Who Gets New Disclosures When Your Mortgage Debtor Dies?

May 23, 2019 at 10:04 am Leave a comment

To its credit, several years ago the CFPB promulgated regulations integrating Successor in Interest requirements into TRID. These amendments helped address increasingly common issues such as when a debtor dies still owing money on a mortgage loan. Who should the lender be sending out notices to? When should these notices be sent? And are they even required?

Apparently there is a further need for clarification. I’ve been examining this guidance/fact sheet/flow chart providing information on when new Loan Estimates and Closing Disclosures are required for certain mortgage transactions. Specifically the CFPB felt the need to explain when new disclosures are required for a transaction: (1) in which a new consumer is being added or substituted as an obligor on an existing consumer credit transaction; (2) that is a closed-end consumer credit transaction secured by real property or a cooperative unit; and (3) that is not a reverse mortgage subject to 12 CFR 1026.33. In other words, when is an assumption an assumption under 12 CFR 1026.20(b).

As with so much dealing with Regulation Z, terminology is absolutely crucial to understanding the potential complexities. So first let’s review some key terms with apologies to those of you for whom this is basic stuff.

First, 12 CFR 1026.2a 24 defines a Residential mortgage transaction as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.”

An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction.

In this guidance, CFPB attempts to clarify the answers to some nuanced questions. One of the trickiest areas involves whether or not property should be considered residential for purposes of TRID disclosures. As the guidance explains the creditor “must determine if the transaction involves consumer’s principal dwelling and whether the new consumer is financing the acquisition or initial construction of that dwelling.” Let’s say you have a member who took out a mortgage to finance the purchase of a second home in Lake George. She passes away with ten years to go on the mortgage and not only does her daughter Sally want to keep on paying the mortgage but she plans on using it as her primary residence. Even though when originally financed by mom, the second home was not a residential mortgage transaction,  it is considered an assumption for which new disclosures are required for Sally because it is going to be her principle residence and  a new obligor  is being added to an existing obligation.

The guidance i no substitute for the existing commentary but is a useful resource which you may want to put in  your policy file. Let’s face it, a lot of us aren’t getting any younger and if existing trends hold your members will be dying with more debt than anyone would have thought of as possible even a decade ago.

 

 

Entry filed under: Compliance, Mortgage Lending, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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