Timing is Everything: 11th Circuit Finds Loss Mitigation Application Untimely

The Eleventh Circuit recently issued an opinion emphasizing the importance of timing under the Mortgage Servicing Rules.  In Lage v. Ocwen Loan Servicing, the court considered whether the mortgage servicer had an obligation to evaluate a loss mitigation application when, at the time the completed application was submitted, a foreclosure sale was scheduled to occur in two days.  Lage v. Ocwen Loan Servicing, 2016 U.S. App. LEXIS 18264 (11^th Cir. Oct. 7, 2016).  The consumers contended that the application was timely because the servicer ultimately postponed the sale and the actual sale occurred more than 37 days after the application was submitted. 

The facts of this case are important in that they highlight the complexity of the loss mitigation process.  The foreclosure sale in this matter was originally scheduled to occur January 29, 2014.  On January 8, 2014, the borrowers submitted a loss mitigation application to the servicer which included detailed information about their income and expenses as well as copies of their recent pay stubs, tax returns and other financial information.  On January 9, 2014, the servicer acknowledged receipt and advised that they would notify the borrowers if they needed additional information.  Over the course of the next two weeks, the parties communicated back and forth regarding the loss mitigation application and ultimately, the servicer requested an additional pay stub and indicated that upon receipt, it would evaluate the application.  The pay stub was submitted January 27, 2014 and the borrowers contended that their application was complete January 27, 2014.  The next day, the foreclosure sale was postponed until March 14.  Ultimately, the servicer then requested two more pay stubs and requested additional information, as well.  According to the mortgage servicer, the loss mitigation application was complete on March 7, 2014.  The mortgage servicer denied the application on March 9, 2014 as untimely because the foreclosure sale was scheduled to occur within seven days.  

The consumers filed suit contending the servicer violated the Mortgage Servicing Rules by failing to evaluate the merits of their loss mitigation application within 30 days as required by 12 CFR 1024.41(c).  The district court ruled in favor of the servicer holding that the servicer was not obligated to evaluate the application because the regulation was not in effect when the consumers submitted their application on January 8, 2014 (the regulations took effect on January 10, 2014).

On appeal, the Eleventh Circuit did not address the issue of whether the servicer was obligated to comply with the Mortgage Servicing Rules because even assuming the rules applied, the borrowers’ application was untimely.   The duty to evaluate a loss mitigation application is triggered only “when the borrower submits a “complete loss mitigation application more than 37 days before a foreclosure sale.”  12 CR 1024.41(c)(1).  The court concluded that the Mortgage Servicing Rules require that, in determining the timeliness of the application, the parties should look to the date the foreclosure sale was scheduled when the borrower submitted their completed application.  Specifically, 12 CFR 1024.21(b)(3) provides:

To the extent a determination of whether protections under this section apply to a borrower s made on the basis of the number of days between when a complete loss mitigation application is received and when a foreclosure sale occurs, such determine shall be made as of the date a complete loss mitigation application is received.

The court dismissed the consumers’ contention that the operative date was the date the foreclosure sale actually occurs.  To do so, according to the court, would render the last clause of (b)(3) meaningless.  The court also noted that its interpretation was consistent with the CFPB’s interpretation noting that the CFPB had expressly disavowed the consumers’ position.  “The Bureau recognized that allowing a servicer’s delay of a foreclosure sale to give a borrower greater rights may discourage servicers from rescheduling foreclosure sales and voluntarily considering untimely applications – actions which benefit borrowers…  Stated another way, the Bureau acknowledged that if a borrower’s late application could become timely – and trigger the servicer’s duty to evaluate the application under 1024.41 – as a result of the servicer voluntarily postponing a foreclosure sale then it may be to the servicer’s advantage to proceed with the scheduled foreclosure instead of evaluating the borrower for loss mitigation options.”  Lage  at *17-18. 

Accepting the consumers’ contention that their loss mitigation application was complete on January 27^th, the application’s timeliness was assessed based upon the January 29^th foreclosure sale and, therefore, the application was untimely.