A few weeks back I wrote a couple articles describing the Servicing Rule changes that will be effective in October. Now let's take a look at the Servicing Rule requirements for successors in interest that will be effective on April 19, 2018.
A confirmed successor in interest is considered a borrower for purposes of the escrow requirements and the Servicing Rules. Treating a confirmed successor in interest does not affect whether the confirmed successor in interest is subject to the contractual obligations of the loan agreement, which is determined by applicable state law. A servicer may not require a confirmed successor in interest to assume the loan obligation. If a successor in interest assumes the loan obligation or is otherwise liable on the loan obligation, the confirmed successor in interest is a borrower for all purposes. Also, a servicer must still comply with all parts of Servicing Rule for the transferor borrower.
So, what is a successor in interest? A successor in interest is a person to whom an ownership interest in property securing a mortgage loan is transferred from a borrower where the transfer is: by devise, descent, or operation of law on death of joint tenant or tenant by the entirety; to a relative resulting from the death of a borrower; where the spouse or children of a borrower becomes the owner of the property; resulting from a decree of dissolution of marriage, legal separation agreement, or incidental property settlement agreement, by which a spouse becomes an owner of the property; or into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of occupancy rights in the property. A confirmed successor in interest is a successor in interest once the servicer has confirmed the successor in interest's identity and ownership interest in property.
The regulation permits a servicer to send, upon confirmation, a confirmed successor in interest who is not liable on the loan obligation a written notice with a separate acknowledgment form that clearly and conspicuously explains that:
- The servicer has confirmed the successor in interest's identity and ownership interest in the property;
- Unless they assume the loan under state law, the successor in interest is not liable for the debt and cannot be required to use their assets to pay the debt, except that the lender has a security interest in the property and a right to foreclose on the property, when permitted by law and authorized under the loan contract;
- The successor in interest may be entitled to receive certain notices and communications about the mortgage loan if the servicer is not providing them to another confirmed successor in interest or borrower on the account;
- In order to receive such notices and communications, the successor in interest must execute and provide to the servicer an acknowledgment form that:
- Requests receipt of such notices and communications if the servicer is not providing them to another confirmed successor in interest or borrower on the account;
- Indicates that they understand that such notices do not make them the debtor; and
- Indicates that they are only liable for the debt if they assume the loan under state law;
- There is no time limit to return the acknowledgment, but the servicer will not begin sending such notices and communications to them until the acknowledgment is returned; and
- Whether or not the successor in interest executes the acknowledgment, they are entitled to submit notices of error, requests for information, and requests for a payoff statement, with a brief explanation of those rights and how to exercise them, including appropriate address information.
A confirmed successor in interest may provide the acknowledgment to the servicer at any time; there is no time limit to return acknowledgement form. If the servicer sends the optional notice and acknowledgement form, unless and until the signed acknowledgement is received from the confirmed successor in interest, the servicer need not comply with the early intervention live contact requirements and need not send any escrow notices, mortgage transfer disclosures, force-placed insurance notices, early intervention notices, ARM rate adjustment notices, escrow cancellation notices, mortgage transfer disclosures, and periodic statements. Please note that this is completely optional. If you elect to not send the notice and acknowledgement form, you must continue to send the above notices and comply with the early intervention requirements.
If you receive a loss mitigation application from a potential successor in interest before confirming their identity and ownership interest in the property, you may (but need not) review and evaluate the loss mitigation application. If you review and evaluate the application submitted by the potential successor in interest before confirming that person's identity and ownership interest in the property, the limitation on duplicative requests applies to that person, provided the loss mitigation options available to that person would not have resulted in a different determination due to the person's confirmation as a successor in interest. If you elect not to review and evaluate the loss mitigation application before confirming the person's identity and ownership interest in the property, you must preserve the application and all documents submitted in connection with the application, and if the property is the confirmed successor in interest's principal residence, you must comply with all loss mitigation requirements.
If you receive a written request from a person that indicates that the person may be a successor in interest and it includes the name of the transferor borrower from whom the person received an ownership interest and information that enables you to identify the mortgage loan account, you must respond by providing the potential successor in interest with a written description of the documents you reasonably require to confirm the person's identity and ownership interest in the property and contact information, including a telephone number for further assistance. With respect to the written request, you must treat the potential successor in interest as a borrower. If the written request does not provide sufficient information to enable you to identify the documents you reasonably requires to confirm the person's identity and ownership interest in the property, you may provide a response that includes examples of documents you typically accept to establish identity and ownership interests in a property, indicates that the person may obtain a more individualized description of required documents by providing additional information, specifies what additional information is required to enable you to identify the required documents, and provides contact information, including a telephone number, for further assistance.