I saw a Q&A from KBA with the Bureau the other day that clarified the 120 days 'delinquent' which I thought I'd pass along because it made sense and cleared up that issue we have thought that if they continually make a payment to keep from being 120 days 'past due', they would/could avoid foreclosure.

That was not the case. If they are in a delinquent status for over 120 days (making a payment does not remove them from being delinquent) you can file your notice.

There is a heck of a wide gap between "more than 120 days delinquent" [1024.41(f)(1)(i) and "delinquent for more than 120 days." [what the Q&A you've mentioned appears to say].

I simply cannot recommend accepting a Q&A statement provided by a third party and allegedly attributed to the Bureau as a valid interpretation when the language of the regulation itself disagrees with it. I would accept an official interpretation of the Bureau if one is forthcoming.

I have gone back and searched through the Federal Register document connected to the Servicing Requirements amendments (78 FR 10695), and have to say that there is room in the language used in the analysis section to take the view that the 120 days is counted from the date the consumer first goes delinquent, and continues until the 120th day of the delinquent status, as long as the consumer fails to bring the loan current. It's really unfortunate that the Bureau doesn't make that clear in the regulation itself or at at lease in the Official Interpretations. I do hope this is a question that will get addressed formally in whatever cleanup operations the Bureau undertakes on the regulations.

In the past, when the legal division of a State Banking Association holds a meeting with a regulatory body and obtains answers of which it then in turn sends out to it's members, I've not had reason to question the validity of the correspondence.

It would be nice, however, since it is such a hot topic and an important one at that, for the Bureau to issue an OI. I can't imagine that they ever intended for an account to be 'past due 120 or more days' when that could be perpetually derailed by the making of partial payments.

The bureau acknowledged that the term 'delinquent' was not given in this section, however they deferred to the definition found in the preceding section 1024.40. Therefore, if a loan is in a state of delinquency for >120 days, you were at the point you can file, assuming your state laws did not take a more conservative approach to foreclosure and such.



1. Delinquent borrower. A borrower is not considered delinquent if the borrower has refinanced the mortgage loan, paid off the mortgage loan, brought the mortgage loan current by paying all amounts owed in arrears, or if title to the borrower's property has been transferred to a new owner through, for example, a deed-in-lieu of foreclosure, a sale of the borrower's property, including, as applicable, a short sale, or a foreclosure sale. For purposes of responding to a borrower's inquiries and assisting a borrower with loss mitigation options, the term “borrower” includes a person authorized by the borrower to act on the borrower's behalf. A servicer may undertake reasonable procedures to determine if a person that claims to be an agent of a borrower has authority from the borrower to act on the borrower's behalf, for example by requiring that a person who claims to be an agent of the borrower provide documentation from the borrower stating that the purported agent is acting on the borrower's behalf.

Every bank and it's legal council have to make their own determination based on the best information available. This was just the first I'd seen of something I considered a step above a generic third-party opinion on this topic and presented an opposing view of what I have thought it meant and had voiced previously.

Personally, I hope it has merit. But, I'll let my own legal council make that decision for the bank.

This was a question posed by the ABA to the CFPB in a Q&A webinar last week. Basically (IMHO), CFPB dodged the question. From my notes:

Q: What is the definition of 'delinquency' for the 120 day rule? Sequential days vs. cumulative basis??

A: Not defined in the regulation so there is no answer. Could reflect upon the definitions under RESPA for continuity of contact and/or early intervention. Should look to state law, contract, or industry standards... then come up with your own risk-based approach. CFPB is continuing to monitor this issue.

Sounds to me like they don't really know how they want to apply/interpret this one themselves yet.

This is a significant requirement, and I cannot imagine that the Bureau would want it interpreted on the basis of individual servicers' risk-based decisions. That defies logic. That answer, IMO, was a cop-out from someone who simply wasn't ready with a response. I would have been better to have said "It's not clearly defined in the regulation. I can't provide an answer."

They used similar disclaimer in the first question below, then were more concrete on their definition and clock in the second one below. I can't help but wonder when they refer to contract law, if they weren't talking about the potential difference between delinquency, acceleration of debt and default OR cautioning you to look to your contract for differing definitions that might take precedence in a court of law:

Q.3.
When does the 120 days rule begin to run?
It begins on the day that the borrower is delinquent. Delinquency is defined in various regulations for various triggering dates. It is not, however, defined in the servicing regulations for implementation of the 120 day rule. For purposes of section 12 CFR 1024.40 (the section before the 120 day rule section), the commentary provides that “delinquency begins on the day a payment sufficient to cover principal, interest and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee.” While this does not specifically apply to the 120 day rule, it may be used as guidance. Delinquency and default are two different legal concepts. A borrower can be delinquent but not yet in default under the terms of the mortgage.
The CFPB indicated that this was one of the few sections where the term delinquency was used, but not defined. Because of that, they recommended that banks look at common principals of undefined terms and perhaps look at common law/contract law/or definitions in the mortgage.

Q.6.
Must the servicer accept payments, full or partial, during the 120 days?
I would not recommend turning away any payments, even if you wish the customer would take their business elsewhere—that could be interpreted to be in violation of the spirit of the law and, perhaps a UDAAP. However, unless the payment brings them totally current, it would not reset the clock. Only if the payment completely covers principal, interest, escrow, late fees that are due the borrower is considered still delinquent. If the payment does bring them up to current, the clock is reset and will begin again upon delinquency.
The CFPB indicated that the lender can accept or reject partial payments, as allowed in their contract. Further, the CFPB reminded us that acceleration is not prohibited by the rule, if it is allowed in the contract, so you can accelerate the full amount due and continue standard practices on accepting partial payments.

We are a small servicer. Our collections department sends a Notice of Default and Right to Cure letter on June 25th stating we MAY pursue foreclosure in 30 days unless account is brought current from payments starting on April 1. They are being told it is ok because they are saying MAY. My thoughts are they should at least wait a few more days until the 120 days would be up once their 30 days expired, because the way it states is they would start foreclosure process on July 25th when in fact the 120 days would not be up until July 29th, and this is a stretch, in my opinion. Your thoughts? Anyone?

Perhaps they would be better off using the actual 'drop dead' date instead of a '30' day type language?

So in your opinion, sending the letter prior to 30 days is acceptable if the drop dead date "we will start foreclosure" if after the 120 days? I'm still struggling with the "notice" being prior to the 120 days.

I don't think your demand letter would be considered a 'first filing', but you need to probably check with your legal counsel to make sure what is considered what in your state.

RR Joker has the key to the question right there ^^^. The rule says you can't file the first notice or action in foreclosure. That letter is to the borrower and doesn't trigger any foreclosure step by itself.

I would like to know what their definition of delinquent is. If the payment is due on Jan. 1st are they considered delinquent on Jan 2nd and we can start foreclosure proceedings on May 1st?

In the meantime,once they become 60-90 days past due sending a demand letter letting them know what will happend if they don't make a payment by a certain date is ok? But we can say bring the loan current by the 120th day because if they just make 1 payment and not all of them they are then under the 120 day rule correct?

We file notice of foreclosure on the 121st day. they bring the loan current or make a few payments after that? How does that work?

Not the way I've read their most recent attempts at explaining this. Delinquency isn't defined in that seciton of the reg, but is defined elsewhere.

My understanding of their explanation (and it makes sense and I hope it is correct) is that past-due and delinquency are not the same thing. If the loan remains in a past-due status (not brought current) for 120 or more days...you can file.

Your collection efforts, including a demand letter, are permitted during the period before the 120th day, as long as they aren't filings that initiate foreclosure under state law.

Has anyone run across this yet when there is additional collateral involved? In this case it's cars. Since the reg is aimed at protecting the consumer's home, there shouldn't be any problem with going ahead and picking up the cars ahead of the 120 days, right?

I was just asked the question regarding a loan being past due 65 days... can the bank refuse to take payments unless the loan is brought to current status?

This would either force the customer to pay the two months past due or let them hit the 120 days. Is that allowed?

I would be first be looking to your note and loan agreement to see what it says about curing a default. Unless that is supported in your loan agreement, I think you are going to have a hard time making that stick.

Probably not a problem as that would not be a foreclosure action, but it begs the question, how in the world does a bank make a loan secured in that manner. The borrower must have been in bad straights.

You actually need to seek legal counsel advice however. If you are in a one action state, if you pick up the cars, that's it. You forego any additional action on the other collateral.

Can you provide me with the source of the following Q&A?




Thanks !

I'd also like to know the source....

I had to go back and look up ^^^ to jog my memory...but I believe that Q&A came from:

saw a Q&A from KBA with the Bureau (KBA is Kansas Banker's Asso) the other day that clarified the 120 days 'delinquent' which I thought I'd pass along because it made sense and cleared up that issue we have thought that if they continually make a payment to keep from being 120 days 'past due', they would/could avoid foreclosure.

That was not the case. If they are in a delinquent status for over 120 days (making a payment does not remove them from being delinquent) you can file your notice.

Dismissal from bankruptcy makes a borrower fair game for foreclosure again as long as the loan is still more than 120 past due, correct?

If foreclosure is initiated prior to the 120 days, what is the cure. dismiss the action and start over?

Tagging onto this. Has there been any definitive rule or update with regards to 120 days cumulative or sequential?

Sources?