The American Conference Institute (ACI) Forum on Mortgage Servicing Compliance, Dealing with Successors in Interest and Consumers in Bankruptcy: New Servicing Requirements in the Wake of the Amended CFPB Final Mortgage Servicing Rules, Washington, DC, November 30 - December 1, 2016

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Carmelo D. Bramante
Manager, Regulatory Compliance
Navy Federal Credit Union
Lauren E. Campisi
Member
McGlinchey Stafford
Roland P. Reynolds
Partner
Palmer, Lombardi & Donohue LLP
November 30 – December 1, 2016
Moderator:
Margaret P. Chase
Vice President & Deputy General Counsel
Fannie Mae
Tweeting about this conference?
Dealing with Successors in Interest and Consumers in Bankruptcy:
New Servicing Requirements in the Wake of the Amended CFPB
Final Servicing Rules
ACI’s Forum on
Mortgage Servicing Compliance

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Introductions
Summary of the Final Mortgage Servicing Rule
Successors in Interest
Borrowers in Bankruptcy
Hypotheticals
Agenda

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August 4, 2016 – Amended Rules Issued by CFPB
Effective dates based on publication in Federal Register
Generally – 12 months from publication date
Successor in Interest and Bankruptcy Provisions – 18 months
October 19, 2016 – Amended Rules Published in Federal Register
October 19, 2017 – Most provisions become effective.
April 19, 2018 – Successor in Interest and Bankruptcy Provisions
Become Effective
Effective Dates

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WHO ARE SUCCESSORS IN INTEREST (SII)?
Defined, by one of five transfer types, as someone who has acquired an
ownership interest as a result of a transfer:
On the death of a joint tenant or tenant by the entirety;
On the death of a relative;
When the borrower’s spouse or children become an owner;
Resulting from a divorce or legal separation; or
Through an inter vivos trust in which the borrower is and remains a beneficiary and
retains occupancy rights.
A person does not have to assume or otherwise be liable for the loan in
order to be confirmed as a successor.
Servicers are not required to conduct a search for a potential successor if
they have not received actual notice of the potential successor’s existence.
Successors in Interest

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WHAT RIGHTS DO CONFIRMED SUCCESSORS IN INTEREST HAVE?
TILA / Reg Z
Prompt payment processing
Periodic statements
Mortgage transfer disclosures
Interest rate adjustment notices
Escrow cancellation notices
RESPA / Reg X
Error and information requests
Early intervention and continuity of contact
Loss mitigation
Escrow and force-placed insurance provisions
Mortgage servicing transfers
Successors in Interest
When property is SII’s principal residence

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HOW ARE SUCCESSORS IN INTEREST CONFIRMED?
Information Requests – Amended Rules create a new information request
that allows potential successors to obtain a description of the documents the
servicer reasonably requires for confirmation.
Communication and Evaluation – Servicers must establish policies and
procedures reasonably designed to ensure that they can:
Promptly facilitate communication with potential successors upon notice of a
borrower death or property transfer,
Promptly provide a potential successor with a description of the documents the
servicer reasonably requires for confirmation, and
Promptly notify a potential successor of the servicer’s confirmation decision.
Successors in Interest

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WHAT OBLIGATIONS DO CONFIRMED SUCCESSORS OWE?
Confirmed successors are not liable for repayment of the debt unless and
until they assume the loan obligation under State law.
Confirmed successors are entitled to request communications about the loan
that discuss repayment, specifically terms, loan status and payment history;
servicers must provide this information.
Servicers have options to ensure disclosures do not suggest that successors
are liable if that is not accurate:
Remove language that might imply liability.
Add a separate disclosure to each mailing or communication that disclaims
successor responsibility for the debt.
Provide an optional notice and acknowledgment upon confirmation.
Servicers are generally not required to provide notices to more than one
borrower or confirmed successor on each loan. However, confirmed
successors may obtain loan information through a Request for Information.
Successors in Interest

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OPTIONAL NOTICE WITH ACKNOWLEDGEMENT
Servicers may provide a confirmed successor who is not liable an initial
written notice and acknowledgment stating that:
The servicer has confirmed the successor.
The successor is not liable for the mortgage debt.
The successor may be entitled to receive certain notices if the successor signs the
acknowledgment.
Receipt of the notices does not make the successor liable for the debt.
A successor who does not sign the acknowledgment still has certain rights, like the
right to submit notices of error and information requests.
A successor may sign and return the notice at any time.
Successors in Interest

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PROTECTING PRIVATE INFORMATION
Sensitive Information - Servicers may withhold certain types of sensitive
information when responding to notices of error or information requests that
are submitted by confirmed successors or that request information about
potential or confirmed successors in interest.
FDCPA Safe Harbor - CFPB issued an advisory opinion interpreting
“consumer” under the FDCPA to include anyone defined in Regulations X
and Z as a confirmed successor.
Provides a safe harbor from liability under FDCPA section 805(b) for
communications by a servicer to a confirmed successor about the mortgage loan
in compliance with Regulations X and Z.
Successors in Interest

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LOSS MITIGATION RIGHTS OF SUCCESSORS IN INTEREST
POTENTIAL SUCCESSORS: Amended Rules allow but do not require
servicers to evaluate loss mitigation applications received from potential
successors prior to confirmation of successor-in-interest status.
When a servicer elects not to evaluate a loss mitigation application from a
potential successor, the servicer must retain the application, consider it
received as of the confirmation date, and evaluate it promptly following
confirmation.
Nothing in the rule prohibits a servicer from requiring assumption as a
condition of a loss mitigation offer.
However, a servicer cannot condition evaluation of a loss mitigation
application on a confirmed successor’s assumption of the mortgage.
Confirmation process cannot impede ability of the potential SII to apply for
loss mitigation.
Successors in Interest

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EARLY INTERVENTION
Live Contact – Exemption while any borrower is a debtor in bankruptcy
or any borrower has discharged personal liability for the mortgage loan
through bankruptcy.
Written Notice – A single written early intervention notice is required to
any delinquent borrower who files bankruptcy unless:
No loss mitigation option is available, or
Any borrower on the mortgage loan has invoked cease communication rights
under the FDCPA.
Resuming Compliance – Must resume compliance once the bankruptcy
case is dismissed, closed, or the borrower reaffirms personal liability for the
loan.
Only written early intervention notice required if the borrower discharged the loan but
continues to make mortgage payments.
Successors in Interest

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PERIODIC STATEMENTS
Generally must provide periodic statements to borrowers in bankruptcy who
intend to retain their home, but not to borrowers who intend to surrender it.
Consumers in bankruptcy who do not wish to receive periodic statements
may opt out.
A consumer in bankruptcy generally may also opt in to receiving statement
even when the exemption would otherwise apply.
Loan-level exemption; proposed and confirmed plans – can trigger the
exemption.
The amended rule includes sample periodic statement forms with modified
disclosures for consumers in bankruptcy.
Modified statements/coupons vary by chapter and must be sent during
bankruptcy or post-discharge.
Borrowers in Bankruptcy

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PERIODIC STATEMENTS
Modified Statements:
Identify bankruptcy/discharge status.
Information purposes only.
Other information may be omitted.
Provide transaction activity
Provide pre-petition arrearage and payments (for Ch. 13)
List post-petition payments due (for Ch. 13)
Borrowers in Bankruptcy

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Bankruptcy Statements

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Hypotheticals

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Confirming a Successor in Interest – Transfer from Borrower’s Death
You are a Manager in Mortgage Servicing. You become aware, through the
monthly feed from the Social Security Administration, that one of your
mortgage customers/borrowers has died.
Are you required under the amended mortgage servicing rules to identify and
contact the Successor in Interest (SII)?
What documents will you require from the potential SII in order to confirm his or
her status?
While evaluating the potential SII, he/she asks for information about the mortgage
loan. What information can you provide to the potential SII?
During the evaluation process, you’re contacted by “someone” claiming to have an
interest in the property. What are you required to do when the SII is contested?
From a FCU perspective, are there any unique considerations you need to keep in
mind?
Scenario 1: Successors in Interest

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Confirming a Successor in Interest – Transfer from Divorce
You are a Manager in Mortgage Servicing. You are contacted by someone
who claims he has been granted a divorce and, as part of the decree, he will
receive ownership rights to his principal residence, which is security to a loan
with your mortgage company.
You check your servicing system and find out that he is not on the mortgage
note. With further investigation, you find out that he is not currently on the
deed.
What documents do you require to identify and to confirm the ownership rights of the
potential SII?
What mortgage servicing protections is he afforded once he becomes a confirmed
SII?
Does anything change in your evaluation process if the potential SII is in a
Separation scenario?
Once the you have completed the evaluation, will you use the optional
acknowledgment form to provide confirmation notice to the SII? What are the
benefits of using the form? Are there any drawbacks?
Scenario 2: Successors in Interest

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Periodic Statements
Borrower files a petition for bankruptcy under chapter 13. In connection
with his petition, he files a statement of intention identifying an intent to
surrender the home. The next week he submits the regularly scheduled
principal and interest payment.
Is the servicer required to send periodic statements to this borrower?
Borrower files a petition for bankruptcy under chapter 13. Co-Borrower
does not file for bankruptcy protection. At the same time as he files his
bankruptcy petition, Borrower calls servicer and asks the servicer not to call
him and not to send any more statements. The next month, Co-Borrower
calls servicer and asks why she did not receive a statement.
Is the servicer required to send periodic statements to this borrower or co-
borrower?
Scenario 3 & 4: Borrowers in Bankruptcy

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Servicing a Successor in Interest – SII Applies for Loan Modification
You are a Manager in Loss Mitigation. It’s April 19, 2018. You receive a BRP
from “someone” requesting a loan modification. You check your servicing
system and find that the “applicant” is not named on the loan (and the property
securing the loan).
What procedures should be in place in order to receive the BRP?
The applicant is being evaluated by another area of mortgage servicing as an SII.
The SII has not been confirmed yet. Under the amended rule, what steps can you
take with the applicant?
Can you evaluate the potential SII for loss mitigation? Must the potential SII assume
the loan first?
Are you restricted in any way as to the types of loss mitigation offers are made to the
confirmed SII?
From a FCU perspective, are there any unique considerations you need to keep in
mind?
Scenario 5: Successors in Interest

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Periodic Statements
Borrower files a petition for bankruptcy under chapter 7. He indicates an
intention to retain the home. A few weeks later he signs a reaffirmation
agreement.
Is the servicer required to send periodic statements to this borrower?
Servicer obtains servicing rights to a portfolio of loans, some of which are in
bankruptcy at the time of transfer. One such loan is a chapter 13
bankruptcy in which the Borrower identified an intention to surrender the
home and has not made any payments since the filing of the bankruptcy
petition. The day after the loan is transferred, the court enters an order
dismissing the bankruptcy case. The next scheduled payment is due one
week later.
Is the servicer required to send periodic statements to this borrower?
Scenario 6 & 7: Borrowers in Bankruptcy

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Confirming a Successor in Interest – Transfer to Child
You are a Manager in Mortgage Servicing. You are contacted by someone
who claims she has been granted an interest in real property from her elderly
father.
What documents do you require to identify and to confirm the ownership rights of
the potential SII?
What mortgage servicing protections is she afforded once he becomes a
confirmed SII (keeping in mind that her father is still on the mortgage and is
making his monthly payments)?
Are there any considerations or concerns you might have on this mortgage you’re
servicing?
Scenario 8: Successors in Interest

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Periodic Statements
Borrower files a petition for bankruptcy under chapter 13. In connection
with his petition, he intends to retain the home. He makes pre-petition
arrearage and post-petition maintenance payments through the chapter 13
trustee.
Is the servicer required to send periodic statements to the trustee?
Borrower files a petition for bankruptcy under chapter 13. Servicer files a
proof of claim identifying the pre-petition arrearage and total balance owed.
Borrowers files an objection to the proof of claim. Servicer opposes the
objection but it remains pending before the bankruptcy judge.
Does the pending objection impact the modified version of the periodic
statement?
Scenario 9 & 10: Borrowers in Bankruptcy

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Questions