/>iOn December 17, 2024, amid a flurry of activity by the Consumer Financial Protection Bureau (CFPB), the agency released an Issue Spotlight discussing “problems with mortgage companies” that homeowners face “after divorce or [the] death of a loved one.” The report relies on consumer complaints that have been submitted through the CFPB’s complaint portal to illustrate “the most common problems homeowners encounter with mortgage servicing companies” in these scenarios. In total, the report includes excerpts of 20 consumer complaints submitted between 2021 and 2024.
According to the CFPB, the chosen complaints illustrate the following problems:
- Successor homeowners are often being pressured to refinance, as opposed to “being offered options for managing the existing mortgage.”
- Servicers often have delayed response and processing times for different types of requests submitted by successor homeowners.
- Servicers refuse to release the original borrower from liability on the mortgage loan, “as divorce decrees often require.”
- In the context of domestic violence, servicers are “potentially creating safety threats” by continuing to send account information to the abuser and requiring the abuser’s consent to make account changes.
The issues raised by the CFPB are undoubtedly important for servicers to focus on and warrants conducting internal reviews and risk assessments. However, the CFPB’s report is likely to mislead readers in a couple of ways. For starters, the CFPB’s press release for this report unfairly suggests that servicers are making excuses and providing “shoddy customer service” when confronted with successor homeowner scenarios. The report, therefore, could reasonably lead someone to think that these are widespread issues and simple matters with straightforward solutions. There is, of course, another side to the story, and one that the CFPB has left out of its report. The Issue Spotlight makes no attempt to acknowledge or explain how complex successor-related scenarios can be or how successor homeowners themselves sometimes further complicate things. The Issue Spotlight also generally leaves out much-needed context regarding the various competing priorities at play in these types of scenarios and the relied upon consumer complaints. These aren’t excuses and certainly don’t justify any failures by mortgage servicers. However, to truly improve outcomes for successor homeowners, it is important to fully understand the landscape and what mortgage servicers are dealing with.
1. The CFPB’s Issue Spotlight Does Not Demonstrate Systemic Compliance Failures
First, it bears noting that the CFPB’s own Consumer Complaint Database website disclaims that “[t]his database is not a statistical sample of consumers’ experiences in the marketplace and these complaints are not necessarily representative of all consumers’ experiences with a financial product or company.” Therefore, the CFPB’s Issue Spotlight and the complaints contained therein likewise should not be interpreted as demonstrating that there are systemic failures by mortgage servicers when it comes to the treatment of successor homeowners. Additionally, while the CFPB doesn’t say this in its report, 18 of the 20 consumer complaints it chose were “closed with explanation,” which suggests that the servicer’s response simply explained what had happened and why, and no relief of any form was provided to the consumer. One of the remaining complaints was “closed with non-monetary relief,” and only one was “closed with monetary relief.” And, of the servicers who chose to provide a public-facing response category, all indicated that the “Company believes it acted appropriately as authorized by contract or law.” These are important facts about the CFPB’s chosen complaints that help us better understand what may be happening with respect to the successor homeowners.
2. Successor-Related Issues Are a New Focus for the CFPB
It is also worth pointing out that successor-related issues have not been a prominent focus of the CFPB to date. With the exception of its June 2016 Supervisory Highlights report where the CFPB noted that some servicers failed to maintain adequate policies and procedures, the CFPB has never publicly addressed successor-related issues, risks or violations in any prior guidance documents, Supervisory Highlights reports, or public enforcement actions. This lack of focus is despite the CFPB’s own mortgage servicing rules that contain provisions related to successors-in-interest being in effect since January 2014, with a more robust successor-in-interest framework released in 2016 and becoming effective in 2018. The newfound focus could be due to the past few years’ higher interest rates and the fact that refinancing a loan is now a less attractive option in the CFPB’s eyes for successor homeowners. Or this may be an issue that consumer groups have been advocating for recently. Regardless, it is obvious that successor-related issues are a focus now. The first indication of this came in the CFPB’s July 2024 proposed servicing rule amendments, when the CFPB asked for feedback, mostly around delays and communication difficulties when potential successors-in-interest are trying to get confirmed and the CFPB inquired whether the scope of who may be a successor-in-interest under the law should be expanded. Ultimately, though, this is the first time the CFPB has publicly explained that it believes there are broad problems with how successor homeowners are being treated.
3. Enforceability of Successor-in-Interest Rules
One sidenote: As the impact of the U.S. Supreme Court’s decision in Loper Bright v. Raimondo Enterprises continues to trickle out over time, the underlying authority for the existing regulatory framework for confirming and interacting with successors-in-interest in Regulation X appears questionable. Therefore, if the CFPB ever were to attempt formal action based upon the existing regulatory framework for successors-in-interest in Regulation X, the CFPB’s authority for promulgating those rules would likely be challenged under the Administrative Procedures Act. In a post-Chevron world, the CFPB’s reliance on and interpretation of RESPA, which only applies to “borrowers,” as providing the agency with the authority to craft rules and protections in Regulation X for non-obligor successor homeowners now appears particularly tenuous given that the CFPB will not be afforded deference by a reviewing court. This is also an area of the law where the CFPB was not provided a clear directive by Congress to enact rules of any kind. Therefore, highlighting problems the CFPB believes may be occurring with respect to successor homeowners through an Issue Spotlight, as opposed to something more formal, may be the best it can do in the present climate.
4. Successor Homeowner-Related Issues
When thinking about problems that successor homeowners may face, it is important to acknowledge the competing priorities that are often at play when such a situation arises. On one hand, the CFPB obviously wants servicers to provide information about mortgage loans to successor homeowners to facilitate their ability to make payments and maintain the account. To further this goal, the CFPB has enacted a framework into Regulation X for this to happen once someone has been confirmed as a successor-in-interest. On the other hand, we also must recognize the many laws that still govern the servicer’s conduct and how the servicer can interact with a successor homeowner. At the top of that list are debt collection and privacy laws at both the state and federal level, which can severely restrict the servicer’s ability to freely engage and provide information about a mortgage loan to a non-borrower successor homeowner. While the CFPB may prefer that successor homeowners be able to easily acquire information about the mortgage loan securing the property, servicers are still constrained by state and federal laws that create a minefield of risks that must be carefully navigated.
Moreover, the mortgage loan is a contract between the borrower and the lender, to which the successor homeowner is not privy. The contract provides the baseline requirements between the parties, including, for example, where notices and account information must be sent and how to change that designated address. Simply changing where mail is directed because, for example, one ex-spouse has been awarded the property in connection with a divorce proceeding could constitute a breach of the contract and, therefore, may not be a viable option, absent the consent of the other spouse-borrower. Once again, there are also often state and federal laws at play requiring that certain communications be provided to the borrower of the loan, without any allowance for those to be sent to a non-borrower third party. The contract may also specify whether or not it is assumable by a third party. Therefore, when an ex-spouse has been awarded the property through a divorce proceeding or when someone acquires an ownership interest in the property because of a death, the loan’s servicer may not be in a position to allow that person to take on responsibility for the mortgage loan.
Additionally, while the death of a loved one or a divorce between spouses is often already a messy and sensitive situation, the interaction with the mortgage servicer can be further complicated by misconceptions and inaction by the successor homeowner. For example, it is not uncommon for servicers to first learn of a divorce years after it occurred when the original borrower’s credit is hurt because the ex-spouse, who was awarded the property in connection with the divorce, has fallen behind on payments. The borrower often mistakenly believes that the divorce removed him or her from the account and is, therefore, wondering why their credit is being impacted. Likewise, the ex-spouse who was awarded the property often mistakenly believes that they automatically took on responsibility for the mortgage loan, without taking any other action to assume liability. The reality is that the divorce decree typically instructs the ex-spouse to attempt to remove the original borrower from liability. If that is not possible, the decree may instruct the ex-spouse to attempt to refinance and, if that is not a viable option, the ex-spouse will be instructed to sell the property. Once the loan’s servicer is finally involved, the borrower and ex-spouse will often believe that it is a simple task to just remove someone from the account. Unfortunately, that is very often not the case as servicers must follow investor and insurer guidelines and may still need to determine if the person remaining on the account qualifies on his or her own.
Similarly, in the context of a borrower’s death, a servicer may not learn of the death for many years after it occurred. Often, this happens when someone who was already living in the property simply continues to make payments and account information continues to be sent to the now-deceased borrower at the property address. We’ve even encountered scenarios where a servicer doesn’t learn of the borrower’s death until the property, which originally passed to the borrower’s heir, has passed to another person after the heir’s death, raising the question of whether someone can be a “successor to a successor.” Delays and misconceptions like this can make resolving the matter or achieving the successor homeowner’s desired outcome that much more challenging.
Takeaways
The CFPB’s Issue Spotlight makes clear that successor-related issues are likely to be a focus moving forward. While the impending administration change may impact the CFPB’s future top-line priorities, it seems likely that examiners conducting supervisory examinations will be looking deeper at successor-related practices. Servicers should, therefore, take the opportunity to review and bolster their existing policies for handling successor-related scenarios.
As a starting point, servicers need to have policies and procedures covering each of the different options that may be available for the typical scenarios that may arise. For example, in the death context, it is critical to differentiate between someone who may be an administrator or representative of the deceased borrower’s estate and someone who has acquired an ownership interest in the property due to the borrower’s death. Although there may be overlap in some cases (i.e., an administrator may sometimes also be a successor), the rights and treatment of such persons often needs to be different. If someone has indicated that they acquired an ownership interest in the property and is attempting to be confirmed as a successor in interest, the servicer generally should not request “letters testamentary” or a court order appointing that person as the executor of the estate, as those documents do not prove that the person acquired an ownership interest in the property. Likewise, if someone indicates that they are appointed to manage a deceased borrower’s estate, it may not be appropriate to go down the successor-in-interest path and request proof of ownership. The potential pathways and available options are also going to differ depending on if a potential successor is already an existing borrower, and if the mortgage loan is assumable. Servicers’ policies and procedures should contemplate the various options that may arise.
Training for employees who handle these types of matters as a part of their everyday job should also be at the top of every servicer’s list. The reality is that successor scenarios are often complicated, and this is an area where most people are not fluent or very knowledgeable. We’ve found that a little training can go a long way to alleviating confusion on the part of the consumer. Frontline employees should receive training to generally understand the types of scenarios that may arise, the options that may be available in those scenarios, and how to interact in those situations. For example, servicers should generally not be in the business of providing advice to successor homeowners regarding what they should do. Customer-facing employees should be equipped to explain what the options are but should be trained to never encourage one option over another.
Finally, servicers should review how they ensure compliance with the existing successor-in-interest framework in Regulation X. That includes properly identifying potential successor-in-interest scenarios whenever they occur, facilitating communication with any potential successors-in-interest, and being able to readily identify the documentation and information needed to confirm someone as a successor-in-interest.
