When does 120 Day count begin for foreclosures?

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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)
    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.

    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.


    I think the KBA Q&A you noted has merit, but I’ve asked Jack to offer his opinion.


    I believe Q.3. and Q.6. provide the correct interpretation. I hope that this is the CFPB’s position when they make this official. But it is not official until it is published. I would follow this informal advice only with the consent of your bank’s counsel. See the following:

    § 1024.4 Reliance upon rule, regulation or interpretation by the Bureau.
    (a) Rule, regulation or interpretation.
    (1) For purposes of sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the following constitute a rule, regulation or interpretation of the Bureau:
    (i) All provisions, including appendices and supplements, of this part. Any other document referred to in this part is not incorporated in this part unless it is specifically set out in this part;
    (ii) Any other document that is published in the Federal Register by the Bureau and states that it is an “interpretation,” “interpretive rule,” “commentary,” or a “statement of policy” for purposes of section 19(a) of RESPA. Except in unusual circumstances, interpretations will not be issued separately but will be incorporated in an official interpretation to this part, which will be amended periodically.
    (2) A “rule, regulation, or interpretation thereof by the Bureau” for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b)) shall not include the special information booklet prescribed by the Bureau or any other statement or issuance, whether oral or written, by an officer or representative of the Bureau, letter or memorandum by the Director, General Counsel, or other officer or employee of the Bureau, preamble to a regulation or other issuance of the Bureau, Public Guidance Document, report to Congress, pleading, affidavit or other document in litigation, pamphlet, handbook, guide, telegraphic communication, explanation, instructions to forms, speech or other material of any nature which is not specifically included in paragraph (a)(1) of this section.


    Thanks for your help on this. I’d like to explain the two situations we currently are struggling with on these rules just to see if we are headed in the right direction:

    Scenario 1: We are the 1st, 2nd, and 3rd lien holder on a consumers primary residence. They are currently over the 120 day delinquent on their 2nd and 3rd mortgages but not on their first. I’m thinking in this situation we would be okay to go forward with the foreclosure proceedings due to the subordinate lien delinquency?

    Scenario 2: We are the 1st, 2nd, and 3rd lien holder on a consumer’s primary residence. However their 2nd and 3rd lien loans are business purpose and the 1st is consumer purpose. They are past due over 120 days on both business loans but not the consumer loan. Can we go ahead and do foreclosure proceedings on the 2nd and 3rd lien loans and then join in the foreclosure action of the subordinate lien holder when we are the lien holder of all three? Or can we not file notice until the consumer transaction is more than 120 days delinquent?


    From page 93 of the September 13th Amendments to the Final Rule ( ):

    “The Bureau is also not adopting any limitation on the exemption for joining a foreclosure
    initiated by a subordinate lienholder. The Bureau does not believe it is appropriate to limit the exemption application to only those situations where the senior and junior liens are held or serviced by separate entities, as was requested. In the case where an entity services both a first and a second lien, the servicer will be required to complete the pre-foreclosure review for the second lien, and will be required to respond to a borrower’s loss mitigation application with respect to the first mortgage as well. Furthermore, the comments did not provide an adequate explanation to persuade the Bureau that servicers are more likely to pursue foreclosure in a manner that evades the 120-day pre-foreclosure review period when the senior and junior lien are held and serviced by the same entity.”

    I agree with your analysis in scenario 1. Scenario 2 is more complicated because it involves business credit. The discussion in the amendment says there is no limitation to the subordinate lien exemption, but then it assumes that all subordinate liens will be consumer purpose and gives an example of the second lien going through pre-foreclosure review process. Without definitive guidance at this time I would take the cautious approach and wait until the consumer purpose loan reaches 120 days delinquent.

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