35 days after missed payment
Within 32 days of missed payment
Evaluation
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod
FHA-HAMP
Investor Restrictions
Yes, but must seek waiver No No No
NPV Test Yes Yes No No
Order of Evaluation
HAMP Tier 1 first HAMP first Only after other loss mitigation options evaluated & rejected Back-end DTI
No cap No cap >55% still requires credit counseling
No cap No cap
Mod Terms
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP How mod terms are set Driven by payment Rigid application of formula Driven by payment Rigid application of formula Driven by payment Capitalize arrears
Yes Yes Yes Yes Yes
Interest rate Can go as low as 2% PMMS + 50 basis points (4.875%, as of 1/20/13) Can go as low as 2% 4.625%, as of 1/20/13 PMMS + 25 basis points (4.625%, as of 1/20/13) Term Extended Up to 480 months 480 months Up to 480 months 480 months 360 months
Target Payments
HAMP Tier 1 PITIA HAMP Tier 2 PITIA GSE HAMP GSE Standard Mod FHA-HAMP PITI Current Payment > 31% DTI >25% DTI >31% >10% >25% Minimum payment reductionAny amount 10% Any amount None Greater of 10% or $100 (for regular FHA loan mods); 20% for FHA-HAMP Target payment 31% DTI 25% -55% DTI 31% DTI 10%-55% DTI 25% - 31% DTI Payment Cap
31% DTI 55% DTI 31% DTI 55% DTI 40% DTI
Principal Reduction & Forbearance
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSEStandard Mod FHA-HAMP Principal Reductions
Yes Yes Not yet Not yet No, just deferment Principal forbearance caps Greater of MTM LTV 100% or 30% of post-capitalization UPB Lesser of MTM LTV 115% or 30% of post-capitalization UPB Greater of MTM LTV 100% or 30% of post-capitalization UPB Lesser of MTM LTV 115% or 30% of post-capitalization UPB 30% of UPB, before default Borrower pay for performance incentives Yes, up to $5,000 No Yes No No
Limits on Abuse
HAMP Tier 1
HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Late fees capitalized? No No No No No Caps on foreclosure fees capitalized? No No Yes Yes ($1,800 Freddie Mac) Yes ($1850) Waiver of legal claims? No No No No ?? Charges for loan modification? No No No No No
Enforcement & Incentives
HAMP Tier 1 HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Rules Privately Enforceable
Yes, see Wigod Probably, following Wigod Probably, following Wigod ?? Yes, see Bankers Life v. Denton Escalations Internal; [email protected] borrower_outreach@freddi emac.com Phone: 1-800-FREDDIE resource_center@fanniema e.com Phone: 1-800-7FANNIE Internal; NSC at (877) 622-8525 Incentives to Servicers $800-$2,000, plus $1,000/year for 3 years $800-$2,000 $400-$1,600 $400-$1,600 $750 for executed loan mod
Dual Tracking and Foreclosure
HAMP Tier 1
HAMP Tier 2 GSE HAMP GSE Standard Mod FHA-HAMP Evaluation Before Foreclosure?
Yes Not required Yes Yes Yes
Foreclosure Sale
Suspended If Application Received
>7 business days before scheduled sale > 37 days before scheduled sale, for 14 days after mod offered > 37 days before scheduled sale, for 14 days after mod offered > 37 days before scheduled sale Foreclosure proceedings suspended
During trial plan During trial plan During trial plan During trial plan Foreclosure Proceedings Terminated
Upon permanent mod? Upon permanent mod? Upon permanent mod? Upon permanent mod
1/19/14
CFPB Mortgage Rule Changes
Tara Twomey
National Consumer Bankruptcy Rights Center
TILA
Reg Z
RESPA
Reg X
1/19/14
Request For
Information
Force-Placed Insurance
Notice of Error
Notice of Error
Request For
Information
1/19/14
Request for Information
n “with respect to borrower’s mortgage loan”
n Not limited to “related to the servicing”
What
Where
When
Servicer’s
Obligations
1/19/14
Force-Placed Insurance
Procedural Notice Substantive Pay existing policy; limitation on FPI chargesLOSS
MITIGATION
RULES
1/19/14
Continuity OF
Contact
Loss Mit Procedures
Early Intervention
Early Intervention
Continuity OF
Contact
1/19/14
Loss Mit Procedures
TILA
Periodic Billing Statements
Ownership Transfer Notices
Payoff Statements
Payment Change Notices
This article is part of a series of NCLC eReports covering the CFPB’s new 2013 RESPA and TILA Servicing Rules that go into effect on January 10, 2014. This article (Part 1) focuses on the final rule dealing with new requirements as to a servicer’s duty to respond to borrower notices of error. Part 2 will focus on the new requirements regarding borrower requests for information.
New RESPA Rules Change Qualified Written Request Procedure
(Part 1 of 2)
by John Rao
RESPA provides mortgage borrowers with the right to dispute servicer errors and to obtain account information by sending a “qualified written request.”1 The Consumer Financial Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure. New regulations that take effect on January 10, 2014 create two separate processes: one for resolving errors on a borrower’s account and the other for requesting information regarding the account. The final 2013 RESPA Servicing Rule expands the scope of these borrower inquiries, effectively overruling several court decisions that had limited the application of qualified written requests.
Is It a QWR, NOE or RFI (or All Three)?
The Regulation X provisions that implement RESPA section 2605(e) no longer refer to a qualified written request.2 Rather, the Regulation X amendments establish separate
qualifications and procedures depending upon whether a written inquiry is a “notice of error” sent under Regulation X § 1024.35 or a “request for information” sent under Regulation X § 1024.36. As under the prior regulation, the same written inquiry from the borrower can both dispute a servicer action and seek information, and therefore a request for information and a notice of error can be combined in the same writing or sent as separate writings.3
Despite the new changes and in recognition that RESPA itself still refers to a qualified written request, the CFPB has indicated that a qualified written request that properly asserts an error under § 1024.35 or seeks information under § 1024.36 is a notice of error or request for information for purposes of these respective regulations. However, the CFPB’s Official
1 12 U.S.C. § 2605(e)(1)(B). A borrower inquiry made under section 2605(e) is referred to as a
“qualified written request,” which “includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.”
2 Reg. X, 12 C.F.R. §§ 1024.35(a) and 36(a) (effective Jan. 10, 2014).
3 See Amini v. Bank of Am. Corp., 2012 WL 398636 (W.D. Wash. Feb. 7, 2012); Luciw v. Bank
of Am., 2010 WL 3958715 (N.D. Cal. Oct. 7, 2010) (statute is drafted in the disjunctive so that request for account information alone, without statement that account is in error, is a valid
qualified written request); Goldman v. Aurora Loan Servs., L.L.C., 2010 WL 3842308 (N.D. Ga. Sept. 24, 2010) (same); Rodeback v. Utah Fin., 2010 WL 2757243 (D. Utah July 13, 2010) (same).
Interpretations to Regulation X makes clear that a qualified written request is “just one form that a written notice of error or information request may take.”4
Thus, the requirements for compliance with a notice of error or request for information apply irrespective of whether a servicer receives a qualified written request. In other words, a written inquiry can be a notice of error or request for information even if it is not a qualified written request. What is less clear under the CFPB regime is whether a written correspondence can be a qualified written request requiring compliance under RESPA section 2605(e) if it does not satisfy the requirements for being either a notice of error under section 1024.35 or a request for information under section 1024.36.
Requirements for Notice of Error
A servicer is required to respond to any written notice it receives from a borrower that asserts an error covered by section 1024.35.5 A covered error must fall within one of the following categories:
• Failing to accept a payment that conforms to the servicer’s written requirements for making payments;
• Failing to apply an accepted payment under the terms of the mortgage loan and applicable law;
• Failing to credit a borrower’s payment as of the date of receipt in violation of 12 C.F.R. § 1026.36(c)(1);6
• Failing to pay taxes, insurance, and other escrow items in a timely manner as required by 12 C.F.R. § 1024.34(a),7 or to refund an escrow account balance upon
loan payoff as required by 12 C.F.R. § 1024.34(b);8
• Imposing a fee or charge that the servicer lacks a reasonable basis to impose upon the borrower;
• Failing to provide an accurate payoff balance amount upon a borrower’s request in violation of 12 C.F.R. § 1026.36(c)(3);9
• Failing to provide accurate information to a borrower regarding loss mitigation options and foreclosure, as required by 12 C.F.R. § 1024.39;10
• Failing to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer;
• Making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process in violation of 12 C.F.R. § 1024.41(f) or (j);11
4 Official Interpretation, Supplement 1 to Part 1024, ¶ 30(b)-(Qualified written request)-1,
effective Jan. 10, 2014).
5 Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014). 6 See NCLC Foreclosures, § 9.6.3 (4th ed. and 2013 Supp.). 7 Id. at § 9.2.4.
8 Id. at § 9.2.4.2. 9 Id. at § 9.6.5. 10 Id. at § 9.2.6. 11 Id. at § 9.2.8.7.
• Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of 12 C.F.R. § 1024.41(g) or (j);12 or
• Any other error relating to the servicing of a borrower’s mortgage loan.13
Many of the covered errors relate to duties imposed on servicers by other RESPA or Regulation X provisions. Thus, a determination of whether a notice of error is appropriate or whether a servicer has adequately responded to a notice will be guided by these other provisions.
One error category that is not addressed directly by other regulations is a servicer’s imposition of unreasonable fees on the borrower. The CFPB’s Official Interpretations for this rule provides some examples of unreasonable fees. A servicer lacks a reasonable basis to impose fees that are not bona fide, such as (1) a late fee for a payment that was not late; (2) a charge imposed by a service provider for a service that was not actually rendered; (3) a default property management fee for borrowers that are not in a delinquency status that would justify the charge; or (4) a charge for force-placed insurance in a circumstance not permitted by Regulation X section 1024.37.14
In the analysis provided when issuing the final rule, the CFPB discussed the borrowers’ right to assert a notice of error based on a servicer’s failure to provide accurate information about available loss mitigation options. The CFPB stated that “it is critical for borrowers to have information regarding available loss mitigation options,” and that that this access should include “accurate information about the loss mitigation options available to the borrower, the
requirements for receiving an evaluation for any such loss mitigation option, and the applicable timelines relating to both the evaluation of the borrower for the loss mitigation options and any potential foreclosure process.”15 The CFPB also noted that servicers are typically required to provide borrowers with information about loss mitigation options and foreclosure under the National Mortgage Settlement and servicer participation agreements with the Department of the Treasury, HUD, Fannie Mae, and Freddie Mac, and that “providing such information to
borrowers is a standard servicer duty.”16
Importantly, the new notice of error rule permits the borrower to dispute errors related to the transfer of servicing. The final 2013 RESPA Servicing Rule imposes a general obligation on transferor and transferee servicers to have the capacity to accurately transfer information and download data for transferred mortgage loans from and onto their servicing platforms.17 The CFPB describes the accurate and timely transfer of information on a borrower’s mortgage account as a “standard servicer duty.”18 This general requirement is found in Regulation X § 1024.38, which is one of the few new regulations that is not privately enforceable. However, it is enforceable under the error resolution procedure. If the borrower believes that information has
12 Id.
13 Reg. X, 12 C.F.R. § 1024.35(b) (effective Jan. 10, 2014).
14 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-2 (effective Jan. 10, 2014). 15 See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10742 (Feb. 14, 2013). 16 Id.
17 Reg. X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014); § 9.4, infra.
not been accurately transferred, a servicer’s failure to correct the error can lead to liability under RESPA. The CFPB’s analysis of this provision notes that “by defining an error in this way, a borrower will have a remedy to ensure that a transferor servicer provides information to a transferee servicer that accurately reflects the borrower’s account consistent with the obligations applicable to a servicer’s general servicing policies and procedures.”19
Non-Covered Errors
The CFPB’s Official Bureau Interpretation provides examples of “noncovered errors” that are consistent with matters generally not considered to be related to the servicing of a mortgage loan. A servicer is not compelled to respond to a written notice sent by the borrower that asserts an error relating to the origination, underwriting, and subsequent sale or
securitization of a mortgage loan.20 Additionally, an asserted error relating to the determination to sell, assign, or transfer the servicing of a mortgage loan is not a covered error. In contrast, the failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer as discussed above is a covered error.21
General “Catchall” for Errors Relating to Servicing of Loan
When the CFPB initially proposed the error resolution rule, it contained an exclusive list of nine covered errors.22 The list of specific covered errors did not include a general category for errors related to the servicing of the borrower’s loan. NCLC and other consumer organizations submitted comments noting that RESPA section 2605(e) is drafted broadly and does not contain a finite list of potential errors, and that the Dodd-Frank Act amendment adding subsection 2605(k)(1)(C) requires servicers to correct errors relating to “standard servicer duties.” It was also pointed out that the proposed rule would fail to address future servicing problems as standard servicer’s duties change over time.
In response to these comments, the CFPB added to the final rule a catch-all category for “any other error relating to the servicing of a borrower’s mortgage loan.”23 The CFPB agreed with “consumer advocacy commenters that the mortgage market is fluid and constantly changing and that it is impossible to anticipate with certainty the precise nature of the issues that borrowers will encounter.”24
Servicers will likely argue that a notice of error asserting an error under the catch-all provision is ineffective unless it pertains to a servicing duty set out in the definition of “servicing” provided in RESPA section 2605(i)(3),25 relying on court opinions from cases
19 Id.
20 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(b)-1 (effective Jan. 10, 2014). 21 Id.
22 See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,743/-/44 (Feb. 14, 2013). 23 Reg. X, 12 C.F.R. § 1024.35(b)(11) (effective Jan. 10, 2014).
24 See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 25 The term “servicing” is defined in section 2605(i)(3) to mean “receiving any scheduled
concerning qualified written requests decided before the 2013 amendments to Regulation X became effective.26 These pre-January 10, 2014 court opinions no longer have precedential value based on the substantial changes made to Regulation X by the 2013 amendments.
Although the CFPB retained the statutory definition of servicing in Regulation X section 1024.2, amendments to regulations under both Regulation X and Regulation Z recognize that standard servicer duties have greatly expanded since the 1990 Servicer Act amendments to RESPA. For example, Subpart C of Regulation X now includes regulations dealing with servicing operations not contemplated by the definition of “servicing” in RESPA section 2605(i)(3), such as force-placed insurance, disclosure of mortgage owners, foreclosure
avoidance, and loss mitigation. Regulation X also now includes a separate section that describes general servicing policies, procedures, and requirements, based on the CFPB’s analysis of servicing industry practices.27 These significant regulatory changes and developing industry practices must be considered when determining whether an error asserted under the catch-all provision in section 1024.35(b)(11) is related to the servicing of a borrower’s mortgage loan.
Notice of Error for Failure to Correctly Evaluate Loss Mitigation Options
This leads to the question of whether a borrower can assert as an error under the catch-all provision in section 1024.35(b)(11) a servicer’s failure to correctly evaluate a borrower for a loss mitigation option? Although the final 2013 RESPA Servicing Rule focuses only on a servicer’s duty to follow standard loss mitigation procedures and does not compel a servicer to offer loan modifications or any particular loss mitigation option, it does establish loss mitigation activities as a standard servicer duty.28 In addition, Congress has specifically stated that the loan
modification analysis required by the HAMP program is the standard of the residential mortgage servicing industry under both federal and state law.29 As the CFPB correctly noted, “any error escrow accounts . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”
26 See, e.g., Bilek v. Bank of Am., 2011 WL 830948 (N.D. Ill. Mar. 3, 2011) (letter sent when
borrower was in foreclosure is not a qualified written request because servicer is no longer “receiving any scheduled periodic payments)”); Moore v. Fed. Deposit Ins. Corp., 2009 WL 4405538 (N.D. Ill. Nov. 30, 2009) (borrower inquiry seeking information about amounts claimed as due on a mortgage account is not related to servicing). See also NCLC Foreclosures, §
9.2.2.2.3.1 (4th ed. and 2013 Supp.).
27 Reg. X, 12 C.F.R. § 1024.38 (effective Jan. 10, 2014).
28 See Reg. X, 12 C.F.R. § 1024.41 (effective Jan. 10, 2014) (loss mitigation procedures); NCLC
Foreclosures, § 9.2.8 (4th ed. and 2013 Supp.). See also CWCapital Asset Mgmt., L.L.C. v. Chicago Properties, L.L.C., 610 F.3d 497, 500 (7th Cir. 2010) (describing common duties of a servicer of loans in a securitized trust, including “modifying the mortgage to make its terms less onerous to the borrower”).
29 See Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632
(2009) (“The qualified loss mitigation plan guidelines issued by the Secretary of the Treasury under the Emergency Economic Stabilization Act of 2008 shall constitute standard industry practice for purposes of all Federal and State laws”).
related to the servicing of a borrower’s mortgage loan also relates to standard servicer duties.”30 It would thus seem appropriate for a notice of error to be used by a borrower to seek correction of a servicer’s improper denial of a loan modification application by asserting, for example, that the servicer failed to follow HAMP or GSE guidelines, or erroneously applied the net present value test.
In discussing its reasoning for not including a servicer’s failure to correctly evaluate a borrower for a loss mitigation option as a specific covered error in section 1024.35(b), the CFPB stated that the “appeals process set forth in § 1024.41(h) provides an effective procedural means for borrowers to address issues relating to a servicer’s evaluation of a borrower for a loan modification program.”31 Significantly, though, the CFPB went on to state in this same discussion that it was adding the catch-all provision to the error resolution procedure under section 1024.35(b) so as “to encompass the myriad and diverse types of errors that borrowers may encounter with respect to their mortgage loans.”32 In doing so, the CFPB did not foreclose
arguments that a notice of error for a servicer’s failure to correctly evaluate a borrower for a loss mitigation option may be proper. Such a notice of error may be particularly appropriate when the “procedural means” for seeking redress under the appeal process are ineffective or
inapplicable.
It is also significant that while the CFPB did not include loss mitigation evaluation as a covered error, it also did not exclude it or indicate that it was a “noncovered error.” Although section 1024.35 includes express exclusions and limitations on the use of error notices as discussed above, nothing in section 1024.35 or its commentary prohibits a borrower from asserting an error under the catch-all provision in section 1024.35(b)(11) based on a servicer’s failure to correctly evaluate a loss mitigation application. In fact, RESPA itself requires servicers, through amendments made by the Dodd-Frank Act, to take timely action to correct errors relating to “avoiding foreclosure,” suggesting that borrowers should be able to assert under RESPA errors related to loss mitigation.33
Duplicative and Overbroad Notice of Error
The pre-January 10, 2014 version of Regulation X did not include an exclusion from compliance for a dispute notice sent as a qualified written request that was duplicative or
overbroad. The 2013 amendments to Regulation X change this by permitting a servicer to reject certain error notices. A servicer is not required to comply with the response requirements if the servicer reasonably determines that the asserted error is substantially the same as an error previously asserted by the borrower for which the servicer has previously complied, unless the borrower provides new and material information to support the asserted error.34 New and material information means information the servicer did not previously review in connection with investigating a prior notice and is reasonably likely to change the servicer’s prior
30 See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 31 See Section-by-Section Analysis, § 1024.35(b)(11), 78 Fed. Reg. 10,744 (Feb. 14, 2013). 32 Id.
33 12 U.S.C. § 2605(k)(1)(C).
determination about the error. A dispute over whether information was previously reviewed by a servicer or whether a servicer properly determined that information reviewed was not material to its prior determination does not itself constitute new and material information.35
A servicer may also refuse to comply with an overbroad notice of error. A notice of error is overbroad if the servicer cannot reasonably determine from the notice the specific error that the borrower asserts has occurred on the account.36 A servicer is nevertheless required to comply with an otherwise overbroad notice of error to the extent that the servicer reasonably identifies some valid assertion of an error within the notice.37 The Official Interpretations provide the following examples of an overbroad notice of error:
• Assertions of errors regarding substantially all aspects of a mortgage loan, including errors relating to all aspects of mortgage origination, mortgage servicing, and foreclosure, as well as errors relating to the crediting of substantially every borrower payment and escrow account transaction;
• Assertions of errors in the form of a judicial action complaint, subpoena, or discovery request that purports to require servicers to respond to each numbered paragraph; and
• Assertions of errors in a form that is not reasonably understandable or is included with voluminous tangential discussion or requests for information, such that a servicer cannot reasonably identify from the notice of error any error for which § 1024.35 requires a response.38
The exclusion for duplicative or overbroad error notices appears intended by the CFPB as a response to servicer complaints about boilerplate qualified written requests available on the internet that have been used by pro se homeowners and some attorneys in foreclosure
litigation.39 These forms often contain numbered paragraphs that resemble discovery requests and have numerous assertions that may not be relevant to the homeowner’s dispute. To avoid any potential servicer defense in litigation over violations of RESPA section 2605(e) and Regulation X section 1024.35, an attorney who drafts a notice of error should ensure that it is concise and tailored to the facts of the particular case.
35 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(i)-1 (effective Jan. 10,
2014).
36 Reg. X, 12 C.F.R. § 1024.35(g)(1)(ii) (effective Jan. 10, 2014). 37 Id.
38 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(g)(1)(ii)-1 (effective Jan. 10,
2014).
39 See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,760 (Feb. 14, 2013)
(“During the Small Business Review Panel outreach, small entity representatives expressed that typically qualified written requests received from borrowers were vague forms found online or forms used by advocates as a form of pre-litigation discovery.”).
If the servicer determines that a notice of error is duplicative or overbroad, the servicer must notify the borrower in writing within five business days after making its determination.40 The notice must set forth the basis for the servicer’s determination. The failure to provide such notice to the borrower should preclude a servicer from having a defense to liability for
noncompliance in subsequent litigation based on an argument that the requirements were not applicable.
Compliance with Notices of Error
The final 2013 RESPA Servicing Rule makes the dispute rights under RESPA more effective by shortening the response periods. The servicer must acknowledge receipt of a notice of error within five days (excluding holidays, Saturdays, and Sundays) after receiving the notice, rather than the twenty business day period under the former law.41 Alternatively, the servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements if it corrects the error or errors asserted by the borrower, and notifies the borrower in writing of the correction, within the five business day period.42
Except for certain notices of error that have different response periods as discussed below, a servicer must respond to a notice of error from the borrower within thirty days (excluding holidays, Saturdays, and Sundays) after receiving the notice.43 This is significantly shorter than the prior sixty business day response period. A servicer adequately responds by taking action to either:
• Correct the error or errors asserted by the borrower and provide the borrower with a written notification of the correction, the effective date of the correction, and contact information, including a telephone number, for further assistance; or
• Conduct a reasonable investigation and provide the borrower with a written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower’s right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can request such documents, and contact information, including a telephone number, for further assistance.44
Additionally, if during a reasonable investigation of a notice of error, a servicer
determines that there were errors other than or in addition to the error asserted by the borrower, the servicer must correct these additional errors and provide the borrower with a written
notification that describes the errors, the action taken to correct the errors, the effective date of
40 Reg. X, 12 C.F.R. § 1024.35(g)(2) (effective Jan. 10, 2014). 41 Reg. X, 12 C.F.R. §§ 1024.35(d) (effective Jan. 10, 2014). 42 Reg. X, 12 C.F.R. §§ 1024.35(f) (effective Jan. 10, 2014). 43 Reg. X, 12 C.F.R. §§ 1024.35(e)(3) (effective Jan. 10, 2014). 44 Reg. X, 12 C.F.R. §§ 1024.35(e)(1) (effective Jan. 10, 2014).
the correction, and contact information, including a telephone number, for further assistance.45 A servicer may provide the response for different or additional errors it identifies in the same notice that responds to errors asserted by the borrower or in a separate response that addresses these different or additional errors.46
Shorter Time Deadlines for Certain Notices of Error
Different time limitations apply to certain notices of error. If the borrower sends a notice of error under section 1024.35(b)(6) asserting that the servicer has failed to provide an accurate loan payoff balance following a request made under Regulation Z section 1026.36(c)(3),47 the servicer must respond within seven days (excluding holidays, Saturdays, and Sundays) after receiving the notice.48
For a notice of error asserting certain violations of the Regulation X loss mitigation procedures, either under section 1024.35(b)(9) that the servicer initiated a foreclosure before the 120th day of delinquency in violation of section 1024.41 (f) or (j), or under section 1024.35 (b)(10) that the servicer moved for foreclosure judgment or conducted a foreclosure sale in violation of section 1024.41(g) or (j),49 the servicer must respond prior to the date of a
foreclosure sale or within thirty days (excluding holidays, Saturdays, and Sundays), whichever is earlier, after the servicer receives the notice of error.50 However, a servicer is not required to comply with such an error notice if the servicer receives it seven or less days before a scheduled foreclosure sale.51 In this situation a servicer shall make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state the reason it believes no error has occurred.52
Extension of Response Period
A servicer may extend the thirty-day time period for responding to an notice of error by an additional fifteen days (excluding legal public holidays, Saturdays, and Sundays) if, before the end of the thirty-day period, the servicer notifies the borrower in writing of the extension and the reasons for the extension.53 Although the borrower notification must state the reasons for the extension, RESPA and Regulation X do not require that the servicer have a valid or justifiable reason for extending the time period.
45 Reg. X, 12 C.F.R. § 1024.36(e)(1)(ii) (effective Jan. 10, 2014).
46 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(1)(ii)-1 (effective Jan. 10,
2014).
47 See NCLC Foreclosures, § 9.6.5 (4th ed. and 2013 Supp.) and NCLC eReports, Nov. 2013,
No. 4.
48 Reg. X, 12 C.F.R. §§ 1024.35(e)(3)(i)(A) (effective Jan. 10, 2014).
49 See NCLC Foreclosures, § 9.2.8.7 (4th ed. and 2013 Supp.) . The loss mitigation rule will be
covered in a future eReports article.
50 Reg. X, 12 C.F.R. § 1024.35(e)(3)(i)(B) (effective Jan. 10, 2014). 51 Reg. X, 12 C.F.R. § 1024.35(f)(2) (effective Jan. 10, 2014). 52 Id.
However, a servicer’s right to a fifteen-day extension does not apply to all notices of error. A servicer may not extend the seven-day time period for responding to a notice of error under section 1024.35(b)(6) asserting that the servicer failed to provide an accurate loan payoff balance.54 Similarly, no extension of time for compliance is permitted for a notice of error under either section 1024.35(b)(9) or (b)(10) asserting violations of the applicable loss mitigation procedures.55 If a servicer cannot comply by the earlier of the foreclosure sale or thirty days after receipt of the notice of error, it may cancel or postpone a foreclosure sale.56 A servicer in this situation would comply with the time limit by responding before the earlier of the date of the rescheduled foreclosure sale or thirty business days after receipt of the notice of error.
If the borrower sends a notice of error that asserts multiple errors, the CFPB’s Official Bureau Interpretation advises that the servicer may respond through either a single response or separate responses that address each error.57 It may also treat such a notice of error as separate
notices of error and may extend the time period for responding to each asserted error for which an extension is permissible.58
Borrower Right to Request Documentation Supporting Response
Regulation X imposes several additional requirements upon servicers in responding to a notice of error. If the borrower requests copies of documents and information relied upon by the servicer in making a determination that no error occurred, a servicer shall provide to the
borrower, at no charge, the documents and information within fifteen business days of receiving the borrower’s request for such documents.59 Only those documents actually relied upon by the
servicer in finding that no error occurred are required to be produced. This may include documents reflecting information entered in a servicer’s collection system, such as a copy of a screen shot of the servicer’s system showing amounts credited to the borrower’s loan if the asserted error involves payment allocation.60
A servicer is not required to provide documents relied upon that it determines contain confidential, proprietary, or privileged information. If a servicer withholds documents on this basis, the servicer must notify the borrower of its determination in writing within fifteen business days of receipt of the borrower’s request for such documents.61
54 Id. 55 Id.
56 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(3)(i)(B)-1 (effective Jan. 10,
2014).
57 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(1)(i)-1 (effective Jan. 10,
2014).
58 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(3)(ii)-1 (effective Jan. 10,
2014).
59 Reg. X, 12 C.F.R. § 1024.36(e)(4) (effective Jan. 10, 2014).
60 See Official Interpretations, Supplement 1 to Part 1024, ¶ 35(e)(4)-1 (effective Jan. 10, 2014). 61 Id.
Regulation X permits a servicer to request that the borrower provide supporting documentation in connection with the investigation of an asserted error. However, a servicer may not (1) require a borrower to provide such information as a condition of investigating an error; or (2) determine that no error occurred because the borrower failed to provide any requested information without conducting a reasonable investigation.62
Ban on Charging Response Fees
The Dodd-Frank Act clarifies that a servicer shall not charge a fee for responding to a “valid qualified written request.”63 This provision is implemented by Regulation X section 1024.35(h) for notices of error and section 1024.36(g) for requests for information.64 A servicer is prohibited from charging a fee as a condition of responding to a notice of error or request for information.
The final 2013 RESPA Servicing Rule also clarifies that a servicer shall not require a borrower to make any payment that may be owed on a borrower’s account as a condition of responding to a notice of error.65 The Official Interpretations instruct that this borrower protection does not alter the borrower’s obligation to make payments owed under the terms of the mortgage loan.66 For example, if a borrower sends a notice of error asserting that the servicer failed to accept the borrower’s monthly payment made in February, the borrower is still
obligated to make the March monthly payment. However, the servicer may not require that a borrower make the March payment as a condition for complying with its obligations under section 1024.35 with respect to the notice of error on the February payment.
62 Reg. X, 12 C.F.R. § 1024.36(e)(2) (effective Jan. 10, 2014).
63 Pub. L. No. 111-203, 124 Stat. 1376, tit. XIV, § 1463(a) (July 21, 2010). 64 Reg. X, 12 C.F.R. § 1024.35(h) and § 1024.36(g) (effective Jan. 10, 2014). 65 Reg. X, 12 C.F.R. § 1024.35(h) (effective Jan. 10, 2014).
This article is part of a series of NCLC eReports covering the CFPB’s new 2013 RESPA and TILA Servicing Rules that go into effect on January 10, 2014. This article (Part 2) focuses on the final rule dealing with new requirements as to a servicer’s duty to respond to borrower requests for information. Part 1 focused on the new requirements regarding borrower notices of error.
New RESPA Rules Change Qualified Written Request Procedure
(Part 2 of 2)
by John Rao
RESPA provides mortgage borrowers with the right to dispute servicer errors and to obtain account information by sending a "qualified written request." The Consumer Financial Protection Bureau (CFPB) has substantially revised the prior qualified written request procedure. New regulations that take effect on January 10, 2014 create two separate processes: one for resolving errors on a borrower's account (discussed in Part 1) and the other for requesting information about the account. The final 2013 RESPA Servicing Rule expands the scope of information requests by no longer limiting them to the “servicing of the loan.” As under the current law, a borrower may recover actual damages, statutory damages, costs, and reasonable attorney fees for violations of the new request for information and notice of error procedures.1
Requirements for a Request for Information
A servicer is required to respond to any written request for information from a borrower that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.”2 Unlike the earlier version of this regulation that applied to qualified written requests, the scope of an information request under Regulation X § 1024.36 is no longer tied solely to the concept of information that is “related to the servicing of the loan.”3 Rather, requests are
effective if they seek any information concerning the borrower’s mortgage loan, which would include, but would not be limited to, the servicing of the loan. Thus, the question as to whether the borrower has sent a valid information request no longer turns on the narrow definition of “servicing” found in RESPA.4 Prior court decisions that had found certain requests to be
1 12 U.S.C. § 2605(f). Foreclosures, § 9.2.10 (4th ed. and 2013 Supp.).
2 Reg. X, 12 C.F.R. § 1024.36(a) (effective Jan. 10, 2014). The request for information must
also comply with the general requirements for borrower inquiries, such as by including the name of the borrower and information that enables the servicer to identify the borrower’s mortgage loan account. See Foreclosures, § 9.2.2.2.1 (4th ed. and 2013 Supp.).
3 Reg. X, 12 C.F.R. § 1024.21(e)(2)(i)(effective until Jan. 10, 2014).
4 See Section-by-Section Analysis, § 1024.36(f)(1)(iv), 78 Fed. Reg. 10,761 (Feb. 14, 2013)
(“the final rule . . . does not limit information requests to those related to servicing”).
The term “servicing” is defined in RESPA § 2605(i)(3) to mean “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . and making the payments of principal and interest and such other payments
ineffective because of this definition, as discussed below, are effectively abrogated by Regulation X § 1024.36.
To accommodate the new regime in which qualified written requests continue to coexist with requests for information, Regulation X provides that a qualified written request that requests information relating to the servicing of the mortgage loan is a request for information for
purposes of § 1024.36, and a servicer must comply with all requirements applicable to a request for information with respect to such qualified written request.5 However, a written inquiry can be a request for information even if it is not a qualified written request, and so may seek information beyond that of a qualified written request.
The one express limitation in Regulation X on requests for information is that they may not seek the payoff balance of a mortgage loan.6 If the borrower sends such a request for a payoff balance statement, the servicer need not treat it as a request for information under
Regulation X, but instead should treat it as a request under Regulation Z.7 However, a borrower may use a notice of error under Regulation X to seek correction of an inaccurate statement of a mortgage payoff balance.8 A more detailed discussion of requests for a payoff balance statement was provided in an earlier article in this series, NCLC eReports, Nov. 2013, No. 4.9
Request for Information About a Loan Modification Application
Several courts in cases decided before the 2013 RESPA Servicing Rule held that a
request for information about a loan modification application was not related to the servicing of a loan and therefore could not be a valid qualified written request.10 Such requests are now
covered under Regulation X § 1024.36.
In discussing the borrowers’ right to assert a notice of error for a servicer’s failure to provide accurate information to a borrower with respect to available loss mitigation options, the CFPB stated that “it is critical for borrowers to have information regarding available loss mitigation options,” and that this access should include “accurate information about the loss mitigation options available to the borrower, the requirements for receiving an evaluation for any such loss mitigation option, and the applicable timelines relating to both the evaluation of the
with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”
5 Reg. X, 12 C.F.R. § 1024.36(a) (effective Jan. 10, 2014). 6 Id.
7 Reg. X, 12 C.F.R. § 1026.36(c)(3) (effective Jan. 10, 2014). 8 See Foreclosures, § 9.2.2.2.2 (4th ed. and 2013 Supp.). 9 See also Foreclosures, § 9.6.5 (4th ed. and 2013 Supp.).
10 See, e.g., Mitchell v. Reg’l Trust Serv. Corp., 2013 WL 556395 (N.D. Cal. Feb. 12, 2013);
Van Egmond v. Wells Fargo Home Mortg., 2012 WL 1033281 (C.D. Cal. Mar. 21, 2012); Saucedo v. Bank of Am., 2011 WL 6014008, (D. Or. Dec. 1, 2011); In re Salvador, 456 B.R. 610, 623 (Bankr. M.D. Ga. 2011). See also Foreclosures, § 9.2.2.2.3.1 (4th ed. and 2013 Supp.).
borrower for the loss mitigation options and any potential foreclosure process.”11 The CFPB also noted that servicers are typically required to provide borrowers with information about loss mitigation options and foreclosure under the National Mortgage Settlement and servicer
participation agreements with the Department of the Treasury, HUD, Fannie Mae and Freddie Mac, and that “providing such information to borrowers is a standard servicer duty.”12
Request for Loan Servicing File
In response to the expanded scope of information requests as proposed by the CFPB, mortgage industry commenters raised the concern that a borrower could request the entire servicing file for the borrower’s mortgage loan.13 In promulgating the final 2013 RESPA Servicing Rule, the CFPB refused to adopt a per se rule that such requests would be invalid. Rather, the CFPB concluded that, if a borrower requests a servicing file, the servicer shall provide the borrower with a copy of the information contained in the file subject only to the limitations set forth in Regulation X § 1024.36(f) that deal with duplicative, overbroad, or unduly burdensome requests, which are discussed below.14
The CFPB provided additional explanation on this issue in discussing its refusal to adopt the National Mortgage Settlement’s standards15 in another section of Regulation X, § 1024.38, which deals with general servicing requirements.16 Consumer organizations submitted
comments suggesting that servicers who are initiating a foreclosure should be required to provide borrowers with documentation of their authority to foreclose, and that strict standards to ensure the accuracy and validity of foreclosure documentation should be adopted as included in the National Mortgage Settlement. The CFPB concluded that such requirements were unnecessary because the information request process set out in § 1024.36 provides borrowers in foreclosure with access to foreclosure-related documentation. The CFPB stated specifically that § 1024.36 “requires servicers to provide to borrowers upon their request information about their mortgage loan accounts, including their servicing files, which includes a complete payment history, a copy of their security instrument, collection notes, and other valuable information about their
accounts.”17
Consistent with this analysis of § 1024.36, the CFPB noted in the Official Staff
Interpretation for the servicing file provision that § 1024.38(c)(2) does not provide the borrower with an “independent right” to access information contained in the servicing file.18 In other
words, a borrower’s right to the servicing file information derives only under § 1024.36. Upon receipt of a borrower request for information asking for a servicing file, a servicer shall provide a
11 See Section-by-Section Analysis, § 1024.35(b)(7), 78 Fed. Reg. 10,742 (Feb. 14, 2013). 12 Id.
13 See Section-by-Section Analysis, § 1024.36(a), 78 Fed. Reg. 10,754 (Feb. 14, 2013). 14 Id. See also Foreclosures, § 9.2.2.2.3.3 (4th ed. and 2013 Supp.).
15 See Foreclosures, § 2.9 (4th ed. and 2013 Supp.).
16 See Section-by-Section Analysis, § 1024.38(b)(1)(v), 78 Fed. Reg. 10,781 (Feb. 14, 2013). 17 Id.
18 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 38(c)(2)-2 (effective Jan. 10,
copy of the information contained in the servicing file, subject only to the limitations set forth in § 1024.36.19
What constitutes the “servicing file” that the borrower may obtain through a request for information is addressed in the general servicing requirements of Regulation X, at § 1024.38.20 Although the general servicing requirements found in § 1024.38 are not privately enforceable, they help to define the scope of a permissible request for information under § 1024.36 (which is enforceable by the borrower).
Section 1024.38(c)(2) provides that a servicer is required to maintain the following documents and data on each mortgage loan account it services in a manner that facilitates compiling such documents and data into a servicing file within five days:
(1) a schedule of all transactions credited or debited to the mortgage loan account, including any escrow account and any suspense account;
(2) a copy of the security instrument that establishes the lien securing the mortgage loan; (3) any notes created by servicer personnel reflecting communications with the borrower
about the mortgage loan account;
(4) a report of the data fields relating to the borrower’s mortgage loan account, to the extent applicable, created by the servicer’s electronic servicing systems; and
(5) copies of any information or documents provided by the borrower to the servicer in accordance with the notices of error procedures under § 1024.35 or the loss mitigation procedures under § 1024.41.21
Thus, the servicing file appears to be a subset of the entire loan file for a borrower. Significantly, a servicing file includes a “schedule of all transactions credited or debited” to the account. Since this provision refers to “all” transactions and no time limitation is placed on the reporting period, a borrower may request a life-of-loan payment history.
While § 1024.38(c)(2) requires a servicer to produce the servicing file within five days, this timeline is established in the general servicing requirements for compliance reviews by the CFPB rather than for responses to borrower requests for information under § 1024.36. Thus, the customary timeline for compliance with requests for information as discussed below would apply to a request for the servicing file.
Requests for Loan Origination Documents
A number of court decisions under the former law had held that a qualified written request could not be used to obtain loan origination documents because such documents are not
19 Id.
20 See Foreclosures, § 9.4 (4th ed. and 2013 Supp.).
related to the servicing of the loan.22 By expanding the scope of borrower inquiries to include
information concerning the borrower’s mortgage loan, Regulation X now permits a borrower to obtain loan origination documents by sending a request for information under § 1024.36. However, as discussed below, the servicer may claim that such documents are not available, or that the request is overbroad or unduly burdensome. A request for the entire loan origination file will likely generate such a response from the servicer. To avoid this response, the request should ask for the particular documents that may be needed, such as a copy of the loan note, mortgage or deed of trust, HUD-1 settlement statement, or TILA disclosure and rescission notice.
Exclusions from Compliance
Similar to the treatment of notices of error,23 a servicer may reject certain information requests it deems to be duplicative or overbroad. Regulation X expands the list of exclusions from compliance for requests for information to include requests that are unduly burdensome, or that seek information that is irrelevant, confidential, proprietary, or privileged. However, a servicer’s decision to ignore a borrower’s request comes with certain risks. If the servicer makes an unreasonable determination that any of the listed exclusions apply, it would be liable to the borrower for its failure to comply with § 1024.36.24
If a servicer determines that it is not required to comply with a request for information because one of the exclusions applies, it must notify the borrower in writing within five business days after making its determination.25 The notice must set forth the basis for the servicer’s determination. The failure to provide such notice to the borrower should preclude a servicer from having a defense to liability for noncompliance in subsequent litigation based on an argument that the requirements were not applicable.
Duplicative Request for Information
A servicer is not required to comply with a request for information if the servicer reasonably determines that it is duplicative in that the information requested is substantially the same as information the borrower previously requested and for which the servicer has previously complied.26 A borrower’s request for a type of information that can change over time is not substantially the same as a previous information request for the same type of information if the subsequent request covers a different time period than the prior request.27
Request Asking for Confidential, Proprietary, or Privileged Information
22 E.g., Liebelt v. Quality Loan Serv. Corp., 2011 WL 741056 (N.D. Cal. Feb. 24, 2011); Aniel
v. Litton Loan Servicing, L.P., 2011 WL 635258 (N.D. Cal. Feb. 11, 2011); Taggart v. Wells Fargo Home Mortg., Inc., 2010 WL 3769091 (E.D. Pa. Sept. 27, 2010).
23 See Foreclosures, § 9.2.2.2.2.2 (4th ed. and 2013 Supp.).
24 See Section-by-Section Analysis, § 1024.36(f)(1), 78 Fed. Reg. 10,759 (Feb. 14, 2013). 25 Reg. X, 12 C.F.R. § 1024.36(f)(2) (effective Jan. 10, 2014).
26 12 C.F.R. § 1026.36(f)(1)(i) (effective Jan. 10, 2014).
27 See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 36(f)(1)(i)-1 (effective Jan.
Compliance with a request for information is not required if the servicer reasonably determines that the information requested is confidential, proprietary, or privileged.28 The Official Bureau Interpretation to Regulation X provides the following examples of confidential, proprietary, or privileged information: (1) information regarding management or profitability of a servicer, including information provided to investors in the servicer; (2) compensation,
bonuses, or personnel actions relating to servicer personnel, including personnel responsible for servicing a borrower’s mortgage loan account; (3) records of examination reports, compliance audits, borrower complaints, and internal investigations or external investigations; or (4) information protected by the attorney-client privilege.29
The CFPB’s initial proposed rule included a reference to “general corporation information of a servicer” as part of the confidential, proprietary or privileged exclusion.30 Industry commenters supported the CFPB’s listing in the proposed Official Bureau Interpretation of a pooling and servicing agreement (PSA) between the servicer and the owner of the mortgage as an example of this general corporate information exclusion. Consumer organizations
commented that PSAs are not typically confidential or proprietary, and are important as a subject for information requests because servicers rely on such agreements to make erroneous claims that they are not authorized to offer loan modifications or other loss mitigation options. In issuing the final rule, the CFPB removed the reference to general corporate information. The CFPB also agreed that PSAs are not typically kept confidential, and therefore deleted from the final Official Bureau Interpretation a PSA as an example of a confidential, proprietary or privileged request item.
Although the final rule does not have an explicit exclusion for a borrowers’ request for a PSA, the CFPB noted that a servicer may not be required to comply with such a request if it reasonably determines that any of the exclusions set forth in § 1024.36(f) apply.31 To avoid the possibility of these other exclusions being applicable, such
