adjustable rate mortgage

Mortgage Servicing Rules – Successor in Interest Part 3 of 3

Effective April 19, 2018, the Successors in Interest provisions will go into effect under RESPA. It is critical that institutions have procedures developed to address potential and verified Successors in Interest, as well as train appropriate staff as to the requirements under the Regulation. Part 3 of 3 focuses on this provision; refer to Part 1 and Part 2 for the other changes.

What’s the big deal about Successors in Interest?

If we understand the background of why a regulation was put into effect, it often permits us to understand the “spirit of the Regulation.” From experience, I can tell you that often times in the case of a borrower’s death, banks would not readily communicate with the parties left with the legal rights to the property because they weren’t on the mortgage. I can remember a “big‐box bank” simply stating, “I cannot give you any information—you are not on the loan,” followed by a prompt “click” as they hung up the phone.

There was no procedure in place to open the lines of communication. From the successor’s perspective, it was frustrating, to say the least. Sadly, the CFPB has stated that mortgages were being placed in foreclosure, as banks failed to communicate with those who had legal ownership of the property.

As a result, we now have a Regulation that prescribes the required communication with both potential successors in interest and confirmed successors in interest.

Who is a Successor in Interest?

Simply put, it is a person who has legally obtained ownership of real property, while the mortgage obligation belongs to a different party. Examples of successors in interest can include relatives who inherit a property upon the death of a borrower or a spouse who obtains the property in a divorce proceeding.

Regulation X specifies that a Successor in Interest is a person who obtains an ownership interest in a property securing a mortgage loan by means of one of the following transfers:

  • By devise, descent or operation of law on the death of a joint tenant or tenant by the entirety;
  • To a relative resulting from the death of a borrower;
  • Spouse or children of the borrower become an owner of the property;
  • Resulting from a decree of a dissolution of marriage, legal separation agreement or an incidental property settlement agreement, by which the spouse of the borrower becomes the owner of the property; or
  • A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.

What are we required to do when there is a successor in interest?

In a word: COMMUNICATE! It’s really that simple. However, since that has not always been the pattern and practice over the years, we now have Regulations outlining specific requirements for that communication. Here are the highlights:

Phone Call from an unconfirmed successor in interest

  • Promptly communicate.
  • Include in the communication:
    • A list of the documents required to confirm that person’s identity and ownership interest.
    • An address where a written request and those documents may be submitted.

Written request from an unconfirmed successor in interest

  • Promptly communicate.
  • Include in the communication:
    • A list of the documents required to confirm that person’s identity and ownership interest.
    • An address where a written request and those documents may be submitted.
  • If the written request includes a statement that they are or may be a successor in interest, identifies the borrower from which they received ownership interest from and provides enough information to identify the mortgage loan, you are required to:
    • Within five days (excluding legal public holidays, Saturdays and Sundays) provide a written acknowledgement that the bank received the request.
    • Within thirty days (excluding legal public holidays, Saturdays and Sundays) provide a written description of the documents required to confirm the person’s identity and ownership interest. This written communication must provide contact information, including a telephone number that the person may use for further assistance.

Documentation is received and successor in interest is confirmed

When the bank has received the requested documentation and has confirmed the successor in interest, the successor in interest is now treated the same as the borrower, receiving the required notices under Regulation X and Regulation Z. There is, however, a caveat. The communications cannot be misleading to the successor in interest. As the successor in interest has no legal obligation under the mortgage documents, notices cannot imply that the successor in interest has a legal liability. For example, “You are late on your loan [or] your mortgage.”

There are several options available to a servicer, such as modifying the standard language in these documents or adding a statement or cover letter to each communication clarifying that the successor in interest has no personal liability and has not assumed the loan. Since disclosures and statements are typically automated and sent from the bank’s core utilizing a standardized format, this may not be a viable option. There is an element of risk that these documents may be mailed to the successor in interest without the required disclosures regarding liability.

A third option is available, which provides a universal disclosure clarifying the language on future communications as well as relieving the servicer of most of the required communications until the successor in interest acknowledges receipt of the communication.

This option is to provide a Notice of Confirmed Successor in Interest, along with an Acknowledgement Form. The required contents of this form are in §1024.32(c). The successor in interest will be required to return an acknowledgement form. Regardless of whether the form is returned, servicers are still required to:

  • Permit the Successor in Interest to submit notices of error and information requests.
  • Respond to error resolution and information requests.
  • Permit the Successor in Interest to request a payoff statement.
  • Provide the payoff statement in the regulatory timeframes required.

Once the acknowledgement form is returned, the Confirmed Successor in Interest, in general, should receive the same information and disclosures that would be provided to the borrower. These items pertain to the following:

  • Escrow accounts, payments and account balances (1024.17 and 1024.34)
  • Mortgage Servicing Transfers and Mortgage Transfers (1024.33 and 1026.39)
  • Error Resolution and Information Requests (1024.35 and 1024.36)
  • Force‐placed Insurance (1024.37)
  • Early Intervention (1024.39)
  • Loss Mitigation (1024.41)
  • Post‐Consummation Events (1026.20)
  • Payoff Statements (1026.36)(c)
  • Periodic Statements (1026.41)

Compliance Checklist:

  • Develop written policies/procedures pertaining to Successors in Interest.
  • Create a list of required documents to confirm a Successor in Interest within those procedures. Do not wait for a request to be received and then try to determine what you need to confirm the Successor in Interest. Some documents to consider are:
    • A death certificate;
    • An executed will;
    • A court order;
    • Divorce decree/separation agreement;
    • Quitclaim deed; or
    • Documents that the servicer reasonably believes are necessary to prevent fraud or other criminal activity (for example, if a servicer has reason to believe that documents presented are forged).
  • Develop your written communications (form letters) required by this Regulation. These forms should include:
    • Acknowledgement that the bank received the request.
    • A written description of the documents the bank requires confirming the person’s identity and ownership interest, which also provides contact information, including a telephone number.
    • Notice of Confirmed Successor in Interest.
    • Acknowledgement Form.
  • Train all applicable staff regarding the oral and written communications with potential Successors in Interest. Remember, a person could walk up to the teller line and purport that he or she is a Successor in Interest. All staff should understand the procedure for addressing these inquiries.
  • Consider keeping a log with the name and events taking place from the initial communication with an unconfirmed Successor in Interest, through the date of confirmation of Successor in Interest, mailing of the notification and return of the acknowledgement. This will not only demonstrate compliance with the regulatory requirements but also avoid frustration for the confirmed Successor in Interest when he or she calls to inquire about the loan.

Purchase, refinance, modification and assumptions, what’s behind these names? Join TCA’s Michelle Strickland and Monique Reyna on June 26th for an in‐depth look at what disclosures are needed.

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