If you are behind in your mortgage payments and worried about your house going into foreclosure when the present restrictions come to an end soon, help is on the way! A new rule has just been announced by the Consumer Financial Protection Bureau that will go into effect on August 31, 2021, to provide additional assistance to mortgage borrowers still experiencing a COVID-19 related hardship. This new rule applies only to the borrower’s principal residence, and not to investment properties or second homes.
Most important to borrowers who are seriously behind in their mortgage payments, the new rule extends the moratorium on foreclosures until December 31, 2021, unless an exception applies. The major exception that would allow the loan servicer to file a foreclosure in the court now would be if the borrower was more than 120 days (4 months) delinquent before March 1, 2020 (the approximate date that everything closed down because of the pandemic). Other exceptions permitted by the rule would be if there is some sort of legal deadline that would prevent the servicer from filing a foreclosure after January 1, 2022; or if the referral to foreclosure occurs on or after January 1, 2022. If none of these exceptions are available, which is the case if the default in mortgage payments is truly a result of the pandemic, then your mortgage company cannot file a foreclosure against you until after December 31, 2021, an additional four months longer than the prior rule allowed.
The rest of the new rule concerns loss mitigation requirements that mortgage servicers/companies/providers have to offer and inform borrowers about within certain periods of time before they can make any referral for foreclosure. “Loss mitigation” is the process where borrowers and their loan servicer work together to avoid a foreclosure. In recent years, it usually refers to a loan modification, where the parties agree to a lower monthly payment over a longer period of time than the original mortgage called for. It also can take the form of a forbearance, which is generally an agreement for no mortgage payments to be required for a couple months because the borrower has had some sort of short term emergency. If the borrower wants to get out of the mortgage by giving up the property, a loss mitigation can involve a short sale or a deed-in-lieu of foreclosure.
Generally, a servicer cannot start the foreclosure process until the borrower is more than 120 days behind in their payments. In addition, if the borrower has submitted a complete loss mitigation application before then, the servicer must wait an additional period in order to allow the borrower a full opportunity to pursue loss mitigation. Specifically, the servicer must determine that 1) the borrower is not eligible for any loss mitigation options and notify the borrower of such, or 2) determine that the borrower has exhausted any appeal process, or 3) if a loss mitigation offer is made, that the borrower has rejected the offer or failed to perform under a loss mitigation agreement before referring the matter for foreclosure.
In the event that a borrower has been in a COVID-19 related forbearance program up until this time, the servicer must contact the borrower at least 30 days before the end of the forbearance period to see if the borrower wants to pursue a loss mitigation application. If so, the servicer must assist the borrower in completing the application before the end of the forbearance period.
The new rule continues the requirement from the former rule that the servicer has to make a good faith effort to have live contact with a delinquent borrower no later than the borrower’s 36th day of delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. In those conversations, the options for loss mitigation have to be explained to the borrower. And if the borrower submit an incomplete loss mitigation application to the servicer (which means some information is left out or some supporting document is missing), the servicer has to assist the borrower in getting a complete application together.