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U.S. Code as of:
01/19/04
Section 2605. Servicing of mortgage loans and administration of escrow accounts
(a) Disclosure to applicant relating to assignment, sale, or
transfer of loan servicing
Each person who makes a federally related mortgage loan shall
disclose to each person who applies for the loan, at the time of
application for the loan, whether the servicing of the loan may be
assigned, sold, or transferred to any other person at any time
while the loan is outstanding.
(b) Notice by transferor of loan servicing at time of transfer
(1) Notice requirement
Each servicer of any federally related mortgage loan shall
notify the borrower in writing of any assignment, sale, or
transfer of the servicing of the loan to any other person.
(2) Time of notice
(A) In general
Except as provided under subparagraphs (B) and (C), the
notice required under paragraph (1) shall be made to the
borrower not less than 15 days before the effective date of
transfer of the servicing of the mortgage loan (with respect to
which such notice is made).
(B) Exception for certain proceedings
The notice required under paragraph (1) shall be made to the
borrower not more than 30 days after the effective date of
assignment, sale, or transfer of the servicing of the mortgage
loan (with respect to which such notice is made) in any case in
which the assignment, sale, or transfer of the servicing of the
mortgage loan is preceded by -
(i) termination of the contract for servicing the loan for
cause;
(ii) commencement of proceedings for bankruptcy of the
servicer; or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity
by which the servicer is owned or controlled).
(C) Exception for notice provided at closing
The provisions of subparagraphs (A) and (B) shall not apply
to any assignment, sale, or transfer of the servicing of any
mortgage loan if the person who makes the loan provides to the
borrower, at settlement (with respect to the property for which
the mortgage loan is made), written notice under paragraph (3)
of such transfer.
(3) Contents of notice
The notice required under paragraph (1) shall include the
following information:
(A) The effective date of transfer of the servicing described
in such paragraph.
(B) The name, address, and toll-free or collect call
telephone number of the transferee servicer.
(C) A toll-free or collect call telephone number for (i) an
individual employed by the transferor servicer, or (ii) the
department of the transferor servicer, that can be contacted by
the borrower to answer inquiries relating to the transfer of
servicing.
(D) The name and toll-free or collect call telephone number
for (i) an individual employed by the transferee servicer, or
(ii) the department of the transferee servicer, that can be
contacted by the borrower to answer inquiries relating to the
transfer of servicing.
(E) The date on which the transferor servicer who is
servicing the mortgage loan before the assignment, sale, or
transfer will cease to accept payments relating to the loan and
the date on which the transferee servicer will begin to accept
such payments.
(F) Any information concerning the effect the transfer may
have, if any, on the terms of or the continued availability of
mortgage life or disability insurance or any other type of
optional insurance and what action, if any, the borrower must
take to maintain coverage.
(G) A statement that the assignment, sale, or transfer of the
servicing of the mortgage loan does not affect any term or
condition of the security instruments other than terms directly
related to the servicing of such loan.
(c) Notice by transferee of loan servicing at time of transfer
(1) Notice requirement
Each transferee servicer to whom the servicing of any federally
related mortgage loan is assigned, sold, or transferred shall
notify the borrower of any such assignment, sale, or transfer.
(2) Time of notice
(A) In general
Except as provided in subparagraphs (B) and (C), the notice
required under paragraph (1) shall be made to the borrower not
more than 15 days after the effective date of transfer of the
servicing of the mortgage loan (with respect to which such
notice is made).
(B) Exception for certain proceedings
The notice required under paragraph (1) shall be made to the
borrower not more than 30 days after the effective date of
assignment, sale, or transfer of the servicing of the mortgage
loan (with respect to which such notice is made) in any case in
which the assignment, sale, or transfer of the servicing of the
mortgage loan is preceded by -
(i) termination of the contract for servicing the loan for
cause;
(ii) commencement of proceedings for bankruptcy of the
servicer; or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity
by which the servicer is owned or controlled).
(C) Exception for notice provided at closing
The provisions of subparagraphs (A) and (B) shall not apply
to any assignment, sale, or transfer of the servicing of any
mortgage loan if the person who makes the loan provides to the
borrower, at settlement (with respect to the property for which
the mortgage loan is made), written notice under paragraph (3)
of such transfer.
(3) Contents of notice
Any notice required under paragraph (1) shall include the
information described in subsection (b)(3) of this section.
(d) Treatment of loan payments during transfer period
During the 60-day period beginning on the effective date of
transfer of the servicing of any federally related mortgage loan, a
late fee may not be imposed on the borrower with respect to any
payment on such loan and no such payment may be treated as late for
any other purposes, if the payment is received by the transferor
servicer (rather than the transferee servicer who should properly
receive payment) before the due date applicable to such payment.
(e) Duty of loan servicer to respond to borrower inquiries
(1) Notice of receipt of inquiry
(A) In general
If any servicer of a federally related mortgage loan receives
a qualified written request from the borrower (or an agent of
the borrower) for information relating to the servicing of such
loan, the servicer shall provide a written response
acknowledging receipt of the correspondence within 20 days
(excluding legal public holidays, Saturdays, and Sundays)
unless the action requested is taken within such period.
(B) Qualified written request
For purposes of this subsection, a qualified written request
shall be a written correspondence, other than notice on a
payment coupon or other payment medium supplied by the
servicer, that -
(i) includes, or otherwise enables the servicer to
identify, the name and account of the borrower; and
(ii) includes a statement of the reasons for the belief of
the borrower, to the extent applicable, that the account is
in error or provides sufficient detail to the servicer
regarding other information sought by the borrower.
(2) Action with respect to inquiry
Not later than 60 days (excluding legal public holidays,
Saturdays, and Sundays) after the receipt from any borrower of
any qualified written request under paragraph (1) and, if
applicable, before taking any action with respect to the inquiry
of the borrower, the servicer shall -
(A) make appropriate corrections in the account of the
borrower, including the crediting of any late charges or
penalties, and transmit to the borrower a written notification
of such correction (which shall include the name and telephone
number of a representative of the servicer who can provide
assistance to the borrower);
(B) after conducting an investigation, provide the borrower
with a written explanation or clarification that includes -
(i) to the extent applicable, a statement of the reasons
for which the servicer believes the account of the borrower
is correct as determined by the servicer; and
(ii) the name and telephone number of an individual
employed by, or the office or department of, the servicer who
can provide assistance to the borrower; or
(C) after conducting an investigation, provide the borrower
with a written explanation or clarification that includes -
(i) information requested by the borrower or an explanation
of why the information requested is unavailable or cannot be
obtained by the servicer; and
(ii) the name and telephone number of an individual
employed by, or the office or department of, the servicer who
can provide assistance to the borrower.
(3) Protection of credit rating
During the 60-day period beginning on the date of the
servicer's receipt from any borrower of a qualified written
request relating to a dispute regarding the borrower's payments,
a servicer may not provide information regarding any overdue
payment, owed by such borrower and relating to such period or
qualified written request, to any consumer reporting agency (as
such term is defined under section 1681a of title 15).
(f) Damages and costs
Whoever fails to comply with any provision of this section shall
be liable to the borrower for each such failure in the following
amounts:
(1) Individuals
In the case of any action by an individual, an amount equal to
the sum of -
(A) any actual damages to the borrower as a result of the
failure; and
(B) any additional damages, as the court may allow, in the
case of a pattern or practice of noncompliance with the
requirements of this section, in an amount not to exceed
$1,000.
(2) Class actions
In the case of a class action, an amount equal to the sum of -
(A) any actual damages to each of the borrowers in the class
as a result of the failure; and
(B) any additional damages, as the court may allow, in the
case of a pattern or practice of noncompliance with the
requirements of this section, in an amount not greater than
$1,000 for each member of the class, except that the total
amount of damages under this subparagraph in any class action
may not exceed the lesser of -
(i) $500,000; or
(ii) 1 percent of the net worth of the servicer.
(3) Costs
In addition to the amounts under paragraph (1) or (2), in the
case of any successful action under this section, the costs of
the action, together with any attorneys fees incurred in
connection with such action as the court may determine to be
reasonable under the circumstances.
(4) Nonliability
A transferor or transferee servicer shall not be liable under
this subsection for any failure to comply with any requirement
under this section if, within 60 days after discovering an error
(whether pursuant to a final written examination report or the
servicer's own procedures) and before the commencement of an
action under this subsection and the receipt of written notice of
the error from the borrower, the servicer notifies the person
concerned of the error and makes whatever adjustments are
necessary in the appropriate account to ensure that the person
will not be required to pay an amount in excess of any amount
that the person otherwise would have paid.
(g) Administration of escrow accounts
If the terms of any federally related mortgage loan require the
borrower to make payments to the servicer of the loan for deposit
into an escrow account for the purpose of assuring payment of
taxes, insurance premiums, and other charges with respect to the
property, the servicer shall make payments from the escrow account
for such taxes, insurance premiums, and other charges in a timely
manner as such payments become due.
(h) Preemption of conflicting State laws
Notwithstanding any provision of any law or regulation of any
State, a person who makes a federally related mortgage loan or a
servicer shall be considered to have complied with the provisions
of any such State law or regulation requiring notice to a borrower
at the time of application for a loan or transfer of the servicing
of a loan if such person or servicer complies with the requirements
under this section regarding timing, content, and procedures for
notification of the borrower.
(i) Definitions
For purposes of this section:
(1) Effective date of transfer
The term "effective date of transfer" means the date on which
the mortgage payment of a borrower is first due to the transferee
servicer of a mortgage loan pursuant to the assignment, sale, or
transfer of the servicing of the mortgage loan.
(2) Servicer
The term "servicer" means the person responsible for servicing
of a loan (including the person who makes or holds a loan if such
person also services the loan). The term does not include -
(A) the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation, in connection with assets
acquired, assigned, sold, or transferred pursuant to section
1823(c) of this title or as receiver or conservator of an
insured depository institution; and
(B) the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Resolution Trust Corporation, or the Federal
Deposit Insurance Corporation, in any case in which the
assignment, sale, or transfer of the servicing of the mortgage
loan is preceded by -
(i) termination of the contract for servicing the loan for
cause;
(ii) commencement of proceedings for bankruptcy of the
servicer; or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity
by which the servicer is owned or controlled).
(3) Servicing
The term "servicing" means receiving any scheduled periodic
payments from a borrower pursuant to the terms of any loan,
including amounts for escrow accounts described in section 2609
of this title, and making the payments of principal and interest
and such other payments with respect to the amounts received from
the borrower as may be required pursuant to the terms of the
loan.
(j) Transition
(1) Originator liability
A person who makes a federally related mortgage loan shall not
be liable to a borrower because of a failure of such person to
comply with subsection (a) of this section with respect to an
application for a loan made by the borrower before the
regulations referred to in paragraph (3) take effect.
(2) Servicer liability
A servicer of a federally related mortgage loan shall not be
liable to a borrower because of a failure of the servicer to
perform any duty under subsection (b), (c), (d), or (e) of this
section that arises before the regulations referred to in
paragraph (3) take effect.
(3) Regulations and effective date
The Secretary shall, by regulations that shall take effect not
later than April 20, 1991, establish any requirements necessary
to carry out this section. Such regulations shall include the
model disclosure statement required under subsection (a)(2) of
this section.
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