Fortunately, new foreclosure rules mandate that home loan servicers must cooperate with homeowners to seek loss mitigation options before foreclosing on your home. Why? For many Americans, a small financial hiccup can cause big trouble and a few missed mortgage payments can spell disaster. To take advantage of this forced cooperation, you must understand the process and the federal rules.
A servicer is required under federal law to review your situation for loss mitigation options, including participation in the Making Home Affordable programs – but only if you ask for help.
To get help, you must tell the servicer that you are interested in a loan workout. The servicer will send you an application and request information. Once the application is completed and returned, the servicer has five days to acknowledge its receipt and request additional information, if needed.
The servicer must disclose the time period in which it must receive requested documents or information – on the 120th day of the loan’s delinquency, 90 days before the foreclosure date, or 38 days before a foreclosure sale, whichever date is earliest.
Taking action early can forestall the foreclosure process. To get the ball rolling, you must submit your application at least 37 days before a scheduled foreclosure sale in order to obtain federal protection.
If your application is received at least 37 days before a foreclosure sale, the servicer is required to consider all loss mitigation options and provide a written notice of those options within 30 days of receipt. If the servicer offers you loss mitigation options, it may require that you accept an option within 14 days after receiving the notice (in some cases within seven days).
If your application remains incomplete despite the servicers’ requests for information or documents, the servicer may evaluate and offer loss mitigation options based upon the incomplete application. If your loss mitigation application is denied, the servicer must state the specific reasons for denial, inform you of your right to appeal the servicers’ decision, and explain the appeal process.
You may only appeal the servicers’ decision if the application was submitted at least 90 days before the foreclosure sale (or if your loan is not 120 days or more delinquent). On appeal, the application must be reviewed by different personnel than those responsible for denying the application.
And note; the servicer must provide a written notice of its decision on the appeal within 30 days.
Dual tracking by servicers is now prohibited. Dual tracking occurs when a servicer continues a foreclosure while simultaneously considering an application for a loan modification or other loss mitigation program. Servicers are now prohibited from starting the foreclosure process unless you are at least 120 days delinquent. If your loss mitigation application is submitted before you are 120 days delinquent, the servicer may not initiate a foreclosure unless the application is denied and either:
If the servicer has initiated the foreclosure process and you submit a loss mitigation application at least 37 days prior to the foreclosure sale, the servicer must halt the foreclosure until all three conditions listed above are satisfied.
Knowing these new servicer loss mitigation rules can save you from losing your home or slow the foreclosure process while you prepare to file chapter 13 bankruptcy. An experienced bankruptcy attorney can help you navigate your consumer protection rights and help safeguard your property.
The federal bankruptcy laws offer many different options for keeping your home, including stripping off an unsecured second mortgage or paying arrearages over three to five years. Bankruptcy also gives you the option to “walk away” from the property and discharging any loan deficiency or tax debt.