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Home > Financial Institutions > Mortgage > FAQs > Servicing

Frequently Asked Questions - Servicing

Please visit www.ncforeclosurehelp.org to view additional FAQs for servicers and to Submit Lender/Servicer Pre-Foreclosure Notice Filing (State Home Foreclosure Prevention Project Database).


Rule 702: The Communication Rule

  1. Q. What does the Communication Rule do?

    A: The rule establishes steps required of servicers in handling a borrower’s loss mitigation request. The Communication Rule is part of the servicer’s duty to negotiate in good faith with borrowers to resolve or work out a delinquent loan under NC SAFE.

  2. Q. What does the Communications Rule require of servicers?

    A: The Communication Rule has three requirements:

    1. Within 10 business days of receiving a request, servicers are required to acknowledge a request in writing and identify information the servicer needs to consider the borrower’s request;
    2. Within 30 business days of receiving all information, a servicer is required to respond to a borrower;
    3. Finally, if a servicer denies a request it is required to provide a final written response which includes the following:
      1. A reason for the denial;
      2. The name and contact information of the person at the servicer who has authority to reconsider the denial;
      3. The following statement, in bold print, no smaller than the rest of the letter’s type: ‘If you believe the loss mitigation request has been wrongly denied, you may file a complaint with the North Carolina Office of the Commissioner of Banks website, www.nccob.gov.
  3. Q. Who is subject to the new rule?

    A: Any company engaged in mortgage servicing, and not exempt under from licensure requirements under NC SAFE is required to comply with the rule.

  4. Q. What sort of request for loss mitigation triggers the requirements of the rule?

    A: A servicer is required to comply with the rule upon being contacted by the borrower or the borrower’s agent (such as an attorney or housing counselor assisting the borrower). This contact can be made in writing, by phone or other means to the address, telephone or other contact information the servicer provides to borrowers in the pre-foreclosure notice required to be sent out by NC SAFE and the Emergency Foreclosure Reduction Act. Types of requests which require a servicer comply with the rule include:

    1. An inquiry regarding the borrower’s eligibility for a modification under the Federal HAMP program;
    2. Any inquiry seeking for the servicer to consider reducing borrowers monthly payment to make the loan more affordable;
    3. Any inquiry seeking that the servicer consider the loan for a standard modification to capitalize the delinquency and allow the homeowner to resume payments (whether the modified payment is reduced or not);
    4. Any inquiry, from a borrower whose loan is delinquent, regarding assistance with curing the default, maintaining possession of the home or otherwise avoiding foreclosure or eviction.
  5. Q. Does the rule only apply where a servicer has sent the pre-foreclosure notice required under G.S. §53-244.111(22)?

    A: No. The Communication Rule applies any time a borrower communicates a request sufficient to establish the borrower is seeking loss mitigation assistance (See FAQ No. 3, above). The language in the second sentence of Paragraph (a) is to provide guidance to borrowers and to servicers as to whom or to what department such requests may be made.

  6. Q. What information must a servicer identify in its acknowledgement of the borrower’s request?

    A: The servicer must identify any and all information or documents that it requires in order to process a loss mitigation request. Examples of items that might be included in the request are:

    • forms required by the servicer to assess the borrower’s financial capacity;
    • hardship affidavits;
    • bank statements;
    • paystubs or other forms of income documentation;
    • forms necessary for the servicer to request income tax forms or other documents necessary to verify tax filing status;
    • documentation or forms required by the Home Affordability Modification Program or other loss mitigation programs available to the borrower.
  7. Q. When must the Servicer respond to the borrower about their request?

    A: A servicer must provide a substantive response to the borrower about their request within 30 business days of receiving all information identified in the acknowledgement letter. Unless the servicer has approved the borrower for a loss mitigation program, the response must comply with the requirements of the written final response in paragraph C of Rule 702 (See FAQ 1, above.)

  8. Q. If a servicer approves a homeowner for a trial modification under the federal HAMP guidelines, does the Communication Rule require any further communications or response to further inquiries?

    A: Yes. The requirements of the Communication Rule apply to requests for loss mitigation assistance that occur after the initiation of a HAMP trial modification. Some examples of circumstances that would require further communication to comply with the Communication Rule are:

    • If the servicer determines that the borrower on a trial modification does not qualify for a permanent modification in accordance with HAMP’s guidelines, a servicer is required to provide a final written response in accordance with the Rule.
    • If a borrower contacts a servicer regarding the status of conversion of a temporary modification to a permanent modification after the expiration of the initial trial period, the servicer should treat the inquiry as a new request under the Communication Rule (Rule 702). A request for a status update on a pending request shall not operate as a new request and shall not restart the time frame for response to the request.
  9. Q. Is a company that is sub-servicing loans for an exempt entity required to comply with the rule?

    A: Yes. To the extent a mortgage servicer operating in North Carolina is required to be licensed to engage in mortgage servicing, that mortgage servicer is required to comply with the Rule upon receipt of a loss mitigation request regardless of the exemption status of the Master Servicer.

  10. Q. When does this rule go into effect?

    A: This rule goes into effect and applies to any loss mitigation request made on or after June 1, 2010. A request for a status update on a pending loss mitigation request received after June 1, 2010, shall operate as a new request and shall require acknowledgement of the request and a definitive response within the time lines required by the rule.

Rule 703 - Foreclosure Hold Rule

  1. Q. What does the Foreclosure Hold Rule do?

    A: The Foreclosure Hold Rule requires, except in certain circumstances, that a servicer not initiate or proceed further with foreclosure, or impose any charge incident to a foreclosure proceeding, while it is still considering a loss mitigation request.

  2. Q. What constitutes initiating foreclosure proceeding?

    A: For purposes of the Foreclosure Hold Rule, a servicer’s referring a mortgage to foreclosure counsel (or Substitute Trustee) for the purposes of preparing a Notice of Hearing, as well as the filing of the Notice of Hearing itself, constitutes initiating a foreclosure proceeding.

  3. Q. What constitutes furthering a foreclosure proceeding?

    A: For purposes of the Foreclosure Hold Rule, any activity that results in a charge to the borrower related to foreclosure fees and/or costs or furthers in any way the issuance of a notice, setting or continuance of a hearing date, or foreclosure sale date shall constitute furthering a foreclosure proceeding, including, but not limited to referring the matter to foreclosure counsel. Servicing activities that normally incur charges to the borrower based on a default loan status, but not related to foreclosure, are not prohibited by the Rule. In some instances, a pleading or filing with the court may be permitted (see FAQ. No. 9.).

  4. Q. When is a servicer not required to halt foreclosure activity?

    A: A servicer does not have to halt foreclosure activity in the following situations:

    1. If within the last 12 months:
      1. The borrower has failed to comply with the terms of modification pursuant to a federal or state program, including HAMP. The Servicer must have administered any such program in strict accordance with the program requirements and have notified the borrower of all payments necessary for the borrower to comply. In addition, a Servicer must have complied with the terms of Communication Rule (Rule 702) regarding Final Response in the case of a borrower whose conversion to a final modification has been denied (See Rule 702 , FAQ No. 1).
      2. The borrower has failed to comply with a non-HAMP loss mitigation plan which reduced the borrowers payment by 6 percent from the most recent scheduled monthly payment, and resulted in a payment of principal, interest, taxes and insurance of less than 31 percent of the borrower’s income;
      3. If the Servicer has received a previous loss mitigation request and has provided the borrower with a final response in compliance with the Communication Rule (Rule 702) and the servicer reasonably believes the current loss mitigation request was not made in good faith.
      4. The borrower has failed to comply with the terms of a Chapter 13 bankruptcy plan or has had a bankruptcy proceeding dismissed for abuse of process.
    2. The loss mitigation request is received after the expiration of borrowers’ time period for filing an appeal of an order by the Clerk of Court granting foreclosure, usually the 10th day after the Clerk enters the order.
    3. The servicer is prohibited from delaying a foreclosure proceeding pursuant to a contractual agreement entered into prior to October 1, 2009.
  5. Q. If a servicer has delayed any foreclosure activity pursuant to Foreclosure Hold Rule, when can it proceed or initiate foreclosure proceedings?

    A: Once the servicer has complied with the Communication Rule (Rule 702) and provided the written final response to the borrower, the servicer may continue or initiate foreclosure proceedings.

  6. Q. If a servicer receives a loss mitigation request to which the Rule’s requirement does not apply, must the servicer still comply with the Communication Rule (Rule 702)?

    A: Yes. If a servicer receives a request but is not required to stay foreclosure proceedings under the requirements of Rule 703 (a), the servicer must still comply with the Communication Rule’s requirements to respond to the borrower’s request. However, the Servicer may continue or initiate any foreclosure activity during the pendency of the request.

  7. Q. How might a servicer document that it had provided a final response regarding a loss mitigation request in the last 12 months and reasonably believes a pending loss mitigation request has not been submitted in good faith?

    A: In addition to maintaining a copy of the final response mailed to the borrower in connection with the previous loss mitigation requests, servicers should ensure the file supports the belief that a new request is not in good-faith. Such information would include:

    1. evidence of multiple loss mitigation requests with no significant change in the borrower’s economic situation;
    2. the absence of any indication in the borrower’s request that the borrower has had a verifiable change in circumstances such that a loss mitigation plan may now be possible;
    3. Other information which leads the servicer to believe the request is meant purely to delay foreclosure.

    As noted above, servicers are still required to comply with the Communication Rule (Rule 702). Where a servicer has a good-faith belief that a request is not in good-faith but subsequently learns that the borrower’s situation has in fact changed, i.e., upon borrowers providing verified information regarding employment or income increase, a servicer is then required to comply with the Foreclosure Hold Rule (Rule 703).

  8. Q. What documentation is necessary for a servicer to demonstrate a borrower failed to comply with a Chapter 13 bankruptcy plan and/or was dismissed from bankruptcy for abuse of process?

    A: Servicers should maintain evidence of the Bankruptcy Court final determination regarding these issues, including Order for Dismissal based upon abuse of process; Order Granting Relief from Stay for purposes of foreclosure; a Consent Order which stipulates that failure to make a future payment will automatically give relief from the stay (along with evidence of the failure to make the payment in question) and specify notice requirements.

  9. Q. Is it ever permissible for the servicer to permit foreclosure counsel handling a proceeding that was ongoing prior to the loss mitigation request to file a pleading in order to hold open the proceeding?

    A: To continue or delay a proceeding, and avoid dismissal or other adverse action which would otherwise occur under the foreclosure statutes, Rules of Civil Procedure or Local Rules, a pleading or notice may be filed. However, a servicer may not impose a charge to the borrower related to such a filing.

  10. Q. When does this rule go into effect?

    A: This rule goes into effect and applies to any loss mitigation request made on or after June 1, 2010. A request for a status update on a pending loss mitigation request received after June 1, 2010, shall operate as a new request and shall require acknowledgement of the request and a definitive response within the time lines required by the rule.