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When does the 120 day count begin for delinquencies? Our current understanding of this rule was that the borrower had to be past due for 120 days. For example they were still due for their January payment but we couldn’t file notice until sometime in May.
After reading some discussions on bankers online and guidance we received from the Kentucky Bankers Associations we are confused on when the 120 day count actually starts:
Per KBA guidance (Q3 & Q6)
Q.3.
When does the 120 days rule begin to run?
It begins on the day that the borrower is delinquent. Delinquency is defined in various regulations for various triggering dates. It is not, however, defined in the servicing regulations for implementation of the 120 day rule. For purposes of section 12 CFR 1024.40 (the section before the 120 day rule section), the commentary provides that “delinquency begins on the day a payment sufficient to cover principal, interest and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee.” While this does not specifically apply to the 120 day rule, it may be used as guidance. Delinquency and default are two different legal concepts. A borrower can be delinquent but not yet in default under the terms of the mortgage.Q.6.
Must the servicer accept payments, full or partial, during the 120 days?
I would not recommend turning away any payments, even if you wish the customer would take their business elsewhere—that could be interpreted to be in violation of the spirit of the law and, perhaps a UDAAP. However, unless the payment brings them totally current, it would not reset the clock. Only if the payment completely covers principal, interest, escrow, late fees that are due the borrower is considered still delinquent. If the payment does bring them up to current, the clock is reset and will begin again upon delinquency.So does this mean for example: The borrower is past due on their January and Feb payment and in March they pay January but nothing else. Since they are still considered delinquent and did bring their loan 100% current we can still continue our 120 day count and file notice in May? Does the 120 day rule mean the borrower has to be 120 days past due on 1 particular payment or does it mean that they stay 30 days delinquent for 120 days total?
Hopefully I’m making sense if not and you need me to clarify just let me know.
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