Mortgage Servicers Must Adopt Policies and Procedures For Dealing with Loans upon the Death of a Borrower

November 18, 2013Articles
On October 15, 2013, the Consumer Financial Protection Bureau (“CFPB”) issued a bulletin providing guidance on certain mortgage servicing rules which are to take effect on January 10, 2014 under the Real Estate Settlement Procedures Act (“RESPA”) and the Truth in Lending Act (“TILA”). One important section of this new guidance relates to the adoption and implementation of policies and procedures for dealing with successors in interest of deceased borrowers on mortgage loans. Beginning on January 10, 2014, a mortgage servicer must have policies and procedures in place which are reasonably designed to ensure that it can promptly identify and facilitate communication with the successor in interest upon being notified of the death of a borrower. The CFPB defines “successor in interest” as the spouse, child, or heir of a deceased borrower or other party with an interest in the property. The stated goal of the guidance is to promote home retention whenever reasonably possible for successors in interest faced with the loss of their homes due to the death of a borrower.

The guidance indicates that components of these policies should include procedures for promptly providing any party claiming to be a successor in interest a list of all documents the servicer requires establishing the death of the borrower and identifying the legal interest of the successor in interest. Such documentation may include a death certificate, an executed will, or a court order determining a succession to real property. Further, upon notification of the death of the borrower, the servicer should promptly identify potential issues it may have in reviewing the rights and obligations of the successor in interest. This may include receipt of acceptable proof of the successor in interest’s identity and legal interest in the property, standing of the mortgage loan as current or delinquent, eligibility of successor in interest to continue making payments on the mortgage loan, any pending or planned foreclosure proceedings, and eligibility of a successor in interest for loss mitigation options, among other provisions.

The rules also require that servicers provide successors in interest with information about any servicer prerequisites for the successor in interest to continue payment on the mortgage loan, assume the mortgage loan, and qualify for loss mitigation options. The servicer should provide any documents, forms, or other materials it requires for the successor in interest to continue making payments and to apply for assumption of the mortgage. In addition, upon receipt of the required documentation, the servicer must promptly evaluate the successor in interest for the options referenced above.

The guidance further requires that servicers provide employees who deal with mortgage loans with information and training on the effect of the laws and the servicer’s obligations following the death of a borrower. It is recommended that the servicer provide employees with servicing guidelines, such as those prepared by Fannie Mae and Freddie Mac, the Garn-St. Germain Act of 1982 which requires certain limits on the application of due-on-sale clauses when real property is transferred due to a death of the borrower, and both Federal and State laws restricting the disclosure of the deceased borrower’s non-public personal information.

Finally, the guidance provides that the servicer should review the best practices with regard to their policies following being notified of the death of a borrower. These may include promptly evaluating whether to postpone or withdraw any pending or planned foreclosure proceeding to provide the successor in interest with reasonable time to establish ownership rights and pursue assumption of the loan. Further, the servicer should quickly provide the successor in interest with information regarding the consequences of assuming the mortgage loan, including any costs. The successor in interest should also be made aware that a later loss mitigation option is not guaranteed if the successor in interest assumes the loan without a loss mitigation option already in place or arranged to commence simultaneously with the assumption.

It is clear that the CFPB expects mortgage servicers to take a more proactive approach when dealing with successors in interest in the event of the death of a mortgage borrower. With the January 10, 2014 deadline just around the corner, those who service mortgage loans must act quickly to adopt adequate policies and procedures which incorporate the requirements as discussed above and to properly train employees on these requirements.