Mortgage servicers are now required to provide monthly billing statements to debtors in bankruptcy, with limited exceptions. Debtors’ attorneys and creditors’ attorneys in the EDKY need to know about this important amendment to RESPA and TILA, which became effective on April 19, 2018. This post gives a very oversimplified summary of the rule, with a link to a more detailed article and sample billing statements.
If a debtor in bankruptcy (chapter 7 or 13) is liable on a residential mortgage, or if a debtor has received a discharge of his/her personal liability on a residential mortgage, mortgage servicers must send periodic (usually monthly) billing statements to those debtors, with limited exceptions.
The billing statements for debtors in bankruptcy have been modified from the billing statements that lenders and servicers have been required to send under Reg. Z since 2014 to borrowers not in bankruptcy.
The modified billing statements or coupon books include disclosures to inform the debtor that the statement is for informational and compliance purposes only. The disclosures are intended to prevent violations of the automatic stay or discharge injunction.
The content of the modified statement may be different depending on whether the debtor is in chapter 13, chapter 7, has already received a discharge, has entered into a reaffirmation agreement, or intends to surrender the property.
In chapter 13 cases, the modified billing statements should show information such as:
- the monthly postpetition payment amount;
- how much of the payment amount is applied to principal, interest, and escrow;
- postpetition fees and charges imposed (presumably in compliance with Bankruptcy Rule 3002.1) since the last billing statement;
- any postpetition amount that is past due;
- account information such as the outstanding principal balance and the current interest rate;
- a history of transactions (e.g., payments received) since the last statement;
- an accounting of prepetition arrearage payments received and the balance owed on the prepetition arrearage.
Billing statements are not required if:
- the mortgage lien is avoided through the plan;
- the debtor surrenders the property;
- an order is entered lifting the automatic stay;
- the consumer requests in writing that the servicer stop sending statements;
- the servicers is exempt from certain mortgage servicing rules as a “Small Servicer” as defined in Reg. Z.
Again, this is an oversimplified summary. John Rao of the National Consumer Law Center (NCLC) co-authored an article that gives more information on the billing statement requirement (and other important changes in the CFPB servicing rules that give heirs and spouses certain rights). The article can be found here: https://library.nclc.org/effective-april-19-new-mortgage-servicing-rights-heirs-spouses-and-debtors-bankruptcy.
For a comprehensive resource on mortgage servicing, including loan modifications, get the NCLC’s online treatise on Foreclosures and Mortgage Servicing. It is indispensable (and only $150/year).
Debtors’ attorneys: Although it might seem overwhelming at first, you need to help your clients understand the information in the statements. Encourage them to review each month’s statement. This is an important tool to monitor whether the servicer is receiving the debtor’s payments and posting those payments correctly.
Creditors’ attorneys: Determine whether your clients are subject to the CFPB’s rules, and monitor compliance regularly. Make sure they are posting payments correctly and the billing statements are reflecting the correct information. For example, creditors should not apply postpetition mortgage payments towards satisfaction of a prepetition arrearage. They need to separately account for prepetition arrearages and postpetition obligations due.