Amherst Mortgage Insight reports that one foreclosure is filed every 13 seconds in the United States. While the statistics alone are alarming, the reality is that servicers are overwhelmed by the ongoing instability of the mortgage market.
As a result, many servicers lack sufficient staff, resources or technology to adequately support the complexities related to pre-foreclosure documentation. With much of their attention focused on analyzing portfolios, working on loan modifications and handling foreclosures, maintaining state and federally compliant pre-foreclosure documentation is increasingly difficult and more burdensome.
One of the myriad of challenges for mortgage servicers is the Notice of Default—the document that typically starts the foreclosure process in many states. Staying on top of compliance for these highly regulated documents is becoming increasingly complex as more homes move into foreclosure. And, with lawmakers leaving little room for error, borrowers are often able to have the entire foreclosure declared invalid and thrown out of court until the requirements are met.
Notice of Default Best Practices
With typical foreclosures taking nearly 450 days to complete, the last thing a servicer wants to do is start the entire process over because of document errors early in the process. Servicers must exercise due diligence to ensure the Notice of Default meets the compliance requirements necessary to bring a legitimate foreclosure action against homeowners. To ensure that happens, there are several steps you can take to deliver accurate, compliant pre-foreclosure documentation that will stand up in a court of law.
Typically, the Notice of Default must specify (a) the default; (b) the amount required to cure the default; (c) a date not less than 30 days from the date the notice is given to the borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the security instrument, foreclosure and sale of the property. Some states also require that the names and contact information of licensed financial advisors be included with the Notice of Default.
Not only do you need to have the correct content, but a Notice of Default is subject to font, formatting and margin requirements, which vary from state-to-state.
The Notice of Default’s mail delivery is also regulated. The Notice of Default must be sent to borrowers via certified United States Postal Service first class mail or standard first class mail depending on the borrower position and jurisdiction.
Compliance is Key
For mortgage servicers, maintaining compliant Notice of Default documentation means staying on top of state and federal regulations as well as understanding the different compliance requirements for the various loans (Fannie Mae, Freddie Mac, FHA, VA) and loan types (fixed versus adjustable rate mortgages). All of these variables make maintaining pre-foreclosure compliance more challenging.
Because of the stringent Notice of Default compliance regulations, many servicers opt to outsource the pre-foreclosure documentation to a third party provider. Extra care must be taken to select an outsource partner who can readily meet the regulatory demands, including the responsibility of tracking, reporting and maintaining compliant pre-foreclosure documentation.
A provider should be able to generate and prepare pre-foreclosure notifications, such as the Notice of Default, based on federal, state, jurisdictional and judiciary requirements; deliver them via first class, certified mail within the required time frame; and provide a full audit trail with flexible reporting capabilities.
Additionally, an ideal outsource provider should offer valuable pre-foreclosure services beyond document generation and delivery. Other services, such as professional services consulting, scanning and imaging the certified mail “green card” and securely storing the physical green cards (if needed for court proceedings) in a SAS 70 certified facility are also critical to managing and maintaining compliant pre-foreclosure processes.
Mortgage servicers can save themselves a tremendous amount of aggravation, excessive court costs and long delays by reviewing and strictly complying with the Notice of Default document regulations. When even a minor deviation could constitute a valid defense in some judges’ minds, it is worthwhile to ensure your bank adheres to the requirements needed to initiate an accurate, error-free pre-foreclosure process.
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Authored by Art Tyszka, Director of Document Services, Wolters Kluwer Financial Services