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RESPA and HBOR and the 5 day rule for "complete" modification application

livinglies.wordpress.com | September 20, 2016

By timothymccandless

On January 10, 2014 new RESPA rules went into effect concerning loss mitigation procedures. The new rules specify procedures a servicer must follow if a mortgage loan borrower requests loss mitigation assistance, such as a loan modification. The rules were drafted by the Consumer Financial Protection Bureau (“CFPB”). In drafting the loss mitigation requirements in Regulation X § 1024.41, the CFPB drew a distinction between “substantive” and “procedural” regulation of servicers’ loss mitigation activities. (See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,816/-/18 (Feb. 14, 2013)). The regulation expressly states that nothing in § 1024.41 imposes a duty on a servicer to provide any borrower with a specific loss mitigation option. (Reg. X, 12 C.F.R. § 1024.41(a) (effective Jan. 10, 2014)). Instead, the CFPB has mandated a procedural framework within which the evaluation of loss mitigation options must take place. (12 C.F.R. § 1024.41(a). See Section-by-Section Analysis, § 1024.41, 78 Fed. Reg. 10,818 (Feb. 14, 2013)).

Any Loss Mitigation “Application” Triggers Homeowner Rights

Certain specific obligations are imposed upon the servicer the moment the borrower acts in a manner that can reasonably be construed as the submission of an “application.” Section 1024.41 imposes overlapping duties on a servicer once it receives a borrower’s application for loss mitigation review.

The term “application” is to be construed “expansively.” (See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014). See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013)) An application must be distinguished from a “complete” application. A complete application triggers additional requirements on the servicer, but any application, even if incomplete, triggers certain requirements.

The CFPB’s commentary emphasizes that an application need not be in any particular form and includes any “prequalification” for a loss mitigation option. (See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-2 (effective Jan. 10, 2014)) The application may even be verbal. (See also Section-by-Section Analysis, § 1024.41(b), 78 Fed. Reg. 10,825 (Feb. 14, 2013)).

The most significant protections under the rule are afforded to the borrower upon submission of a complete application. A “complete loss mitigation application” is defined as “an application in connection with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.” (Reg. X, 12 C.F.R. § 1024.41(b)(1) (effective Jan. 10, 2014)). An application is complete when the borrower provides all the required information even though additional information may be required that is not in the control of the borrower. (See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(b)(1)-5 (effective Jan. 10, 2014)).

For example, if the servicer requires a credit report and the borrower authorizes release of the report or has requested the report, the application is complete even though the credit reporting agency has not yet provided the report.

Servicer’s Duties upon Receipt of an “Incomplete” Application A servicer has a duty to respond to an application whether or not it is complete. (Reg. X, 12 C.F.R. § 1024.41(b)(2) (effective Jan. 10, 2014)). When initially made aware of a communication that can reasonably be deemed to be an application for loss mitigation, the servicer must promptly conduct a review to determine whether the communication represents a complete or an incomplete application. (Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(A)(effective Jan. 10, 2014)). If the servicer determines that the application is complete, it must send the borrower a notice acknowledging that the application is complete within five business days of receipt of the application. (Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014)).

If the servicer deems the application to be “incomplete” for any reason, the regulation requires two actions by the servicer. First, the servicer must act affirmatively to complete the application. The servicer must exercise “reasonable diligence” to obtain any documents and information it claims to require to complete the application. (Reg. X, 12 C.F.R. § 1024.41(b)(1) (effective Jan. 10, 2014)). Second, the regulation mandates that the servicer provide a written notice to the borrower describing the documents and information needed to complete the application. Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014). This notice must include a “reasonable date” by which the borrower should submit the missing documents and information. (Reg. X, 12 C.F.R. § 1024.41(b)(2)(ii) (effective Jan. 10, 2014).)

The servicer must send the notice within five business days of receipt of an application it deems incomplete. (Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014)).

What Happens If the Servicer Decides Later That a Complete Application Is Incomplete?

If the borrower submits all the missing documents and information as stated in the five-day notice of application status, or no additional information is requested in the notice because the servicer considers the application to be complete, the application is considered “facially complete.” (Reg. X, 12 C.F.R. § 1024.41(c)(2)(ii) (effective Jan. 10, 2014)).

If a servicer later discovers that it incorrectly concluded that the application was complete, that more information is needed, or that corrections are required to be made to previously submitted documents, the servicer must promptly request the missing information or corrected documents. However, the servicer must treat the application as complete for purposes of the dual tracking protections in §§ 1024.41(f)(2) and 1024.41(g) until the borrower is given a reasonable opportunity to complete the application. Id.

If the borrower completes the application within this period, the application is considered complete as of the date it was facially complete for the timelines contained in the following provisions: § 1024.41(e)(procedures dealing with borrower response to a loss mitigation offer); § 1024.41(f)(2)(dual track protections for application received before a foreclosure referral); § 1024.41(g)(dual track protections for application received more than 37 days before a foreclosure sale); and § 1024.41(h)(appeal procedures). The application is considered complete as of the date it is actually completed for purposes of § 1024.41(c)(procedures for evaluation of loss mitigation applications).

(This could be for Caliber but I do not think they are making this argument)

Servicer’s Duty to Respond to a “Complete” Application

Significantly greater rights accrue to a borrower whose submission constitutes a “complete” loss mitigation application. If the servicer receives an application it deems complete, it must acknowledge the application as “complete” by sending the borrower written notice within the five-day period. (Reg. X, 12 C.F.R. § 1024.41(b)(2)(i)(B) (effective Jan. 10, 2014)).

In addition to acknowledging the application in writing as “complete,” the servicer’s immediate responsibility upon receipt of a complete loss mitigation application is to evaluate it. The evaluation of the borrower for all loss mitigation options must be completed within thirty days of receipt of a complete application. (Reg. X, 12 C.F.R. § 1024.41(c)(1)(i) (effective Jan. 10, 2014)).

Duty to Comply Following Transfer of Servicing

The requirements for responding to a loss mitigation application may continue to apply even after the servicing of the borrower’s loan has been transferred. Although a servicer is required to comply with § 1024.41 only for a single complete loss mitigation application for a borrower’s mortgage loan, (Reg. X, 12 C.F.R. § 1024.41(i) (effective Jan. 10, 2014)) a transferee servicer is required to comply with the requirements of § 1024.41 regardless of whether a borrower received an evaluation of a complete loss mitigation application from a transferor servicer. (See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-1 (effective Jan. 10, 2014)). Documents and information transferred from a transferor servicer to a transferee servicer may constitute a loss mitigation application and may require a transferee servicer to comply with the § 1024.41 loss mitigation requirements. Id.

In addition, if the borrower is in process of having an application evaluated when the mortgage is transferred, the transferee servicer must obtain any documents and information submitted by the borrower to the transferor servicer in connection with the loss mitigation application and should “continue the evaluation to the extent practicable.” (See Official Bureau Interpretation, Supplement 1 to Part 1024, ¶ 41(i)-2 (effective Jan. 10, 2014). See also Reg. X, 12 C.F.R. § 1024.38(b)(4) (effective Jan. 10, 2014)).

For purposes of the time deadlines and other requirements in §§1024.41(e)(1), 1024.41(f), 1024.41(g), and 1024.41(h), a transferee servicer must consider documents and information received from a transferor servicer that amount to a complete loss mitigation application to have been received by the transferee servicer as of the date such documents and information were provided to the transferor servicer. Id.





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