ABA Bank Compliance - July/August 2018

allow the consumer to defer repayment of principal, or results in a balloon payment; and the proceeds of the loan are used solely to satisfy the existing obligation and amounts attributed solely to the costs of refinancing. (Submitted June, 2018.)

QAre labor unions subject to the new Beneficial Ownership Rule?

AYes. A labor union is subject to the control prong of the rule Under the Customer Due Diligence Requirements for Financial Institutions (Beneficial Ownership rule) ( 31 C.F.R.

§1010.230(e)

( 3) The following legal entity customers are subject only to the
control prong of the beneficial ownership requirement:
(ii) Any legal entity that is established as a nonprofit
corporation or similar entity and has filed its organiza-
tional documents with the appropriate State authority as
necessary.

As a labor union is a Non-Governmental Organization, it is subject to the control prong of the requirement. (Submitted May, 2018.)

QThe bank’s mortgage loan customer has failed to pay his property taxes for two years, so in August 2018, the state will auction the home for nonpayment of taxes.

The mortgage servicing rules prohibit servicers from taking foreclosure action until the loan is past due 120 days (principal and interest), but the mortgage note and deed of trust notes stipulate that borrowers in default if they fail to pay taxes. Is it permissible under the mortgage servicing rules to foreclose on these grounds?

AA bank cannot foreclose, but it can accelerate the mort- gage. See the following from the ABA’s Reference Guide for Mortgage Servicing pg. 133: www.aba.com/Tools/Func-tion/Mortgage/MemDocs/ABAServicingReferenceGuide.pdf

Servicers commonly inquire whether they may foreclose on a mortgage loan if a borrower violates a term of the loan contract but is current on his or her mortgage loan payments (e.g., the borrower is current on the mortgage loan but has not paid property taxes and there is no escrow account).

Servicers may not make the first notice or filing for foreclosure unless a borrower’s mortgage loan obligation is more than 120 days delinquent. Even though this term is undefined, the Consumer Financial Protection Bureau has generally interpreted “mortgage loan obligation” to include principal, interest, and escrow. Under this view, the mortgage loan obligation would not include unpaid, non-escrowed taxes when the borrower is otherwise current on the loan.

However, the Servicing Rules do not prevent a creditor from accelerating a mortgage loan payment for a breach of that contract. Depending on the contract, a servicer could accelerate the mortgage loan if the borrower fails to pay the monthly periodic payment amount on the payment due date or if the borrower fails to comply with other components of the contract, such as requirements to pay property taxes, maintain insurance, or pay late fees. The borrower’s failure to pay the amount due after the creditor accelerates the mortgage loan obligation would begin or continue delinquency. After acceleration, the servicer must wait until the borrower is more than 120 days delinquent before initiating foreclosure proceedings. If the borrower reinstates the loan or otherwise cures the arrearage following acceleration, the borrower would no longer be delinquent.

If you do not have access to the ABA publication referenced above, you can find some of the same information here: www. consumerfinance.gov/about-us/newsroom/consumer-finan-cial-protection-bureau-rules-establish-strong-protections-for-homeowners-facing-foreclosure/ (Submitted May, 2018.) ■