Periodic Mortgage Statements and the Automatic Stay
So, the housing market is cooling down, but do you know what’s not cool? Sending mortgage statements in violation of the automatic stay. Today we’re dealing with the automatic stay and periodic mortgage statements. This especially concerns mortgage servicers.
Mortgage servicers should be especially careful in regards to the automatic stay and the requirement to provide periodic statements to consumers under Regulation Z, section 1026.41(a). Under section 1026.41(d)(1), periodic statements for residential mortgage loans are required to contain the amount due, payment due date, and other charges and fees that may be applicable; however, notifying a debtor that they are required to make a payment could be considered a collection activity and a violation of the automatic stay. Fortunately, section 1026.41(e)(5) provides servicers a partial exemption if a consumer has filed for bankruptcy. Under section 1026.41(e)(5), a servicer is exempt from the requirement to send a periodic statement if:
1. Any consumer on a mortgage loan has declared bankruptcy or has received a bankruptcy discharge; and
2. One of the following is true:
· The consumer makes a written request to stop the periodic statement or coupon book;
· The consumer’s bankruptcy plan provides for the surrender of the dwelling;
· The consumer’s bankruptcy plan provides for the avoidance of the lien securing the mortgage;
· The consumer’s bankruptcy plan does not provide for the payment of pre-petition arrearage or the maintenance of payment due under the mortgage;
· A court order voids the lien securing the mortgage;
· A court order lifts the automatic stay with regards to the dwelling securing the mortgage;
· A court order requires the servicer to cease providing a periodic statement or coupon book; or
· The consumer files a statement of intent to surrender the dwelling securing the mortgage and the consumer has not made a partial or periodic payment on the mortgage after the consumer filed for bankruptcy.
Under this exemption, a servicer would no longer be required to send a periodic statement while the above conditions are satisfied. However, if the consumer reaffirms the debt or makes a written request to receive periodic statements, then under Section 1026.41(e)(5)(ii) the servicer would need to start providing statements to the consumer.
Modified Periodic Mortgage Statement
If a servicer is not exempt from the requirements to provide a periodic statement, section 1026.41(f) provides for a modified periodic statement to send to consumers in bankruptcy. Under section 1026.41(f)(1), if a member is in bankruptcy (which will typically be Chapter 7 or 13) or has been discharged, the periodic statement need not include:
· Information regarding late payment fees;
· The length of a consumer’s delinquency;
· Notification of possible risks if delinquency is not cured (e.g. foreclosure); and
· Notice of whether servicer made the first step required for foreclosure.
Under section 1026.41(f)(3), if the member is in a Chapter 12 or Chapter 13 bankruptcy, the periodic statement need not include:
· The information excluded under section 1026.41(f)(1) (see above);
· An account history;
· A notice regarding loss mitigation programs;
· The amount required to bring the account current; and
· Reference to homeownership counselor information.
However, periodic statements for a member in Chapter 12 or Chapter 13 bankruptcy must include, if applicable:
· The amount due, split between post-petition amounts due and pre-petition arrearage;
· Transaction activity;
· A statement that the amount due is only post-petition payments and may not include other required payments;
· If the bankruptcy plan requires payments to the trustee, a statement that the consumer should send payments to the trustee;
· A statement that the statement may not include payments the consumer has made to the trustee;
· A statement that encourages the consumer to contact the trustee or their attorney regarding their payments; and
· If the consumer is 45 days delinquent, post-petition, a statement that the servicer has not received all payments that became due after the consumer filed for bankruptcy.
All periodic mortgage statements, regardless of what Chapter bankruptcy the member is in, must contain a statement that that member is in bankruptcy or has been discharged and a statement that the periodic statement is for informational purposes only. Credit unions can find model forms in Appendix H to Regulation Z, specifically model forms H-30(E) and H-30(F).
For more information regarding bankruptcy and compliance with section 1026.41, credit unions may want to review this FAQ from the CFPB. Specifically, the CFPB notes that:
“A servicer does not receive a safe harbor under the Bankruptcy Code by sending periodic statements to a borrower in bankruptcy in compliance with Regulation Z, § 1026.41(e) and (f). The Bureau does not have authority to create safe harbors under the Bankruptcy Code.” (Emphasis added).
If a credit union is planning on sending periodic statements to members in bankruptcy, it may want to speak to local bankruptcy counsel to see if there is any local case law that may prohibit the sending of periodic statements or include other requirements. For example, while not dealing with bankruptcy, a recent 11th Circuit Court of Appeals ruling found that a creditor's monthly mortgage statement could constitute an attempt to collect a debt under the FDCPA.
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About the Author
Keith Schostag joined NAFCU as regulatory compliance counsel in February 2021. In this role, Keith assists credit unions with a variety of compliance issues.