On August 19 the Consumer Financial Protection Bureau made additional changes to the Regulation X (RESPA) residential mortgage loan servicing requirements. One of the issues addressed in greatest detail is the rights of successors in interest to a covered property. Apparently the CFPB and other consumer protection agencies have received multiple complaints that successors in interest frequently have significant difficulty in communicating with and obtaining information from the servicers of mortgages on properties that they have become the owner of. The revised rules are intended to establish a framework for that communication and lessen the hassle for the successor.
First, the Garn-St. Germain Act protects defined successors in interest to a residential property from foreclosure under a due on sale clause in a mortgage. The mortgage servicing rules carry forward substantially the same definition as Garn-St. Germain. "Successor in interest means a person to whom an ownership interest in a property securing a mortgage loan subject to [RESPA] is transferred from a borrower, provided that the transfer is:
- A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
- A transfer to a relative resulting from the death of a borrower;
- A transfer where the spouse or children of the borrower become an owner of the property;
- A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an 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.
Large servicers are required to have a policy and procedures for contacting and identifying potential successors in interest; small servicers are not required to have a policy. But any servicer, large or small, when contacted by a potential successor in interest must "promptly" notify the person of the documentation that it requires to confirm the persons status and upon receipt of information must "promptly" notify the person that his or her status as a successor in interest has been confirmed or that the documentation provided was insufficient and what additional information is required. Once a successor in interest is confirmed he or she is entitled to the same loan mitigation processes and early intervention as the original borrower.
The new rules do not take effect for a year, but in this instance the better policy is to comply with the rules regarding successors in interest immediately.