The Dodd-Frank Wall Street Reform Act of 2009 did a lot to help ordinary people deal fairly with their lenders and mortgage servicers. In the bad old days, the only rules that mortgage companies had to comply with were the terms of the contracts they wrote to protect themselves from greedy working people who were always looking to take advantage of their generosity to, ummm, keep a roof over their childrens’ heads. Today, things are different. One of the strongest protections that people have against mortgage fraud and abuse are the prohibitions on foreclosure during early default and during loss mitigation negotiations.
The 120 Day Rule. 12 CFR 1024.41(f)
The first and most clear rule is the 120 day rule. It’s real simple: You can’t foreclose on somebody until they’re at least 120 days in default. Now, the regulations don’t define “default,” so you’ll have to look to your bank-written contract for that term. But usually you can take it to mean what you probably think it means already: the day the grace period expired on your last full payment. If, for instance, you missed the January 2014 payment, the February 2014 payment, and the March 2014 payment, but made a full payment in April, then that April payment must be credited towards your January payment, and therefore as soon as it is received, you are approximately 90 days in default. That’s what your Credit Report should say and that’s your real status…which means that they can’t foreclose on you until you get a full 4 payments behind!
The 45 and 37 Day Rules. 12 CFR 1024.41(c)
If you have sent in a complete loan modification application, your lender or mortgage company cannot start foreclosure proceedings until they give you an answer. UNLESS, they’ve already begun the foreclosure process and you don’t mail the modification packet to them until 37 days before the foreclosure. To illustrate: The bank has set a foreclosure sale for February 10th. You send in a modification packet on January 1 by regular mail. The bank gets it January 5th, which is 36 days before the foreclosure sale. They can still foreclose. If, however, you sent the package overnight, so the bank got it on January 2nd, which is 39 days before the foreclosure sale, then the bank cannot foreclose until they have reviewed your loss mitigation application. This rule applies not only to loan mod applications, but also other loss mitigation options, like short sales and deeds in lieu of foreclosure.
If you get the packet in before the 37 day deadline, the bank MUST properly evaluate you according to its own servicing rules, the rules of its investors, and any government programs that are applicable, like HAMP, 2MP, MHA-UP, or the FHA or VA policies. All you are entitled to is a review. You are NOT guaranteed a loan mod – just a fair chance. The bank must postpone the foreclosure as needed to review your application. They are supposed to give you an answer within 30 days. If they do give you an answer, they can require a response from you within 7 days. So if they call you a week before foreclosure and say, “We’ve decided to give you a trial modification, you have 7 days to accept,” then that is OK. If you don’t give them an answer in time, they can proceed with foreclosure on the assumption that you’ve rejected their offer. The lesson: get ready to spend some money at FedEx overnighting things to make sure that you communicate quickly and in writing.
There is also a 45 day rule that says that if you send in a “loss mitigation application” more than 45 days before a scheduled foreclosure, they have to tell you within 5 days that a) they got the package and b) it’s either complete or incomplete. If it ain’t complete, then they have to tell you what you need to provide to complete the application.
One thing the rules don’t really address is the fact that Alabama law does not require more than 37 days’ notice to you before a foreclosure, so there may be situations where the 37 day and 45 day rules don’t apply because theoretically, the mortgage company could receive your loan modification packet and then immediately call Sirote & Permutt to schedule a foreclosure in 28 days. That situation hasn’t come up before the courts yet, because the law has only been in place since January 10th. If it happens to you, give me a call. I enjoy taking interesting cases.