As part of its recent amendments to the mortgage servicing rules in Regulations X and Z, the Consumer Financial Protection Bureau (CFPB) is fundamentally changing the way mortgage servicers are required to treat successors in interest. In addition to expanding the scope of who is considered to be a successor in interest for the purposes of the mortgage servicing rules, the CFPB’s final rule provides confirmed successors in interest with the same servicing protections under the rules as the original borrower.
If this is an area you would like to learn more about, we encourage you to join us for Part 2 of our “CFPB Mortgage Servicing Amendments” Webinar Series, which is scheduled for Thursday, August 25, and will focus entirely on the new rules related to successors in interest. More information on the webinar can be found at the end of this post.
“Successor in Interest” Definition
Perhaps the most impactful change implemented by the CFPB is the expansion of who is considered a successor in interest. While the previous policy and procedure requirements only required mortgage servicers to facilitate communication with the successor in interest of a deceased borrower, the new rule has expanded the definition to include transfers (1) by devise, descent or operation of law from a decedent; (2) to a relative resulting from a borrower’s death; (3) from a spouse or parent; (4) as a result of a divorce decree, separation agreement, or property settlement agreement; and (5) into an inter vivos trust in which the borrower is and remains a beneficiary.
Confirmation of Successors in Interest
The CFPB has also imposed a new requirement that will require mortgage servicers to build out a process to identify and confirm successors in interest that have received an ownership interest in property subject to a mortgage. The amended rule will require servicers to have policies and procedures reasonably designed to identify potential successors in interest and communicate the documents reasonably required to confirm a person’s identity and ownership interest in the property. What is “reasonably required” will depend on the laws of the relevant jurisdiction, the specific situation of the potential successor, and the documents already in the servicer’s possession. This will undoubtedly require servicers to have a deep understanding of state law in a number of areas and also provide extensive training to ensure that customer-facing representatives can adequately convey the necessary information to potential successors in interest.
Upon receipt of documents from a potential successor in interest, a servicer will also have to promptly confirm or deny the person as a successor in interest or, alternatively, notify them of additional required documents necessary to make the confirmation determination.
Moreover, to the extent a potential successor in interest provides a written request to the servicer’s designated address for Requests for Information, servicers will be required to provide the potential successor in interest with a list of documents that are “reasonably required” to confirm that person’s identity and ownership interest in the property. The response must be done in compliance with the timing and procedural requirements in 12 CFR 1024.36(c)-(g).
Upon confirmation, successors in interest will be entitled to the full protections of subpart C and section 1024.17 of Regulation X, and Regulation Z, with some notable caveats.
First, responses to Notices of Error and Requests for Information received from confirmed successors in interest (or from borrowers on accounts with a confirmed successor in interest) will be allowed to omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan). While this does provide servicers with the ability to protect potential sensitive information for existing borrowers, it will undeniably require servicers to implement processes to ensure that there are no inadvertent disclosures of sensitive information.
Communication with Confirmed Successors in Interest
Second, the amended rule will require servicers to provide disclosures to confirmed successors in interest and also comply with live contact requirements for confirmed successors in interest unless they are provided to another borrower/successor in interest on the same account. The amended rule does, however, provide flexibility by allowing a servicer to provide an “opt-in” acknowledgment form to the confirmed successor in interest, and required disclosures and live contact requirements will not be required until the acknowledgment form is executed and returned.
Loss Mitigation for Successors in Interest
Lastly, servicers will be required to offer loss mitigation protections—and will be bound by all loss mitigation requirements—for loss mitigation applications submitted by confirmed successors in interest. Servicers will not be required to, but may, review and evaluate applications received from potential successors in interest. Servicers will, however, be required to preserve loss mitigation applications from potential successors in interest not reviewed prior to confirmation and to review and evaluate them upon confirmation. Importantly, servicers will not be permitted to require a successor in interest to assume the loan before being able to submit a loss mitigation application, but assumption can be a condition of extending a loss mitigation offer.
Recognizing the difficulty required to implement these requirements, the CFPB has provided for an 18-month implementation period for the successor in interest rules. Nevertheless, servicers would be well-advised to begin digesting and planning out the necessary system and operational changes necessary for implementation as soon as possible.
Register to attend Part 2 of our “CFPB Mortgage Servicing Amendments” Webinar Series
In Part 2 of our “CFPB Mortgage Servicing Amendments” Webinar Series, we will discuss the successor in interest requirements and share practical implementation tips based on our prior experience in this area. Please join us on Thursday, August 25 from 11:30 a.m. to 12:30 p.m. CT to learn “What You Need to Know” about successors in interest. Click here to RSVP to the webinar. Webinar login information will be provided one day prior to the event.