Pub. 6 2015 Issue 4

www.wvbankers.org 12 West Virginia Banker E ffective January 10, 2014, the Con- sumer Financial Protection Bureau (“CFPB”) implemented certain amendments to the Real Estate Settlement Act (“RESPA”), Regulation X, regard- ing residential mortgage loan servicing practices. Among the amendments is a new requirement that all mortgage ser- vicers refrain from making a “first notice or filing” required to foreclose until a borrower is at least 120 days delinquent. This new mandate is alternatively cited as the “pre-foreclosure review period” or the “loss mitigation review period.” Ostensibly, the new rule, which preempts state and local laws providing for a more accelerated foreclosure process, results in more certainty among servicers and borrowers by creating a standardized period during which delinquent borrowers are provided an opportunity to work with their servicers on loss mitigation options prior to foreclosure. However, an unin- tended consequence of the rule is a poten- tial gaming of the system by delinquent borrowers who can time their payments in such a way as to effectively prevent the commencement of foreclosure procedures. Pursuant to the amended rule, found at 12 C.F.R. § 1024.41(f), during the review period, a servicer cannot make a first notice or filing unless the borrower’s mortgage loan obligation is more than 120 days delinquent, the foreclosure is based on a borrower’s violation of a due-on-sale clause, or the servicer is joining the fore- closure action of a subordinate lienholder. Importantly, per the new rule, delinquency “begins on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period [of time] after the due date to pay before the servicer assesses a late fee.” The first notice or filing is the earliest docu- ment required to be recorded or published to initiate the foreclosure process. If no document is required to be recorded or published (as determined by a waiver or the date the deed was entered into), then the first notice or filing is the earliest doc- ument that establishes, sets, or schedules a date for the foreclosure sale. The RESPA amendments include a requirement that servicers follow certain delineated procedures during the review The Unintended Consequence of the CFPB’s Pre-Foreclosure Rule By Kevin R. Waldo and Charles Dunbar, Jackson Kelly