Estate Planning and Business Law

Successor In Interest

Starting April 18, 2018, successors in interest to property secured by mortgage loans are now entitled to the same certain rights under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) as original borrowers and consumers. That is because the Consumer Financial Protection Bureau passed new rules amending the two laws to make it easier for potential successors in interest to communicate with servicers and establish that they are in fact successors in interest.

Who Is A Successor In Interest?

Under the new rules, someone is a successor in interest (SIT) if they obtain an ownership interest in a property secured by a mortgage loan under one of the five scenarios listed by the CFPB. These scenarios are:

  1. A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  2. A transfer to a relative resulting from the death of a borrower;
  3. A transfer where the spouse or children of the borrower become an owner of the property;
  4. A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or
  5. A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property. (12 C.F.R. §1024.31)

What Do Servicers Have To Do Now?

Whereas before, servicers could and would refuse to speak to potential SITs or demand documents from them that either did not exist or were not reasonably available. The new rules impose upon servicers two obligations to remedy this headache for potential SITs. First, servicers must promptly respond and request documents and second, their requests for documents must be “reasonable”.

The first obligation imposed on servicers will inevitably be the most troublesome for them to comply with. Servicers must respond when they receive correspondence providing actual notice that someone might be a SIT and when they receive a written request that puts them on inquiry notice that someone might be a SIT. Let’s break that down.

Servicers must promptly respond to any potential or confirmed SITs when they receive “actual notice”, a notice of the death of a borrower or of any transfer of the property [12 C.F.R. § 1204.38(b)(1)(vi)(B) and (C)]. The response will be in the form of a request for documents to confirm the status of the SIT and notify that individual that the servicer has determined such, or not. The new rules are once again broad in that it defines the lack of a “prompt” determination as one that unreasonably interferes with a successor in interest’s ability to apply for loss mitigation options according the procedures provided in § 1024.41. [81 Fed. Reg. 72,160 at 72,380]

Servicers have more or less the same obligation when it comes to receiving “inquiry notice”. Essentially any written request that indicates someone may be a SIT which includes the name of the transferor borrower and sufficient information so that the servicer can identify the mortgage loan account constitutes as providing an “inquiry notice”. [12 C.F.R. § 1024.36(i)(1)] As can be inferred, the types of written requests that could provide “inquiry notice” to servicers are broad.

Potential SITs should be mindful that if any written request lacks the required information listed above, servicers are not obligated to request more information to make a determination. They are however, required to respond to valid written requests with an acknowledgment of receipt within five business days and a substantive response within thirty business days.

The second obligation imposed on servicers is that they may only request documents in their response to potential SITs that they reasonably require to confirm that person’s identity and ownership interest in the property.” [12 C.F.R. § 1024.38(b)(1)(vi)(B)]. The CFPB directs servicers to consider the local laws, specific situations of the potential SIT, and any documents already in the servicer’s possession. (81 Fed. Reg. 72,160 at 72,379)

The most onerous of these requirements is the consideration of relevant jurisdictions and what they require to establish potential SITs’ statuses. If a jurisdiction does not require a probate proceeding to establish a potential SIT’s status, a servicer’s request for probate documents will be deemed unreasonable. While the obligation is imposed on servicers, it will benefit potential SITs greatly to become accustomed with the local laws concerning transfers of ownership in property or seek the aid of a local attorney who is familiar with that area of law.

New Rights For Confirmed SITs

Confirmed successors in interest are now considered a “borrower” for purposes of RESPA’s mortgage servicing rules and [12 C.F.R. §1024.17]. 12 C.F.R. §1024.17 sets forth the requirements for an escrow account that a lender establishes in connection with a federally related mortgage loan. Further, they are also considered a “consumer” for TILA’s mortgage servicing rules by [12 C.F.R. §1024.30(d) and 1026.2(11)]. To put simply, confirmed SITs have the same rights as the original borrower or consumer. To understand more fully what this may mean for you if you have recently received ownership in a property secured through a mortgage, the Law Offices of Santaella & Jahangiri, LLP, specializes in many different fields.

If you need further information about Estate Planning, Elder Law & Special Needs Planning contact the law firm of Santaella & Jahangiri, LLP serving San Ramon, Danville, Dublin and Pleasanton.