Pub. 6 2015 Issue 4

winter 2015 13 West Virginia Banker 2016 SESSION • May 22— June 3, 2016 (225) 766-8595 • gsblsu.org 4273 Highland Road | Baton Rouge, LA 70808 TRUE LEADERS DON’T CREATE FOLLOWERS, THEY CREATE MORE LEADERS Since 1950 the Graduate School of Banking at Louisiana State University has helped build over 15,000 banking leaders in the industry. Contact us to develop your future leaders today. period. If a complete loss mitigation application is submitted during the review period or before the first notice or filing, the servicer cannot make the first notice or filing. If the loss mit- igation application is submitted after the first notice or filing but more than 37 days prior to the foreclosure sale, the servicer cannot move for foreclosure judgment or order of sale or conduct a foreclosure. Both of these provisions are contingent upon the following: (1) if the servicer has sent the borrower notice that the borrower is not eligible for any loss mitigation option and the appeal process is not applicable, (2) the borrower has not request- ed an appeal within the applicable time period, (3) the appeal has been denied, (4) the borrower rejects all loss mitigation options offered, or (5) the borrower fails to perform under an agreement on a loss mitigation option. If any of these elements have been met, the servicer is permitted to move forward with either the first notice or filing or foreclosure proceedings. The narrow definition of “delinquency” under the new rule – a default in the payment of principal, interest, and required escrow payments – can trigger the unintended consequence of the perpetually delinquent borrower. Specifically, nothing in the rule precludes a savvy borrower from regularly taking advantage of the review period requirements by allowing her or his delinquen- cy to reach the threshold of the wait period (119 days) and then making a regular payment of principal and interest, effectively blocking foreclosure and restarting the 120-day period. Another noteworthy consequence of the new rule is the burden it places on servicers to timely submit their first foreclosure notices at the end of the 120-day review period. Any delay could allow for yet more gaming by adept borrowers who submit payments af- ter the review period but prior to the notice or filing in an amount sufficient to bring their deficiency below the 120-day thresh- old. Under the new rule, the servicer would be prevented from commencing foreclosure until the delinquency again reached 120 days, potentially resulting in a perpetual game of chicken between delinquent borrower and servicer. Borrower exploitation of the new pre-foreclosure review period is an unintended consequence of the rule. In order to mitigate its impact, servicers should promptly issue notices of default and should send foreclosure notices as soon as possible after the 120- day review period. n Kevin R. Waldo is a Member of the Firm’s Charleston, West Virginia, office. Mr. Waldo practices in the Commercial Law and Land and Natural Resource Development Practice Groups. Charles D. Dunbar is a Member of the Firm, where he practices in the Commercial Law Practice Group in the Charleston, West Virginia, office.