Insights

On May 20, 2009, President Obama signed into law the Helping Families Save Their Homes Act of 2009 (Public Law 111-22 (S. 896)) (the “Act”). Section 404 of the Act amends Section 131 of the Truth in Lending Act (“TILA”) to add a notice requirement in connection with the sale or transfer of a mortgage loan that is secured by the consumer’s principal dwelling. In addition, Section 404 of the Act amends Section 130(a) of TILA to create a private right of action against assignees for noncompliance with the new disclosure requirement. It is important to note that Section 404 of the Act became effective on the date of enactment—May 20, 2009—which means that, for mortgage loans subject to the notice requirement and transferred on the date of enactment, notice of the transfer must be provided by June 19, 2009. This gives assignees little time to implement the new notice.

The notice is intended to inform consumers about transfers of ownership of their mortgage loans to create transparency and to enable consumers, particularly consumers who are experiencing financial difficulties, to contact the owner regarding loan modifications or other options for avoiding foreclosure. The new disclosure obligation requires that, “not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer[.]” The notice must include the following information:

• the identity, address, telephone number of the new creditor;
• the date of transfer;
• how to reach an agent or party having authority to act on behalf of the new creditor;
• the location of the place where transfer of ownership of the debt is recorded; and
• any other relevant information regarding the new creditor.

As noted above, Section 404 of the Act creates a private right of action under TILA for an assignee’s noncompliance with the disclosure requirement. Consumers may recover actual damages, as well as statutory damages of not more than $4,000 in an individual action or, in a class action, not more than the lesser of $500,000 or 1% of the creditor’s net worth.

The disclosure requirement raises several compliance issues related to the scope, content, and delivery of the notice. For example, is the notice required if the assignee will simultaneously, or within a short timeframe, reassign the mortgage loan to another assignee? Is the location of recording of the transfer of ownership intended to refer only to a government office where an assignment of mortgage is recorded? Is it appropriate for the notice to specify the location where an assignment of mortgage “is or may be” recorded if an assignment has not be recorded at the time the notice is provided? If a loan involves multiple borrowers, is it sufficient to provide the notice to any one borrower? Does mailing or otherwise initiating delivery of the notice within the 30-day period satisfy the timing requirement? Several industry trade associations sent a joint letter to the Federal Reserve Board requesting the Board to issue an interim interpretation of the new disclosure requirement. While we anticipate that the Board will soon provide guidance, it seems unlikely that the Board will do so before the first notices must go out on June 19.

We’ll track developments related to the mortgage transfer notice and update our readers in future editions of Basis Points.

Sharon Bangert is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach Sharon at 202-327-9703 or by email at sbangert@hudco.com.