By Jeffrey Naimon and Joshua Kotin
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Regulation360 (January 22, 2021, 5:33 PM EST) —
The U.S. Shopper Monetary Safety Bureau in December issued a consent order primarily based on alleged violations of its 2014 mortgage servicing rules.
The consent order, which additionally bootstraps claims of unfairness and deception to alleged technical violations of the servicing rules — principally adopted below Part 6 of the Actual Property Settlement Procedures Act — creates a remediation framework that monetary establishments servicing mortgage loans ought to think about as they navigate the COVID-19 pandemic and put together to work by the probably backlog of loans awaiting foreclosures as soon as federal and state moratoria finish.
The CFPB’s Mortgage Servicing Consent Order
The violations on the coronary heart of the consent order stem from what the bureau stated was “widespread failure” in how Seterus Inc., a mortgage servicer, allegedly dealt with loss mitigation functions from debtors in search of to keep away from foreclosures. The order targeted on alleged errors in acknowledgement notices that Seterus despatched to the debtors.
These notices — prescribed by Title 12 of the Code of Federal Laws, Part1024.41(b)(2) — are essential for debtors as a result of they point out the paperwork a borrower should ship to a servicer to obtain an analysis for loss mitigation choices.
RESPA’s implementing regulation, Regulation X, usually prohibits a mortgage servicer from providing a loss mitigation choice on the premise of an incomplete loss mitigation utility, and debtors who obtain inaccurate data relating to what and after they should submit are successfully stymied.
The order required Seterus’ successor, Kyanite Companies Inc., to put aside roughly $5 million for shoppers harmed by the violations described within the order. Customers who initially acquired a defective acknowledgement discover however subsequently acquired an correct yet another than 60 days earlier than the foreclosures sale, weren’t included within the remediation inhabitants.
Inside the remediation inhabitants, the consent order put aside a mean of $175 for the 10,743 affected shoppers who weren’t foreclosed on, and a mean of $2,500 for 1,121 affected shoppers who had been. It additionally put aside $250,000 for 2 debtors who submitted the requested paperwork, had been authorised for a loan modification, however who in the end went to foreclosures whereas the supply was pending.
Pandemic Reduction By means of Reg X
Below Regulation X, a servicer may outline what paperwork and data a borrower should undergo create a whole loss mitigation utility, however not what constitutes a loss mitigation utility, full or in any other case. Fairly, the CFPB took the freedom to outline that for servicers, stating that it’s “an oral or written request for a loss mitigation choice that’s accompanied by any data required by a servicer for analysis for a loss mitigation choice.”
On April 3, 2020, the prudential banking regulators, the Convention of State Bank Supervisors and the CFPB issued steering making it clear that when a borrower requests help on account of a COVID-19-related hardship and affirms the existence of that hardship that request constitutes a loss mitigation utility.
That introduced all subsequent servicer communications with these debtors below the ambit of Part 1024.41, which units forth a bunch of timing, disclosure and analysis necessities for aiding debtors with hardships.
Whereas the companies indicated some flexibility in how servicers complied with these technical necessities, such forbearance doesn’t apply to non-public litigants, who’ve a proper of motion towards servicers for violations of Part 1024.41.
RESPA and Reg X Limitations on Damages Out there for Violations
One of many persistent challenges in imposing client monetary safety legal guidelines is that there’s usually a disconnect between the violation, and whether or not there was any hurt because of the violation.
The enforcement of Part 1024.41, which governs default servicing, is especially fraught as a result of the difficulty at hand is whether or not a borrower retains or loses their home. Clearly, foreclosures may carry financial and emotional hurt or ache, however whether or not a particular violation constitutes causation is a separate query.
Servicers needs to be conscious that there are strict limits on their legal responsibility for a violation of RESPA and Regulation X. Part 1024.41 contemplates solely two sorts of damages: precise damages and statutory damages of as much as $2,000, when there’s a “sample or observe of noncompliance.” Precise damages are outlined as people who “compensate the injured celebration for the damage sustained, and nothing extra.”
A borrower should “current particular proof to determine a causal hyperlink between” the violation and the damages alleged. In different phrases, precise damages can solely be awarded to compensate for harms brought on by RESPA violations, and “not harms usually ensuing from a plaintiff’s default and the foreclosures of his or her house.” As well as, prices incurred earlier than the violation occurred can’t function the premise for precise damages.
Servicers that may differentiate precise hurt of the technical violation from emotional difficulties of the foreclosures course of are greatest outfitted to problem regulators’ claims of unfairness and deception more likely to accompany such expenses.
Mitigating Threat and Hurt From Technical Violations
Mortgage servicing since final March has been extraordinarily difficult. Because the nation slid into its pandemic-induced lockdown, servicers mobilized out of the blue distant workforces to assist debtors.
What started as an easy effort targeted on borrower forbearance changed into a regulatory labyrinth because the pandemic wore on, with servicers mandated to comply with ever-changing federal and state legal guidelines and rules and navigate repeatedly up to date investor pointers.
On condition that technical violations may have occurred through the rush to offer help, servicers ought to now think about taking steps to get in entrance of scrutiny more likely to come up when the foreclosures course of restarts, together with:
- Confirming that communications despatched out through the pandemic clearly articulated to debtors their rights and treatments as a part of the loss mitigation course of;
- Verifying that letters despatched by print distributors had been correct and printed as meant;
- Strengthening the preforeclosure referral course of to make sure that shoppers had been invited to use for loss mitigation and, in the event that they ultimately requested help, had been supplied the method set forth in Part 1024.41; and
- Conducting a root-cause evaluation the place points are recognized to catch different debtors inside their inhabitants who may have been affected by comparable points.
Establishments enterprise such efforts needs to be conscious of the potential for litigation and enforcement actions arising from remedial actions.
Jeffrey P. Naimon and H Joshua Kotin are companions at Buckley LLP.
The opinions expressed are these of the creator(s) and don’t essentially replicate the views of the agency, its shoppers or Portfolio Media Inc., or any of its or their respective associates. This text is for common data functions and isn’t meant to be and shouldn’t be taken as authorized recommendation.
 12 C.F.R § 1024.31.
 Lage v. Ocwen loan Servicing LLC , 839 F.3d 1003, 1011 (11th Cir. 2016) (citing 12 U.S.C. § 2605(f)(1)).
 Bray v. Inexperienced Tree Servicing, LLC , 2016 U.S. Dist. LEXIS 130940, at *8 (N.D. Tex. Sept. 26, 2016).
 Smith v. Specialised loan Servicing, LLC , 2017 U.S. Dist. LEXIS 67782 (S.D. Cal. May 3, 2017).
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