How the 2014 Changes to Regulation Z (TILA) and Regulation X (RESPA) Impact Homeowners who are in Default on their Mortgage or in Bankruptcy

The Consumer Financial Protection Bureau (CFPB) is the federal agency that oversees and sets the standards and regulations for how home mortgages are serviced by lenders, particularly in the wake the post-2010 mortgage crisis. Amongst its many duties, the CFPB is tasked with creating and enforcing regulations on how home mortgages are serviced in the United States and, more specifically, how homeowners that are in default or in an active bankruptcy proceeding. In January 2014, the CFPB made some notable changes to Regulation Z (TILA) and Regulation X (RESPA) in an effort to provide homeowners with greater consumer protections regarding their mortgages.

For more information about foreclosure in Minnesota and options in bankruptcy, read Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help.

As of January 10, 2014, the CFPB instituted new mandatory requirements regarding mortgages, including the following changes that apply to homeowners in bankruptcy proceedings:

  • “Dual tracking” of foreclosure actions now prohibited while a mortgage modification application is pending. Most important for many homeowners is that the recent 2014 changes now prohibit foreclosure while the homeowner has a mortgage modification application pending a response from their bank. “Dual tracking” is the practice of many banks to continue foreclosure proceedings while at the same time consider a mortgage modification application submitted by the homeowner. Understandably, this dual tracking caused enormous frustration for homeowners already struggling through the tedious and often prolonged process of obtaining a mortgage modification before the clock ticked down on a simultaneous foreclosure proceeding. Instead, mortgage servicers are now prohibited from initiating foreclosure proceedings during the first 120 days of delinquency and also must stop a foreclosure proceeding if the homeowner has submitted a “complete” application for loss mitigation.
  • Monthly mortgage statements must be provided despite the homeowner’s default or bankruptcy. Previously, many homeowners in default on their home mortgage or in an active bankruptcy proceeding experienced that their lender ceased sending the periodic mortgage statements that are relied on to track mortgage account information and make the monthly mortgage payments. With the 2014 changes, the mortgagee bank must now provide a homeowner who is 45 days or more delinquent with a detailed statement that includes, amongst other items: the date of first delinquency and a six-month account history that tracks the accrued delinquency over time, notification of risks such as foreclosure as well as loss mitigation options including mortgage modification and contact information for HUD-approved home counselors and the total amount due to bring the account current. These new rules do not apply to some fixed rate mortgages, reverse mortgages or timeshares.
  • Notice of all mortgage payment changes must be filed with the Bankruptcy Court and provided to Chapter 13 debtors. Previously, homeowners in bankruptcy cases were not always notified when their adjustable rate mortgage adjusted interest rate and, accordingly, their monthly payment also adjusted. With the 2014 changes, homeowners in Chapter 13 will receive notice from the mortgagee bank of the upcoming mortgage payment change since the bank must now file a statement with the bankruptcy court each time that the mortgage payment changes due to an adjustment in interest rate or other change in terms.
  • Force placed insurance now restricted. Previous to the 2014 changes by the CFPB, some mortgagee banks required that homeowners compensate the bank for mandatory hazard insurance that the bank obtains instead of the homeowner providing their own homeowner’s insurance. Once the bank obtained a separate insurance policy on the home, the bank would then force the homeowner to compensate the bank either by a mandatory and additional escrow into their mortgage payment and/or a charge-back to the homeowner for the bank-paid insurance. This force placed insurance often resulted in higher premiums to the homeowner, additional bank fees and increased the total arrearage owed to bring the mortgage current. The January 2014 changes now mandate that the mortgagee bank must now provide at least two notices to the homeowner requesting proof of insurance before the bank can institute the often more costly force placed insurance. Additionally when it is allowed after the requisite notice, the bank’s costs and fees associated with force placed insurance are also now restricted.
  • Banks must respond to homeowner request for account information and error reporting within 60 days. The 2014 changes to Regulations Z and X now require that mortgagee banks respond to homeowner requests for account information and alleged account errors within 60 days. Additionally, mortgagee banks must provide confirmation to the homeowner of their request within 5 days and must initiate an investigation within 30 days.

Links to more information on CFPB and consumer protection in mortgage servicing laws:

For more information on the foreclosure process in Minnesota and how Chapter 13 or Chapter 7 bankruptcy may help, contact Wartchow Law Office for a free bankruptcy consultation to understand your options.

Typical Questions Asked at the Chapter 7 Meeting of Creditors

The Meeting of Creditors is typically the only mandatory appearance most debtors will have to make in their bankruptcy proceeding. While it is a short and usually uneventful occurrence, it is a court hearing nonetheless and all answers are provided under oath and must be truthful and accurate. The bankruptcy trustee assigned to the case will call each case by the debtor’s name, verify the identity of each debtor with their driver’s license and social security card, check any other documents that were requested to be provided at the Meeting (for example, recent post-petition paystubs and file date bank statements), swear-in each debtor under oath to provide truthful testimony under the penalty of perjury, and then ask a series of mostly yes-no questions. Many questions asked at the Meeting of Creditors will repeat information that was already disclosed in the bankruptcy petition and schedules.

These are some of the common questions asked by the Chapter 7 trustee at the Meeting of Creditors in Minnesota (note: the questions asked at a Chapter 13 Meeting of Creditors are similar to this list but may be more extensive):

  • State your name and current address for the record.
  • Have you read the Bankruptcy Information Sheet provided by the United States Trustee?
  • Did you sign the petition, schedules, statements, and related documents that were filed with the court?
  • Did you read those documents before you signed them?
  • Are you personally familiar with the information contained in those documents?
  • To the best of your knowledge, is the information contained in those documents true and correct?
  • Are there any errors or omissions to bring to my attention at this time?
  • Are all of your assets identified on the schedules?
  • Have you listed all of your creditors on the schedules?
  • Are you married? Have you ever been married? If you are recently divorced, the trustee may also ask if you have any money or property still owed to you from the divorce.
  • Have you ever filed for bankruptcy before? If yes, when, where and what type?
  • Are you employed in the same job as when you filed bankruptcy?
  • Do you have a domestic support obligation, such as child support or alimony?
  • Do you own or have any interest whatsoever in any real estate? If yes, you may also be asked when did you purchase the real estate, did you take any equity out of the property in the past five years?
  • Have you given away any property or given any property within the last two years? If yes, what did you sell, how much was it worth and to whom did you sell it?
  • Do you have a claim against anyone or any business?
  • Are you the plaintiff in any lawsuit?
  • Do you have the right to sue anyone in a lawsuit?
  • Does anyone owe you money?
  • Has someone died and left you an inheritance? The trustee may also mention that if anyone dies in the next six months and you inherit something, it could become “property of the estate”. This means that you must report any such inheritance to your attorney and to the court.
  • In the 90 days prior to filing bankruptcy, did you pay any one unsecured creditor more than $600?  If yes, the trustee may want to know how much you paid total, to whom and may request to see copies of the checks/payments.
  • In the past six years, have you run any business? If yes, the trustee may ask questions about the nature of the business, what assets the business owns and what happened to the business if it is no longer operational.

Keep reading for more information on What Happens after the 341 Meeting of Creditors is Over

Located in Edina, Minnesota, Lynn Wartchow represents consumer bankruptcy clients in Chapter 7 and Chapter 13 filings in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.