Does Rescheduling a Foreclosure Sale After a Completed Loss Mitigation Application Is Received Violate Regulation X?
Last year, the United States Court of Appeals for the Eleventh Circuit (11th Circuit) issued a decision in a case, Landau v. Roundpoint Mortgage Servicing Corporation, that interpreted section 1024.41(g) in Regulation X. Section 1024.41(g) is one of the two foreclosure prohibitions contained in the loss mitigation rules. If a complete loss mitigation application is submitted to the servicer after the first notice or filing in a judicial or nonjudicial foreclosure process but more than 37 days before a foreclosure sale, section 1024.41(g) prohibits a servicer from moving for judgment or an order of sale, or conducting a foreclosure sale unless:
- A servicer notifies the borrower that the borrower does not qualify for any loss mitigation options and any available appeal process has expired;
- The borrower rejects all loss mitigation options that have been offered; or
- The borrower breaches a loss mitigation agreement.
Section 1024.41(b) explains that a complete loss mitigation application is one in which a servicer “has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.”
Going back to the case, the issue before the 11th Circuit related to a servicer’s formal request to move a foreclosure sale date that had already been set before a complete loss mitigation application was received. The 11th Circuit answered the question: Was rescheduling a foreclosure sale under these circumstances the equivalent of procuring an order of sale, which was prohibited by section 1024.41(g)?
The Landau case arose out of a Florida judicial foreclosure. Landau obtained a mortgage loan in 2000, and the repayment of the loan was secured by her residence in Florida. Landau eventually defaulted on the mortgage loan repayment obligations. In 2014, her current servicer filed a judicial foreclosure action in Florida state court. In 2016, the state court set a foreclosure sale for June of that year.
After the sale was scheduled, Landau submitted a complete loss mitigation application, which was eventually approved for a trial loss mitigation plan. The correspondence forwarded with the trial plan explained that foreclosure efforts would be suspended if she accepted the plan. Landau accepted the offer, and as a result, her current servicer moved to cancel and reschedule the existing sale date, which had been rescheduled several times as a result of the ongoing loss mitigation efforts.
Despite the pending foreclosure action in state court, Landau filed a complaint in federal district court alleging that her current servicer violated the Real Estate Settlement Procedures Act, Regulation X, and the Fair Debt Collection Practices Act. Landau alleged that requesting to reschedule the foreclosure sale was an order of sale that violated section 1024.41(g) because she had submitted a complete loss mitigation application to the servicer.
The servicer contested Landau’s assertions and argued that rescheduling an earlier foreclosure sale, which was approved before a completed loss mitigation application was received, was not a violation of Regulation X. The federal district court concurred and dismissed the complaint. The case went up to the 11th Circuit when Landau exercised her right of appeal.
The 11th Circuit agreed with Landau’s servicer and the district court. The 11th Circuit characterized the motion to reschedule the sale as a “housekeeping-type motion” rather than a court order directing that the mortgaged property be sold. It also looked to Regulation X’s commentary and the preamble to the 2013 mortgage servicing Regulation X final rule for clarification that what was prohibited by section 1024.41(g) was the act of requesting that a court order the sale of a foreclosed property. Because an order authorizing the sale of Landau’s property had already been issued, the formal demand to reschedule the sale was not the type of undertaking that was prohibited by section 1024.41(g). In fact, under the circumstances, the 11th Circuit explained that section 1024.41(g) only prohibited the servicer from conducting the sale. Consequently, the 11th Circuit concluded that the motion to reschedule the sale did not violate section 1024.41(g).
This case, and others like it, may provide some cover for credit unions that are trying to thread the needle in balancing their obligations under the loss mitigation rules in section 1024.41 and enforcing judicial orders that have already been issued. One thing to note is that the 11th Circuit only covers federal district courts in Alabama, Florida, and Georgia. If your credit union is outside of the 11th Circuit’s footprint, a credit union may need to consider whether there is similar authority where it is located. Local counsel may be in the best position to provide this type of guidance.