IBA Compliance Connection

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We would like to foreclose on a consumer mortgage loan. The borrower’s wife signed the mortgage, but she is not on the title to the mortgaged home and did not sign the loan agreement. The borrower has informed us that he has moved out of the home securing our loan, his wife’s boyfriend has moved in, the home’s condition is deteriorating, and he is done making loan payments. If the borrower signs an affidavit averring that the home is no longer his primary residence, are we still required to wait 120 days before filing for foreclosure?

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No, we do not believe that the 120-day grace period requirement will apply if your bank has an affidavit from the borrower averring that the mortgaged property is not his principal residence.

The requirement to delay initiation of foreclosure proceedings until a mortgage loan is more than 120 days delinquent applies only to loans secured by the borrower’s principal residence. This grace period requirement does not apply “if a property ceases to be a borrower’s principal residence.” Of course, your bank would be subject to any provisions in the loan agreement providing for contractual grace periods or delays.

We might recommend adding to the affidavit that the borrower does not intend to return and noting the location of his current principal residence, and any other information confirming that the mortgaged property is not his principal residence.

For resources related to our guidance, please see:

  • Regulation X, 12 CFR 1024.41(f)(1) (“A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless: (1) A borrower’s mortgage loan obligation is more than 120 days delinquent; . . .”)
  • Regulation X, 12 CFR 1024.30(c) (“Scope of certain sections. . . . (2) The procedures set forth in §§ 1024.39 through 1024.41 of this subpart only apply to a mortgage loan that is secured by a property that is a borrower’s principal residence.”)
  • Regulation X, Official Interpretations, Paragraph 30(c)(2), Comment 1 (“If a property ceases to be a borrower’s principal residence, the procedures set forth in §§1024.39 through 1024.41 do not apply to a mortgage loan secured by that property. . . .”)
  • Final Rule, Mortgage Servicing Rules under the RESPA, 78 Fed. Reg. 10695, 10722 (February 14, 2013) (“In addition, § 1024.30(c)(2) limits the scope of §§ 1024.39 through 41 to mortgage loans that are secured by a borrower’s principal residence. The purpose of the early intervention requirement, the continuity of contact requirement, and the loss mitigation procedures is to help borrowers stay in their principal residences, where possible, while mitigating the losses of loan owners and assignees, by ensuring that servicers use clear standards of review for loss mitigation options. The Bureau does not believe that this purpose is furthered by extending those protections to mortgage loans for investment, vacation, or other properties that are not principal residences. For example, . . . for certain properties that are not principal residences, there is a significant risk that a property may not be maintained and may present hazards and blight to local communities. Thus, for investment or vacation properties, the lack of borrower occupancy, and the potential rental income obtained by the borrower, vitiates the justifications for ensuring that a foreclosure process is not undertaken unless the borrower has the opportunity for review for a loss mitigation option.”)