When a bank goes through a merger or agrees to buy or sell mortgage loans, certain notices must be provided to borrowers before and after the transaction closes. Federal law states clearly what notices are required and how they must be worded, but sometimes the legal rules conflict with each other.
It’s helpful to have an attorney review any notices you receive to ensure that they are in compliance with federal law and evaluate how they impact the terms of your loan.
Under a federal law called the Real Estate Settlement Procedures Act of 1974 (RESPA), when a bank or loan servicer transfers the servicing of a residential mortgage loan, borrowers must be provided with written notice by both the transferor and the transferee, including: 1) the effective date; 2) the date on which the transferor will stop accepting payments and the date on which the transferee will begin to accept payments; 3) the name and address of the transferor and a collect or toll-free telephone number to call with questions about servicing; 4) an explanation of any impact on the terms and availability of related insurance coverage; and 5) a statement indicating that the transfer only affects terms directly related to the servicing of the loan.
The transferor is required to provide notice of the change in servicing no less than 15 days before the effective date of the transfer, and the transferee must provide notice no more than 15 days after the effective date. The two parties also have the option of providing a joint notice at least 15 days before the transfer goes into effect.
Meanwhile, under another federal law known as the Truth in Lending Act (TILA), a loan purchaser must give borrowers written notice no later than 30 days after a mortgage loan transfer.
That notice must include: 1) the date of the transfer; 2) an identification of which loan is affected; 3) the name, address and telephone number of the new owner of the loan; 4) the name, address and telephone number of whatever party will resolve any payment issues; 5) an indication of where the transfer of the loan is publicly recorded; and 6) the owner’s partial payment policy.
In addition to these two notices themselves, the transfer disclosures can trigger disclosure obligations under the federal Fair Debt Collection Practices Act (FDCPA). That law requires a debt collector to provide certain communications about a loan.
In some instances, borrowers have filed lawsuits arguing that the notices they received were an “attempt to collect a debt” under the FDCPA. Courts have been divided on this issue. An attorney can help you decide if you have a viable suit.
The notice requirements under RESPA and TILA can also trigger rules under the Bankruptcy Code if a borrower is in the middle of bankruptcy proceedings.
A person who has filed for bankruptcy is granted an automatic stay when the petition is filed. That means, generally, that a creditor cannot take any action to collect a debt from the debtor at that point.
Following bankruptcy, the debtor may be granted a bankruptcy discharge. That discharge bars certain actions related to debts that existed before the bankruptcy, and a lender or servicer must comply in order to avoid sanctions.
The federal consumer financial laws are currently enforced by the Consumer Financial Protection Bureau (CFPB). The CFPB has adopted regulations and interpretations which go into effect in 2017 and 2018. They are intended to address some conflicting communication requirements under RESPA and TILA, but they don’t eliminate the potentially conflicting rules related to notices about the transfer of loans or servicing.
Under the Trump Administration, the future of the CFPB is unclear and all parties involved in mortgage lending and borrowing will be watching to see if the rules for enforcement change.