[co-author: Michael Taunton]

In a recent decision, the Eleventh Circuit (Lage v. Ocwen Loan Servicing, LLC, No. 15-15558 (11th Cir. Oct. 7, 2016)) held that a loan servicer is not required to evaluate a completed loan modification application if that application is submitted less than 37 days before a foreclosure sale is originally scheduled to occur. The Court held that this applies even when the foreclosure sale on the property is rescheduled to a later date, making the loan modification application fall outside the 37-day window.

John Lage and Maria Mantilla took out a mortgage on their property in Boynton Beach, Florida. A few years later, Lage and Mantilla fell behind on their payments and their then-mortgage servicer began foreclosure proceedings. Ocwen Loan Servicing, LLC subsequently took over servicing the loan, and a foreclosure sale was scheduled on January 29, 2014.

Twenty-one days before the foreclosure sale, Lage and Mantilla sent Ocwen an application for loan modification along with supporting documentation. Over the course of the next two weeks, Ocwen and Lage and Mantilla began discussions concerning loan modification, and Ocwen eventually requested additional documentation. Lage and Mantilla submitted that documentation two days prior to the scheduled foreclosure sale, and Ocwen then rescheduled the foreclosure sale for March 14, 2014. Ocwen requested additional paystubs, which Lage and Mantilla never supplied, and Ocwen foreclosed on March 14, 2014, as scheduled.

Lage and Mantilla sued Ocwen for violations of RESPA and Regulation X, claiming that Ocwen had improperly failed to consider their application for a loan modification (among other claims). After discovery, the district court granted summary judgment for Ocwen, finding that it was not obligated to review the loan modification application because the relevant regulations had not gone into effect until January 10, 2014, and that the application had been submitted to Ocwen on January 8, 2014.

Lage and Mantilla appealed. The Eleventh Circuit affirmed on different grounds. According to the Court, Lage’s and Mantilla’s loan modification application was untimely. The Court reasoned that Lage and Mantilla were required by Regulation X to submit their application at least 37 days before the foreclosure sale, but that their application only became complete two days before the sale. The fact that the foreclosure date was subsequently moved did not retroactively make the application timely. Instead, the Court held that their application remained untimely, even if the foreclosure sale actually occurred beyond Reg. X’s 37-day window.

This ruling is good news for mortgage servicers who are considering applications for loan modification while a foreclosure sale is pending for two particular reasons. First, this ruling suggests that mortgage servicers have the freedom to consider applications submitted at the eleventh hour by postponing a pending foreclosure sale without needing to worry that they may trigger additional obligations; late applications can be considered in the servicer’s discretion, but a late application does not become timely merely by rescheduling the foreclosure sale. Second, this ruling suggests that borrowers who might have an interest in merely delaying the foreclosure sale will not be able to use untimely applications for loan modification to drag out the process further.