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New Mortgage Servicing Rules for “Successors in Interest”

April 25, 2018

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Effective as of April 19, 2018, successors in interest to property secured by mortgage loans that are covered by the Real Estate Settlement Procedures Act (“RESPA”) and Truth In Lending Act (“TILA”) now have certain rights under those acts.

These amendments are part of the Consumer Financial Protection Bureau’s 2016 Mortgage Servicing Rule amendments to RESPA and TILA.  The CFPB issued the new rules because “it had received reports of servicers either refusing to speak to a successor in interest or demanding documents to prove the successor in interest’s claim to the property that either did not exist or were not reasonably available.”  81 Fed. Reg. 72,160 at 72,165. The rules are therefore designed to make it easier for potential successors in interest to communicate with servicers and establish that they are successors in interest.

At the outset, the new rules define a “successor in interest” as anyone who obtains an ownership interest in a property secured by a mortgage loan, provided that the transfer occurs under one of the scenarios listed in the new rule.  The scenarios range from a transfer resulting from the death of the borrower to a transfer from the borrower to a spouse or child.  The person does not have to assume the loan in order to be a successor in interest.

The amendments create several potential pitfalls for servicers because certain obligations are triggered when a servicer receives actual or inquiry notice that someone might be a successor in interest.  As discussed below, the amendments require servicers to “promptly” communicate with anyone who may be a successor in interest.  Servicers must also only request documents “reasonably” required to confirm whether that person is in fact a successor in interest.  And a “confirmed” successor in interest now has the same rights as the original borrower under RESPA and TILA mortgage servicing rules.

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New CFPB Rule Prohibits Class Action Waivers

July 17, 2017

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On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released a rule prohibiting class action waivers in certain pre-dispute arbitration agreements. The rule drastically impacts arbitration clauses currently used by many financial products and services providers in their consumer agreements.

The rule has three main components. First, the rule prohibits providers from using a pre-dispute arbitration agreement to prevent consumers from bringing or participating in class actions in federal and state court. Second, the rule requires that arbitration agreements inform consumers that their right to bring a class action is unrestricted. Third, the rule requires providers to supply certain records and data relating to arbitral proceedings to the CFPB.

The rule is effective 60 days after publication in the Federal Register and generally applies to agreements entered into more than 180 days after the effective date. Congress, however, can use the Congressional Review Act to prevent the rule from taking effect.

What is the effect of the rule?

The new rule prohibits pre-dispute arbitration agreements for certain consumer financial products or services that block consumer class actions in federal and state courts. The rule accomplishes this in two ways:

  1. providers cannot rely on any pre-dispute arbitration agreement entered after the compliance date that restricts or eliminates a consumer’s right to a class action in state or federal court (§ 1040.4(a)(1)); and
  2. providers must include certain specified plain language in arbitration agreements that explicitly disclaims the arbitration agreements applicability to class actions (§ 1040.4(a)(2)).

The rule also requires providers to submit certain records relating to arbitral proceedings to the bureau, including copies of pleadings, the pre-dispute arbitration agreement, and the judgment. (§ 1040(b).)

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