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The following is an example of a recent newsletter addressing local issues of relevance to the Creditors’ Rights industry.
This BHL Bulletin is to advise you that the Consumer Financial Protection Bureau (“CFPB”) in Washington, D.C., has issued a final rule with Amendments to the 2013 Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z) which revise some of the agency’s rules issued in January 2013 establishing national mortgaging servicing standards. The effective date of these changes is either January 1, 2014, or January 14, 2014. Of particular interest is the modification to the interpretation of the 120-day rule found in § 1024.41(f)(1). The amendments explain what actions constitute the “first notice or filing” for purposes of the general ban on proceeding to foreclosure before a borrower is 120 days delinquent, and provide exemptions from the 120-day prohibition for foreclosures for certain reasons other than nonpayment, as explained in further detail below.
The CFPB’s 120-day rule prohibits a servicer from making the first notice or filing required for foreclosure unless the loan is more than 120 days delinquent. In essence, the earlier January 2013 interpretation of the 120-day rule barred servicers from filing any document that “would be used by the servicer as evidence of compliance with foreclosure practices required pursuant to State law” during the 120-day period. So, in this scenario, the CFPB would likely hold that an NOI in the State of Maryland could not be mailed until the loan was delinquent for 120 days, since the NOI arguably was an essential part of the “foreclosure practices” in the State of Maryland. This is because the NOI triggers the filing date for the order to docket. As one law firm posited:


“This interpretation is expected to have significant implications for state foreclosure processes, particularly those states with pre-foreclosure mediation requirements and right to cure notices. For example, a notice of default in the District of Columbia may not be mailed to borrowers until after the 120-day pre-foreclosure period because the District of Columbia marks the notice of default as the “first notice or filing required by applicable law.” Similarly, servicers in California and other states with pending or effective “Homeowners Bill of Rights” statutes (e.g., Alabama, Florida, Nevada, and Utah) may not fulfill those statutes’ requirements to contact or provide borrowers with information regarding servicemember protections or foreclosure alternatives until after the pre-foreclosure period. In addition, it would appear that servicers in Massachusetts would have to wait 120 days before mailing borrowers a 150-day notice of right to cure, which would mean that a servicer may not begin the foreclosure process until 270 days after delinquency begins. By contrast, because Kentucky does not have additional pre-foreclosure statutory requirements, servicers would need only to wait the CFPB’s minimum period of 120 days of delinquency to file a foreclosure complaint in Kentucky.” See whole article here.


Clearly, the CFPB’s interpretation was problematic. So, after a tremendous number of comments filed by industry members and trade associations, the CFPB has amended its official comments interpreting the rule to provide that, when the foreclosure procedure under applicable State law requires commencement of a court action or proceeding, a document is considered the first notice or filing “if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (e.g., a complaint, petition, order to docket, notice of hearing).”


This September 13th amendment is clearly beneficial to the servicing industry. Now, the CFPB will interpret “first notice or filing required by applicable law” to mean that instead of a document that is merely EVIDENCE of compliance with the State foreclosure process, only documents that INITIATE the foreclosure process are barred during the 120-day window. In the case of Maryland, this should mean the order to docket rather than the NOI. So now, rather than waiting 120 days from the mailing of the NOI, the interpretation should be that the order to docket may be filed 120 days after delinquency in Maryland.