Primary Dwelling Foreclosure and the 120-Day Confusion

Lately we’ve been seeing some confusion with the January 2014 mortgage servicing rules, specifically 12 CFR Jerod111024.39 – .41. These sections are the Consumer Financial Protection Bureau’s (CFPB) way to help borrowers who can’t make their mortgage payments. Technically, small servicers are exempt from almost all of these requirements; however, there is one requirement that all servicers must follow:

12 CFR 1024.41(f)(1): A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

i. A borrower’s mortgage loan obligation is more than 120 days delinquent;

ii. The foreclosure is based on a borrower’s violation of a due-on-sale clause; or,

iii. The servicer is joining the foreclosure action of a subordinate lienholder.

So what does “more than 120 days delinquent” mean? Does it mean a single payment has to be more than 120 days delinquent or does it mean the loan has been delinquent (not brought “current”) for more than 120 days? This is where the confusion lies. Unfortunately, 12 CFR 1024.41 doesn’t define “delinquent”. So, naturally, one would assume the CFPB could provide some guidance. However, we’ve heard from our clients that the CFPB won’t give an answer on this when asked directly.

It could be that we are all making it out to be more confusing than it really is. If you look at the regulation, the preceding section (1024.40) does define “delinquent”. Thus, it’s our belief that 12 CFR 1024.39 – .41 are to be looked at together and are all intended to provide help to those borrowers who are having trouble making payments. We believe then that it’s a pretty safe bet that these sections can provide additional “cross-over” clarifications. For example, consider the Commentary to 12 CFR 1024.40(a) #1

Delinquent borrower. A borrower is not considered delinquent if the borrower has refinanced the mortgage loan, paid off the mortgage loan, brought the mortgage loan current by paying all amounts owed in arrears…

In other words, if the borrower hasn’t brought the loan current they are considered delinquent. So, if a past due payment is made but the loan still isn’t current, the 120-day clock doesn’t get reset.

We hope this isn’t something you will encounter, but if you do, we want you to have something to go by and some rationale for doing what your doing.

Jerod Moyer

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