Compliance: A look at RESPA’s 120-day foreclosure restriction

October 30, 2017

During CUNA’s Attorney’s Conference last week, a presentation on recent changes to the mortgage servicing rules under Regulations Z and X prompted a question related to the Real Estate Settlement Procedures Act (RESPA) 120-day foreclosure restriction:

“In the event a member breaches a term of their mortgage loan agreement unrelated to the delinquency of a periodic payment, must the credit union wait 120 days before initiating a foreclosure action?”

According to Section 1024.41 of Regulation X (RESPA), a servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

  • A borrower’s mortgage loan obligation is more than 120 days delinquent;
  • The foreclosure is based on a borrower’s violation of a due-on-sale clause; or
  • The servicer is joining the foreclosure action of a subordinate lienholder.

The Consumer Financial Protection Bureau (CFPB), in an August 2016 final mortgage servicing rule, provided a standardized definition of “delinquency” for purposes of the Regulation X servicing provisions. A borrower is now considered delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid, until such time as no periodic payment is due and unpaid. 

But what about other breaches of the mortgage loan agreement unrelated to payment delinquency? For example, must the credit union wait 120 days to begin the foreclosure process in the event the borrower fails to maintain hazard insurance on the property as required by the mortgage loan agreement?  

The answer can be found in an August 4, 2016 CFPB fact sheet, which essentially says, yes, the 120-day foreclosure restriction also applies in the case of a non-payment related breach of the mortgage loan agreement.

To provide member credit unions with additional information on this topic, CUNA’s compliance staff has prepared the following CompBlog post, which can be found here.  

In addition to the CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.