Too often we receive calls from homeowners who were deceived by their loan servicers into not defending their foreclosure case and who end up with a judgment of foreclosure. While I have written before about how the Ohio Supreme Court has made it more difficult to vacate foreclosure judgments, the Consumer Finance Protection Bureau (“CFPB”) has created an entire new framework that requires loan servicers to work constructively with homeowners as long as the work begins more than 37 days before a scheduled Sheriff’s Sale.
The CFPB Regulations X and Z that took effect a year ago require loan servicers to follow tight timelines and to act in good faith in reviewing borrowers for assistance on loan modifications, applications for deed in lieu of foreclosure or short sales. For anyone who has been through a loan modification application process, perhaps the most appealing new rule requires that loan servicers tell borrowers within 5 business days if any documents are missing from their applications.
The lender must make decisions within 30 business days of submission of a complete loan modification application. Significantly, the submission of a complete loan modification application prohibits the loan servicers from proceeding to Sheriff’s sale as long as the application is submitted more than 37 days before the scheduled sale.
The new regulations also provide homeowners the right to sue if the loan servicer fails to comply with the regulations, provides for statutory penalties, actual damages and the shifting of attorney’s fees.
As with with any federal regulation, the process is complicated. Here is a flow chart that we have developed for training other lawyers about these important new rules:
As you can see, this is rather complicated stuff. We have established a systematic process in our office to guide our clients who are pre-foreclosure, currently in foreclosure, post-judgment or coming out of Bankruptcy to put together loss mitigation applications thoroughly and professionally and with an important focus on tracking the dates and times of submission to make sure that, if necessary, we are in position to enforce our client’s rights.
So far we have only had to sue 5 loan servicers to enforce our clients’ rights under these new regulations (Chase, Wells Fargo, BSI, Fay Servicing and PHH). Our hope is, as time goes on, the regulations and efforts by the CFPB and firms such as ours to enforce the laws will encourage better, more consumer-friendly conduct by lenders. The results we have obtained for clients without having to sue seem to already support that theory.
We have also expanded our Bankruptcy Practice where there are additional options for homeowners who are facing sheriff’s sale. A Chapter 13 plan can be designed to keep a homeowner in their home. A Chapter 7 can delay a sheriff’s sale and put a homeowner in a better position to apply for a loan modification.
The bottom line is that, while it is better to retain a lawyer as early in the process as possible, there are tools available to help homeowners even weeks before a scheduled Sheriff’s Sale.