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borrower may seek more information from the servicer, and contact information for at least one HUD-approved credit counseling agency. In the ownership statement, there must be an explanation as to how the current holder of the note or investor is entitled to enforce the right to enforce the terms of the subject note and mortgage. Servicers will face challenges in determining what will constitute sufficient information in the ownership statement, as the legal basis for standing to foreclose varies from state to state. The loss mitigation statement must set forth the reason, if applicable, that the borrower was not eligible for loss mitigation alternatives to foreclosure. Accuracy in Accounting All payments must be posted and applied within two business days of their receipt. Servicers will now be required to accept any payment that comes within $50 of the required monthly amount due if it is timely made, and partial payments that fall within this range cannot be applied to a suspense fund.7 Servicers must make sure that payments are allocated in the manner set forth in the subject loan documents. Monthly statements to borrowers must clearly show the current amount due, allocation of any payments and distribution of suspense funds, reason for any payment amount change, and where to make payments. Servicers' internal accounting systems and procedures are subject to independent review to ensure accuracy and comprehensiveness. Loss Mitigation Requirements Servicers are now expected to notify any potentially qualified borrowers of possible alternatives to foreclosure and to evaluate all homeowners in default who timely applied for a loan modification prior to initiating foreclosure proceedings. If three trial HAMP payments are made in a timely manner, the trial modification must be converted to a permanent modification.8 The settlement does maintain that servicers are under no obligation to solicit a borrower for loss mitigation when that borrower is a party to an active bankruptcy.9 Default servicers previously engaged in the practice of "dual-tracking," where servicers concurrently take action to foreclose while also engaging in loss mitigation negotiations with borrowers. There has been a growing concern that borrowers in foreclosure will rely on ongoing loss mitigation activity to the detriment of their legal rights during the foreclosure process. To be clear, the settlement does not entirely prohibit dual-tracking, but it drastically restricts these activities.10  Under the terms of the settlement, if a loan modification application is completed or substantially completed within 120 days of the delinquency, the servicer cannot refer the loan to foreclosure; the servicer must either wait until the borrower declines the offer or a denial letter is sent to the borrower explaining the reason for failure of the loan modification. If the borrower qualifies for and accepts an offer for the loan to be modified, the servicer cannot begin foreclosure proceedings until the trial payment plan is breached. If the borrower is denied a loan modification and qualifies for an appeal, the servicer cannot refer the loan for foreclosure until the end of the 30-day appeal period.  For loans that have already been referred for foreclosure, if an application for loan modification is completed after post-referral solicitation, the servicer may not proceed to the next milestone in the foreclosure—for example, filing a judgment or scheduling the sale—until the loan modification is either denied by the servicer or rejected by the borrower or a default occurs in the trial payment period. One qualification is that the servicer is not responsible for failure to delay the foreclosure proceedings in a judicial foreclosure if relief was sought from the court— for instance, when servicer's counsel requests a continuance on a dispositive motion hearing but the request is denied or if the court will not allow a delay of a pending trial. Additional Servicing Standards Distressed homeowners can now expect they will be provided a single point of contact, which is an individual assigned to that borrower's file and is responsible for addressing borrower inquiries during the loss mitigation process.11 Establishment of a single point of contact for each customer will hopefully resolve common customer complaints about servicers' ability to communicate effectively throughout the loss mitigation process. One internal problem that servicers will need to address is how to quickly and effectively communicate a change in the single point of contact due to employee illness, voluntary or involuntary separation, or other staffing needs. Servicers will also be expected to provide a specialized staff that is dedicated to serve as single points of contact to members of our armed forces in order to ensure compliance with the Servicemembers' Civil Relief Act (SCRA).12 Under the terms of the settlement, servicers will be required to evaluate foreclosures that occurred between January 1, 2009, and December 31, 2010, in which an SCRA-eligible servicemember was known to have been a mortgagor, in order to determine whether the foreclosures were in compliance with the SCRA.13 In cases where the servicers did not comply with the SCRA, significant monetary damages will be awarded to that servicemember. As a matter of policy and strengthening of public relations, many servicers will choose not to proceed with foreclosure against any servicemember, regardless of whether or not the SCRA applies. Guiding the Way By entering into this settlement, the five largest servicers have obligated themselves to pay an incredible sum of money toward relief for homeowners who have been unable to meet the obligations of their mortgages. Critics of the settlement may argue that this relief ought to be extended to homeowners who have made sacrifices in order to ensure timely payments on their home loans, but for now, the settlement may prevent some homes from being foreclosed by allowing refinancing and principal reductions for borrowers in default. One predicament that the servicers will face is managing the cost of hiring and training qualified loss mitigation and document execution personnel after making the initial settlement payment, along with additional restitution payments for past foreclosures. It remains to be seen how closely the expected national servicing standards will follow those contained in the settlement, but servicers across the nation ought to closely review its terms in an effort to prepare for the future of default servicing. While its requirements will prove to be burdensome, servicers are hopeful that the settlement will put an end to the media onslaught concerning fraudulent and abusive practices in the servicing industry. Megan R. Cello is an associate attorney with South & Associates, P.C. She has concentrated her practice in the area of judicial foreclosure, primarily in the state of Kansas. She obtained her law degree from the University of Missouri-Columbia. 6 See Paragraph I.A.18 of the Servicing Standards; see also Paragraphs I.B.6, I.B.10, I.C.2–3, and IV.B.13. 7See Paragraphs I.B.1–5 of the Servicing Standards. 8See Paragraph IV.A.4 of the Servicing Standards. 9 See Paragraph IV.A.1 of the Servicing Standards. 10See Paragraphs IV.B.1–14 of the Servicing Standards. 11See Paragraphs IV.C.1–9 of the Servicing Standards. 12See Paragraphs V.B.1–2 of the Servicing Standards. 13See Paragraph V.A of the Servicing Standards. 66

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