Borrower Rights When Ending A COVID-19 Mortgage Forbearance
On July 1, 2020, a new CFPB rule went into effect that provides additional protections for consumers affected by the COVID-19 pandemic. If you had a mortgage forbearance due to financial hardship caused by the COVID-19 pandemic, you may be affected by the new rule.
You May No Longer Be Required to Submit a Complete Application to Have Your Account Reviewed for Loss Mitigation Options
Previously, the Real Estate Settlement Procedures Act ("RESPA"), a federal law that governs mortgage servicing, required all services to obtain a completed application from consumers in order to be considered for "loss mitigation," which is assistance in making mortgage payments, like payment deferrals, loan modifications and other reductions or suspensions in payments. Under the new rule, the servicer is not required (but still may, if they desire) to collect a completed loss mitigation application when offering an eligible "payment deferral."
The "Payment Deferral" Offered at the End of the Forbearance Must Meet Three Criteria in Order to be Eligible for the Loss Mitigation Application Waiver:
The deferral must allow the borrower to delay paying certain amounts, including the principal and interest accrued during the forebearance period, until the end of the mortgage loan (either when the term ends, or when the mortgage is paid off by sale or refinance).
Any amounts that you delay paying through the payment deferral option must not accrue interest, and the servicer may not charge any fee associated with your exercising this option. The servicer must also waive all existing late charges, penalties, stop payment fees and other similar charges upon your acceptance of the payment deferral option. Your servicer has discretion as to whether escrow amounts will be included in the deferral.
Your acceptance of the option must resolve any prior delinquency status of your mortgage, meaning, upon acceptance, the servicer must consider (and report) your account as current.
Mortgage Servicers are not Required to Offer You an Eligible Payment Deferral.
The rule change does not mean that all mortgage servicers are obligated to offer "Payment Deferrals" that meet the criteria in the above list. Rather, the rule allows the servicer to avoid some of the lengthy paperwork and review processes (that the servicer is otherwise generally obligated to collect and perform) associated with offering mortgage modifications and other loss mitigation options.
If a servicer offers a program that meets the above criteria, it is not required to obtain all of the paperwork required by RESPA to constitute an "application" for loss mitigation, and it is not required to consider, and notify the borrower of, all available loss mitigation programs for which the borrower may qualify. Traditionally, RESPA also imposes a duty on the servicer to exercise "reasonable diligence" to collect outstanding paperwork necessary to complete a loss mitigation application. If the servicer offers the above payment deferral option, the servicer is also released from that obligation.
Mortgage Servicers are Liable if they Do Not Comply with the Rule
If a mortgage servicer seeks to take advantage of the application exception, meaning that it does not require you to complete an application for a loss mitigation program, but does not offer a payment deferral program that meets the three criteria above, you have a right to bring a lawsuit to recover damages. Your damages may include out-of-pocket losses, emotional distres
s damages, as well as statutory damages where the servicer demonstrates a pattern or practice of this behavior. You may also claim attorney's fees from the mortgage servicer, which means that an attorney can represent you on the claim with little or no out of pocket cost to you.
If you have questions about your loss mitigation options following a COVID-19 forbearance, schedule an appointment to speak with an attorney.