What is the 37 day foreclosure rule?

The "37 day foreclosure rule" is a crucial federal consumer protection that prevents mortgage servicers from proceeding with a foreclosure sale or judgment if a borrower submits a complete loss mitigation application within a specific timeframe before the sale. This rule is designed to give homeowners a fair opportunity to explore alternatives to foreclosure.

What is the 37 Day Foreclosure Rule?

The 37 day foreclosure rule, often associated with federal mortgage servicing regulations under the Real Estate Settlement Procedures Act (RESPA) and its implementing Regulation X, provides a vital safeguard for homeowners facing financial hardship.

Specifically, if a borrower submits a complete loss mitigation application to their mortgage servicer after the servicer has initiated the first foreclosure notice or filing, but more than 37 days before a scheduled foreclosure sale, the servicer is generally prohibited from taking certain foreclosure actions.

Key Aspects of the Rule

The core of the rule dictates that under these conditions, the servicer cannot conduct a foreclosure sale or move for a foreclosure judgment or sale. This prohibition remains in effect unless specific conditions are met, allowing the servicer to proceed. The primary purpose of this rule is to prevent "dual tracking," a practice where a servicer simultaneously pursues foreclosure while evaluating a borrower's application for loss mitigation.

Eligibility and Timeline

For the 37-day rule to apply, two critical conditions must be met by the borrower:

• Complete Loss Mitigation Application: The borrower must submit an application that includes all the information and documentation the servicer reasonably requires to evaluate the borrower for all available loss mitigation options.
• Timely Submission: The complete application must be submitted more than 37 days prior to the scheduled foreclosure sale date. If submitted within 37 days, different rules may apply, offering less protection against a sale.

Why This Rule Matters

The 37 day foreclosure rule is a significant protection for homeowners because it:

• Prevents Dual Tracking: It stops mortgage servicers from moving forward with foreclosure while simultaneously reviewing a borrower's request for assistance, which could lead to a homeowner losing their home while actively seeking a solution.
• Provides Opportunity: It grants borrowers valuable time to work with their servicer, understand their options (such as loan modification, forbearance, or short sale), and potentially avoid foreclosure.
• Ensures Fair Process: It reinforces the idea that homeowners should have a fair chance to resolve their mortgage delinquency before a final foreclosure action is taken.

Practical Implications for Homeowners

If you are a homeowner facing potential foreclosure:

• Act Quickly: Submit a complete loss mitigation application as soon as possible after falling behind on payments, ideally well before any foreclosure proceedings begin.
• Document Everything: Keep copies of all applications, documents submitted, and correspondence with your servicer. Note dates, times, and names of people you speak with.
• Understand "Complete": Ensure your application is truly complete. Incomplete applications may not trigger these protections.
• Seek Assistance: Consider consulting with a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD) or a legal aid attorney for guidance.

This rule is a critical component of consumer protection, ensuring that borrowers have a meaningful opportunity to address their financial challenges before losing their home to foreclosure.