News & Updates

Does Vacant = Abandoned? Navigating CFPB Reg X as it relates to Foreclosure Referrals in the Carolinas

Heidi B. Carey | July 24, 2021

The CFPB Mortgage Servicing COVID-19 Rule is effective August 31, 2021 (the “Rule”). [i] The FHFA moratoriums expire on July 31, 2021 and will not be extended. [ii, iii]  However, FHFA has announced that its servicers must comply with the Rule starting August 1, 2021. [iv, v]

The Rule only applies to a mortgage loan secured by the borrower’s principal residence.  It does not apply to investment properties, second homes or reverse mortgages.  Also, loans that were more than 120 days delinquent prior to March 1, 2020 are exempt from the Rule.  And, loans in states with an expiration of the Statute of Limitations before January 1, 2022 are exempt.  These loans may be referred to foreclosure on August 1, 2021.

Until December 31, 2021 for loans that are subject to the Rule, the servicer must ensure that one of three procedural safeguards has been met before referring 120-day delinquent accounts for foreclosure.

  • The borrower was evaluated based on a complete loss mitigation application and existing foreclosure protection conditions are met:
  • The property is abandoned; or
  • The borrower is unresponsive to servicer outreach.

The first safeguard is the same as existing pre-COVID regulations.  It differs from COVID interim rules [vi] in that a complete application must be received prior to referral.  The Rule contains many loss mitigation and documentation requirements to meet this safeguard.  Because of the unveiled threat of strict enforcement contained in an April 2021 CFPB bulletin [vii], servicers may decide to hold these referrals until the Rule expires in 2022.

The second safeguard requires the servicer to follow state or local law for the definition of abandoned property.  This is challenging because many states will not likely statutorily define abandoned property (does vacant = abandoned?).  Unless there is clear and convincing evidence of abandonment, the servicer may not want to proceed.

The third safeguard of unresponsiveness includes many detailed and onerous requirements for compliance.  It is doubtful many servicers will want to walk the tightrope of the many time sensitive notice and contact requirements.

In conclusion, I predict that on August 1, 2021 the majority of servicers will only refer loans for foreclosure that were more than 120 days delinquent prior to March 1, 2020, as well as confirmed investment properties or second homes.  Most will wait until the procedural safeguards expire completely on January 1, 2022.

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