Arguably the most significant element of the recent amendments to the existing mortgage servicing regulatory framework by the Consumer Financial Protection Bureau (CFPB) is the new structure that has been laid out for dealing with potential and confirmed successors in interest. Quite simply, fully complying with the new rule will require significant efforts, regardless of a servicer’s size. One of the more time-intensive—and therefore costly—aspects of the rule is the burden that is placed on each servicer to determine what documents it can reasonably require to confirm a potential successor in interest’s status. The CFPB has been very clear that it will expect servicers to send individualized document requests, which will require intimate knowledge of the many ways in which a transfer of real property can be evidenced in all 50 states. Not only must a servicer be able to quickly determine the documents it reasonably requires, but the rule also requires that, if a servicer cannot determine what documents are appropriate in a particular circumstance due to a lack of information, it must be able to communicate the additional information that it needs in order to then make an individualized document request.
Needless to say, this will be a substantial undertaking for each servicer, regardless of its size. Upon the request of many servicers, and so as to lessen the burden each entity faces if it were to undertake these efforts on its own, we have begun compiling the necessary research that will form the basis of an entity’s successor-in-interest process.
The framework laid out by the CFPB for the successor-in-interest confirmation process is contained both in the general policies and procedures and requests for information sections of Regulation X. Across its entire business, a servicer will have to be able to identify the existence of a potential successor in interest, facilitate communication with the potential successor, and communicate the documents that it reasonably requires to confirm that individual’s identity and ownership interest in property. While it will undoubtedly be challenging in the long term to ensure employees receive adequate training that will enable them to identify and recognize a potential successor-in-interest scenario, the more challenging aspect in the short term is the documentation that may be requested of a potential successor. It is worth noting that, while the policy and procedure requirements do not apply to an entity that qualifies as a small servicer, the request for information provisions do apply regardless of an entity’s size. Documentation requirements for the confirmation process will therefore apply to all mortgage servicing entities.
As mentioned above, the rule requires a servicer to notify a potential successor in interest of the documents it reasonably requires to confirm that person’s identity and ownership interest in property. The CFPB is adding official commentary to Regulation X that will clarify that documents are “reasonably required” only if they are “reasonable in light of the laws of the relevant jurisdiction, the specific situation of the potential successor in interest, and the documents already in the servicer’s possession.” This means that each time a potential successor-in-interest scenario arises, the servicer will have to take into account all three of those factors before requesting documents for the individual to get through the confirmation process. For example, in a divorce scenario, the commentary suggests that it would not be reasonable to only request a deed if the laws of the relevant jurisdiction allow individuals to effectuate a transfer of title through a final divorce decree and accompanying separation agreement executed by both spouses. Similar guidance exists for states that accept affidavits of heirship and other state-specific documents in the death context.
Many servicers have inquired as to whether they can comply with the above-described requirements by utilizing generic lists or descriptions of documents when communicating with potential successors in interest about what is required to get through the confirmation process. The short answer is that there may be a place for more generic correspondence, but the CFPB has limited the instances in which this practice will be permissible. First, the CFPB’s above-referenced commentary suggests that a servicer cannot only request a deed if there are other alternatives in the applicable jurisdiction, and also suggests that a servicer should not request either a deed or a final divorce decree and accompanying separation agreement if the relevant jurisdiction does not permit the latter to transfer title.
Additionally, the rule specifies that, if a servicer receives a request from a potential successor in interest but it does not have enough information about the particular circumstances to make a determination as to the specific documents that are reasonably required, Regulation X will permit the servicer to instead provide the borrower with examples of documents that it may require. However, the servicer will also be required to state that the potential successor in interest can obtain a more individualized list of document requirements by providing additional information and describe what additional information it needs from the potential successor. To further complicate things, a response in that scenario will also have to include a telephone number for the potential successor in interest to receive further assistance, and the servicer will then have to act upon any information that it needs and subsequently receives verbally over the telephone.
Given all of this, one thing that is clear is that servicers will need significant research on the laws of the jurisdictions in which they service loans to be fully compliant with the CFPB’s new directive. This includes, but certainly is not limited to, research on transfers of real property in connection with a divorce, inter vivos trust, and death. Once that research is compiled, servicers will then have to figure out a way to make it workable and incorporated into its confirmation process.