[Mary Frances]

It is our understanding that we should not make the first notice or filing for foreclosure unless the consumer’s loan is more than 120 days delinquent. Does this mean that our attorney cannot send a Demand Letter until the 121st day of delinquency?

[Mary Frances]

An Additional question regarding foreclosure and the 120 day rule…. Our bank attorney is asking this question “Can a bank refuse a monthly payment on a loan more than one month past due to prevent a debtor from avoiding going 120 days past due but at the same time never getting the loan current and therefore being on the past due list until the loan matures?” In his research he has found many consumer and bankruptcy websites already advising debtors not to worry about late payments so long as they don’t go 120 days past due. His fear is this could turn into a major problem and past dues could skyrocket.

[jholzknecht]

Foreclosure is a state law process. If under the law of your state the Demand Letter is the first notice, then it cannot be sent until the consumer is 120 days past due.

If the borrower makes a legal payment (in U.S. Dollars and meets any other requirement you may impose) the bank must accept the payment and credit the payment as of the date of receipt, unless other payment conditions have been established.

It is hard to image this scenario becoming common. Apparently the consumer has the ability to make a monthly payment, but chooses to remain delinquent thereby destroying his or her credit history and paying continuing late charges.

[Mary Frances]

One more question… What if the loan has matured do we still have to wait 120 days before starting the foreclosure proceedings?

[jholzknecht]

You raise an excellent question. It appears you are referring to a balloon loan; any other loan would be paid in full or nearly paid in full by the maturity date and then a work-out would make a lot more sense than a foreclosure.

Unfortunately, Section 1026.41(f)(1) does not address the issue raised in your question. As a result the safe course of action is to wait until the borrower is more than 120 days past due. If you want to begin foreclosure sooner you should seek an interpretation from the Consumer Financial Protection Bureau or a legal opinion from your bank’s counsel.

If you obtain an interpretation from the CFPB please share that information with us in this Forum. I sure others would benefit from your findings.

[Mary Frances]

As Jack suggested I contacted the CFPB on 2/10/2014 to ask about a balloon loan that has matured if we still have wait 120 days before we start foreclosure proceedings. I received a phone call on 3/7/2014. The person I spoke with is an attorney for the regulations and he informed me that his answer is his opinion. He told me that we would have to wait the 120 days before staring foreclosure proceedings if the loan had matured/ballooned. I also gave him a scenario that the loan had not preformed as agreed, that it would not cash flow (ATR) and would not be a QM and again he told me we would have to wait the 120 days.

[rcooper]

mbarnes, thanks for sharing what you learned from the CFPB.

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