Compliance Blog

Mortgage Periodic Statements And Successors In Interest

Written by David Park, Regulatory Compliance Counsel, NAFCU

Last week Jennifer blogged about the timing requirements for periodic statements. Today, I want to look at periodic statements for mortgage loans and what to do when a potential successor in interest reaches out to the credit union after the sole borrower's untimely death, hopefully after a long and prosperous life and not like a Lannister soldier encountering a dragon.  

Dragon and fire.

Periodic Statement Exemptions. Section 1026.41(e) of Regulation Z contains a few exemptions from the general rule that periodic statements must be sent for each billing cycle of a closed-end consumer credit transaction secured by a dwelling. The periodic statement rules do not apply to reverse mortgages, timeshare plans, certain fixed-rate loans that use coupon books, and small servicers. See, 12 CFR § 1026.41(e)(1)-(4). There is also an exemption for certain borrowers in bankruptcy if any borrower is either in an active bankruptcy or a borrower's personal liability on a loan has been discharged and one of the following also happens:

  • The borrower requests in writing that the credit union stop sending periodic statements;
  • The borrower's bankruptcy plan calls for the surrender of the borrower's home, avoids the credit union's mortgage lien or fails to provide for the payment of the pre-bankruptcy arrearage or payments on the loan going forward;
  • A bankruptcy court order avoids the mortgage lien, lifts the automatic stay with respect to the secured dwelling, or requires the credit union to stop sending periodic statements; or
  • The borrower files with the bankruptcy court a statement of intention to surrender the dwelling and no periodic or partial payments have been made on the loan after the initiation of the bankruptcy case.

See, 12 CFR § 1026.41(e)(5). There is also a complete exemption for certain charged off loans. See, 12 CFR § 1026.41(e)(6).  And of course, there are also the modified periodic statement requirements for borrowers in bankruptcy who do not qualify for the complete exemption described in section 1026.41(e)(5). See, 12 CFR § 1026.41(f)

If there are other borrowers on the loan, the periodic statement requirements would still apply: The credit union would need to ensure that at least one of the surviving borrowers receives a periodic statement for each billing cycle. See, 12 CFR Part 1026, Supp. I, Comment 41(a)-1.

Successors In Interest. None of the exemptions identified in the periodic statement rule relate to successors in interest. That is because section 1026.41(g) governs when periodic statements must be sent to successors in interest. A credit union is only required to send the successor in interest periodic statements once 

  • The successor in interest is a confirmed successor in interest (meaning that the credit union has confirmed the successor in interest's identity and ownership interest in the property);
  • No other borrower or confirmed successor in interest is receiving periodic statements for the mortgage loan; and
    • Either the confirmed successor in interest assumes personal liability for the loan under state law; or
    • The confirmed successor executes the acknowledgment form required by section 1024.32(c)(1)(iv) of Regulation X.  The acknowledgment form must
      • Request receipt of the periodic statement and other notices and communications; and
      • Indicate that the confirmed successor in interest understands that receipt of the periodic statement or other notices and communications does not make the confirmed successor in interest liable for the mortgage debt and that the confirmed successor in interest only becomes liable for the mortgage debt upon assumption of the loan under state law.

Under the periodic statement rules, the credit union would only be required to send a confirmed successor in interest a periodic statement if and only if these requirements are satisfied.

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About the Author

David Park, NCCO, Regulatory Compliance Counsel, NAFCU

David joined NAFCU in September 2018.  As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics. 
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