During the mortgage crisis, many homeowners lost their homes to foreclosure when they didn’t have enough time to work out an alternative or when the servicer didn’t respond to requests for help. In response, the federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This law imposed new requirements on servicers and gave the Consumer Financial Protection Bureau (CFPB) the authority to implement the new requirements and adopt new mortgage servicing rules.
The CFPB’s final mortgage servicing rules were implemented under the Real Estate Settlement Procedures Act (RESPA), also known as "Regulation X," and the Truth in Lending Act (TILA), known as Regulation Z. These federal laws established national mortgage servicing standards. They imposed new requirements on lenders and servicers to ensure homeowners get a fair chance at getting a loan modification or other relief before losing their home to foreclosure.
Servicers Must Reach Out to Delinquent Borrowers
After you stop making your mortgage payments, the servicer must contact you (or make reasonable efforts to contact you) over the phone or in-person no later than 36 days after the delinquency. The servicer must also contact you again within 36 days after each subsequent delinquency, even if the servicer previously talked to you.
But, if you filed bankruptcy or asked the servicer to stop communicating with you under the Fair Debt Collection Practices Act (FDCPA), and the servicer is subject to this law, the servicer doesn’t have to try to contact you by phone or in person.
The servicer also has to tell you in writing about available mortgage workout options no later than 45 days after you miss a payment and must do so again no later than 45 days after each payment due date so long as you remain delinquent.
But the servicer doesn't have to provide the written notice more than once during any 180-day period. If you've filed for bankruptcy or asked the servicer not to communicate with you, it generally has to send a modified letter, subject to some exceptions.
Continuity of Contact: The Servicer Must Designate a Person or Team to Help
No later than the 45th day of the delinquency, the servicer has to assign someone to help you with the loss mitigation process. ("Loss mitigation" is what servicers call the process of working out an alternative to foreclosure.)
The designated personnel has to be available to you by phone and able to tell you about the status of your loss mitigation application, as well as applicable timelines.
Foreclosure Can’t Start for 120 Days
In most cases, a servicer can’t officially start a foreclosure by making the first notice or filing required by state law until the borrower’s mortgage loan obligation is more than 120 days delinquent.
Dual Tracking Restrictions
Federal law prohibits “dual tracking,” which is when a servicer evaluates a borrower for a loan modification or another type of mortgage workout option while simultaneously pursuing a foreclosure.
Applications Submitted More Than 37 Days Before a Sale
Under federal law, if you submit a complete loss mitigation application more than 37 days before a foreclosure sale, the servicer can’t move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until it reviews the application and:
- the servicer lets you know that you don’t qualify for a mortgage workout (and your time to appeal that decision expires)
- you turn down the workout option that the servicer offers you, or
- you agree to the workout option that the servicer provides, but you fail to live up to the terms of the deal, like you don’t make the required payments during a trial modification.
Most timelines under the federal mortgage servicing laws are based on when a borrower submits a complete loss mitigation application. But what's a "complete" application?
Basically, your application is complete when you’ve sent everything that the servicer requested—like a financial worksheet, pay stubs, bank statements, information about assets, tax returns, and a hardship statement—to the servicer so that it can evaluate you for an alternative to foreclosure.
Applications Submitted Fewer Than 37 Days Before a Sale
If you submit your application 37 days or less before a foreclosure sale, the servicer has to review the application in accordance with any requirements established by the owner or assignee of your mortgage loan. Generally, this means that the servicer must make its best effort to review your application, but it probably won’t stop the foreclosure sale.
How Quickly a Servicer Has to Review Your Loss Mitigation Application
If you send the servicer a loss mitigation application 45 days or more before a foreclosure sale, the servicer must acknowledge it within five business days after getting the application and let you know if it needs more information.
Generally, the servicer must evaluate an application within 30 days after receiving all the paperwork.
Your Right to Appeal a Loss Mitigation Denial
If the servicer receives your complete loss mitigation application 90 or more days prior to a scheduled foreclosure sale, you get the right to appeal a loan modification denial.
Getting Help From a Foreclosure Lawyer
If you think your mortgage servicer is violating any of the federal mortgage servicing laws mentioned in this article, or you have questions about alternatives to foreclosure, consider talking to a foreclosure attorney.
If you can’t afford an attorney, a HUD-approved housing counselor might be able to help you.