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Compliance: Early Intervention for Borrowers in Bankruptcy
Tuesday, October 11, 2016 6:50 AM

The Consumer Financial Protection Bureau’s new mortgage servicing rule contains information on a partial exemption from early intervention requirements for borrowers in bankruptcy. While any borrower on a mortgage loan is a debtor in bankruptcy, mortgage servicers are exempt from the live contact requirements.

They are also exempt from the written notice requirements if:

  • No loss mitigation option is available (a loss mitigation option is available if the owner or assignee of a mortgage loan offers an alternative to foreclosure that is made available through the servicer and for which a borrower may apply, even if the borrower ultimately does not qualify); or
  • If any borrower on the mortgage loan has provided a Fair Debt Collection Practices Act (FDCPA) notification notifying the servicer that the borrower refuses to pay a debt or that the borrower wishes the servicer to cease further communications, with respect to that mortgage loan.

If there is an available loss mitigation option and/or no borrower on the mortgage loan has provided a FDCPA notice, the servicer must comply with the written notice requirements as follows:

  • If a borrower is delinquent when the borrower becomes a debtor in bankruptcy, a servicer must provide the written notice not later than the 45th day after the borrower files a bankruptcy petition; or 
  • If the borrower is not delinquent when the borrower files a bankruptcy petition, but subsequently becomes delinquent while a debtor in bankruptcy, the servicer must provide the written notice not later than the 45th day of the borrower’s delinquency.

A servicer must comply with these timing requirements regardless of whether the servicer provided the written notice in the preceding 180-day period. The written notice may not contain a request for payment.

In addition, a servicer is not required to provide the written notice more than once during a single bankruptcy case. If any of the borrowers is a debtor in bankruptcy, a servicer may provide the written notice to any borrower.

A servicer must resume compliance with the live contact and written notice requirements after the next payment due date that follows the earliest of the following events:

  • The bankruptcy case is dismissed;
  • The bankruptcy case is closed; and
  • The borrower reaffirms personal liability for the mortgage loan.

If the borrower’s bankruptcy case is revived, the partial exemption requirements once again apply.

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