MARYLAND REDUCES THE STATUTE OF LIMITATIONS PERIOD FOR FORECLOSURES AND NOTE SUITS UNDER SEAL TO A MERE THREE (3) YEARS FROM THE DATE THE CAUSE OF ACTION ACCRUED AGAINST OWNER-OCCUPIED PROPERTIES

 
ALERT: Previously, lenders were afforded twelve (12) years to enforce deeds of trust, mortgages and promissory notes under seal from the date the cause of action accrued. However, the Maryland legislature has now reduced the statute of limitations for any cause of action against “owner-occupied” properties at “date of transfer” to three (3) years from the date the cause of action had accrued. The statute does provide it will only be applied prospectively from the effective date of July 1, 2014. Thus, lenders have until July 1, 2017 to file actions on deeds of trust and promissory notes where cause of action has accrued or before the prior 12 year limitations’ period expires.

 
Servicers and lenders should consider making a timely review of seriously delinquent loans in their portfolios in Maryland to ensure that the new statute of limitations has not expired for those loans.

Section 3, ch. 592, Acts 2014, provides that “except as provided in Section 4 of this Act, Section 1 of this Act shall be construed to apply prospectively to any cause of action that arises on or after the effective date of this Act [July 1, 2014].”
Section 4, ch. 592, Acts 2014, provides that “any cause of action to collect the unpaid balance due on a deed of trust, mortgage, or promissory note that has been signed under seal and secures or is secured by residential property that was owner-occupied residential property at the time the property was transferred with the unpaid balance that arises before July 1, 2014, and would not be barred under § 5-102 of the Courts and Judicial Proceedings Article before July 1, 2014, must be filed within 12 years after the date the action accrues or before July 1, 2017, whichever occurs first.”

 

BILL REVIEW LETTER. —
Chapter 592, Acts 2014, (House Bill 274) was approved for constitutionality and legal sufficiency as its provisions do not violate due process nor constitute a taking of property. The bill shortened the statute of limitations period for actions on a deed of trust, mortgage, or promissory note that has been signed under seal and secures or is secured by owner-occupied residential property. The bill also specified that a motion for deficiency judgment would be the sole post-ratification remedy available. However, these provisions apply prospectively to any action that arose on or after the effective date of the bill. Moreover, the remedy of a motion for deficiency judgment is similar to a contract action for breach; therefore a sufficient alternative remedy exists. (Letter of the Attorney General dated April 28, 2014.)

New CFPB Loss Mitigation Rules

 

In a recent general forum concerning the regulations issued by the Consumer Financial Protection Bureau relating to loss mitigation procedures, 12 CFR § 1024.41, which went into effect on January 10, several questions were raised by participants. BHL would like to provide its answers to those questions (for general informational purposes only) as follows:

Q. The regulations set out deadlines and procedures for reviewing a loss mit application received by a lender; however, I don’t see any requirement that a lender solicit or send to a borrower a loss mit application during the pre-foreclosure review period (independent of any requirement under HAMP, FHA regs, the settlement agreement or any other applicable program).

 

A. Yes, that appears to be correct with respect to 12 CFR § 1024.41. However, § 1024.38, entitled General Servicing Policies, Procedures, And Requirements, provides generally that servicers should establish policies that ensure a servicer can provide accurate information regarding loss mitigation options available to a borrower from the owner or assignee of the borrower’s mortgage loan and identify with specificity all loss mitigation options for which borrowers may be eligible pursuant to any requirements established by an owner or assignee of the borrower’s mortgage loan.

Specifically, §1024.39, Early Intervention Requirements For Certain Borrowers, provides that servicers establish two kinds of contact with the borrower concerning loss mitigation. First, a servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency and, promptly after establishing live contact, inform such borrower about the availability of loss mitigation options if appropriate. Second, a servicer shall provide to a delinquent borrower a written notice not later than the 45th day of the borrower’s delinquency. The notice shall include, inter alia, if applicable, a statement providing a brief description of examples of loss mitigation options that may be available from the servicer and, if applicable, either application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer.

So, these provisions would seem to require that a servicer may not be required to send a loss mitigation application to a delinquent borrower, but at a minimum must provide very early notice of the loss mitigation process.

Q. There also does not appear to be any adverse consequence for the borrower if an application is solicited but the borrower does not submit a loss mitigation application prior to the initiation of the foreclosure process.

A. This observation also appears to be correct. However, if this question contemplates the situation in which the borrower contacts the lender requesting a loss mitigation application, then it should be kept in mind that the new CFPB rules provide that the definition of a loss mitigation application does not include oral inquiries about loss mitigation options in which the borrower does not provide any information that the servicer would use to evaluate an application, including where the borrower requests information only about the application process but does not provide any information to the servicer. Also, keep in mind the lender requirements of notice of delinquency found in §1024.39, Early Intervention Requirements For Certain Borrowers.

 

Q. An adverse consequence for the borrower only appears to arise (1) if a complete application is received and the lender completes the evaluation process….

A. The new rules provide that an institution is required to comply with the loss mitigation procedures for only a single complete loss mitigation application for a borrower’s mortgage loan account (12 CFR 1024.41(i)).

Q. Or, an incomplete application is submitted, the borrower fails to complete the application after a “significant” period of time, and the lender offers an option based on the incomplete application (and I’m not too sure about that, since 12 CFR 1024.41(i) suggests that a lender’s obligation to comply only is satisfied if a complete loss mit application is received). Am I missing something?

A. The new rules provide that, with two exceptions, a servicer may not offer a loss mitigation option based on an evaluation of an incomplete application. These exceptions are:
1. Reasonable Time Exception. If the servicer has exercised reasonable diligence in obtaining
documents and information to complete the application but the application still remains
incomplete for a significant period of time without further progress by the borrower, the
servicer may evaluate an incomplete application and offer the borrower a loss mitigation option.
The commentary to the regulations suggest the “significant time period” standard is quite subjective. What qualifies as a significant period of time may depend on the timing of the foreclosure process. For example, 15 days may be a more significant period of time if the borrower is less than 50 days before a foreclosure sale than if the borrower is less than 120 days delinquent.

Importantly, the requirements in Section 1024.41 do not apply to this evaluation pursuant to 12 CFR 1024.41 (c) (2) (ii), and it is not considered an evaluation of a complete loss mitigation application for purposes of determining whether a request for a loss mitigation evaluation is duplicative under 12 CFR 1024.41(i).

 

2. Short-Term Forbearance Plan Exception. A short-term forbearance program allows a borrower to forgo making certain payments or portions of payments due over a period of no more than six months. A servicer may offer such a short-term payment forbearance program to a borrower based upon an evaluation of an incomplete loss mitigation application. If the borrower is performing pursuant to such a forbearance program, a servicer may not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, and it may not move for foreclosure judgment or an order of sale or conduct a foreclosure sale. The servicer
must also comply with the remaining loss mitigation procedures requirement in Section 1024.41 regarding incomplete applications, such as exercising reasonable diligence in obtaining documents and information to complete the application.

 

Q. Assuming that no prior application was submitted and a loss mit evaluation process was not completed in accordance with the regs, if the borrower does not submit a loss mit application until 45 days prior to the sale date (or 37 days prior if the application is complete, then the loss mit evaluation process kicks in. So if a borrower who hasn’t previously submitted a loss mit application requests mediation and files a loss mit application just before the mediation hearing (say five days before, or maybe 10 days before just to be safe), regardless of the outcome of the mediation, the foreclosure sale may not be conducted until the process under the regulations is completed. Correct?

A. This gets complicated (like the other provisions of the regulations are not!)

I believe the analysis to the above question should proceed as follows

1. Loss mit application received 10 days before mediation hearing which is 45 days or more before a scheduled foreclosure sale .
-servicer has 5 days plus Saturday Sunday and federal holidays to evaluate the application and notify the borrower whether application is incomplete or complete.
-Application is incomplete:
The incomplete application process described above applies, including the two options for offering modifications for incomplete loss mit applications. If the borrower fails to complete the application within the timeframe provided under the reasonable opportunity provision in §1024.41(c)(2)(iv), the application shall be considered incomplete.

The key element here is that the requirements in Section 1024.41 do not apply to incomplete loss mit application evaluations. See 12 CFR 1024.41 (c) (2) (ii), as discussed above. Consequently, the prohibition on foreclosure sale in 12 CFR 1024.41 (g) does not apply and the foreclosure sale may be conducted after the mediation process (or any other tolling factors) has run its course.

HOWEVER, the Commentary for 12 CFR 1024.41 (c) (2) (i), entitled “Servicer Discretion”, provides although a review of a borrower’s incomplete loss mitigation application is within a servicer’s discretion, and is not required by §1024.41, a servicer’s internal policies and procedures established pursuant to the general requirements in 12 CFR 1024.38 (b) may require a servicer to properly evaluate a borrower who submits an incomplete application for a loss mitigation option for all loss mitigation options available to the borrower.

-Application is facially complete (12 CFR 1024.41 (c) (2) (iv): Once a loss mit application is filed, if the servicer later discovers additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents and treat the application as complete until the borrower is given a reasonable opportunity to complete the application. If the borrower completes the application within this period, the application shall be considered complete as of the date it was facially complete. The complete loss mitigation application rules apply.

-Application is complete:
As discussed previously, 12 CFR 1024.41 (g) provides that if a borrower submits a complete loss mitigation application after the servicer has made the first foreclosure notice or filing but more than 37 days before a foreclosure sale, the servicer cannot conduct a foreclosure sale or move for foreclosure judgment or sale unless one of the following occurs:
(i) the servicer sends a notice to the borrower stating that the borrower is ineligible for
any loss mitigation option and the appeal process is inapplicable, the borrower did not timely appeal, or the appeal has been denied;
(ii) the borrower rejects all the offered loss mitigation options; or
(iii) the borrower fails to perform under a loss mitigation agreement.

Please note that a servicer is not relieved of obligations with respect to a loss mitigation application submitted 37 days or less before a foreclosure sale. The Commentary provides that

Although a servicer is not required to comply with the requirements in §1024.41 with respect to a loss mitigation application submitted 37 days or less before a foreclosure sale, a servicer is required separately, in accordance with policies and procedures maintained pursuant to §1024.38(b)(2)(v) to properly evaluate a borrower who submits an application for a loss mitigation option for all loss mitigation options available to the borrower pursuant to any requirements established by the owner or assignee of the borrower’s mortgage loan. Such evaluation may be subject to requirements applicable to a review of a loss mitigation application submitted by a borrower 37 days or less before a foreclosure sale.

So the catchall provisions establishing general requirements in 12 CFR 1024.38 (b) come into play again.

This is a lengthy way of saying, yes, it appears the CFPB los mit process must play out for complete loss mitigation applications before a foreclosure sale can be scheduled/rescheduled. (Presumably this scenario contemplates the cancelling of the original sale while the mediation takes place. If no foreclosure sale had ever been scheduled before the complete loss mit application was submitted, that fact pattern involves another analysis entirely.)

 

One more complication: The Appeals Process!

12 CFR § 1024.41 (h) establishes the Appeal process required for loan modification denials. If a servicer receives a complete loss mitigation application 90 days or more before a foreclosure sale or in the pre-foreclosure review period, a servicer shall permit a borrower to appeal the servicer’s determination to deny a borrower’s loss mitigation application for any trial or permanent loan modification program available to the borrower.

Timeline:
-A servicer shall permit a borrower to make an appeal within 14 days after the servicer provides the offer of a loss mitigation option to the borrower.
-Within 30 days of a borrower making an appeal, the servicer shall provide a notice to the borrower stating the servicer’s determination of whether the servicer will offer the borrower a loss mitigation option based upon the appeal and, if applicable, how long the borrower has to accept or reject such an offer or a prior offer of a loss mitigation option. A servicer may require that a borrower accept or reject an offer of a loss mitigation option after an appeal no earlier than 14 days after the servicer provides the notice to a borrower. A servicer’s determination under this paragraph is not subject to any further appeal.

So, assuming the servicer receives a complete loss mitigation application 90 days or more before a foreclosure sale, the denial of a modification triggers this window which realistically could extend for a maximum of 58 days.

The issue of whether an application was filed 90 or more days before a foreclosure sale raises a host of additional issues which we can’t go into here. Suffice it to say that the language in the new rules addressing the definition of the date of a foreclosure sale lacks clarity.

BHL hopes the foregoing sheds some light on the questions raised.