The Ohio General Assembly recently enacted H.B. 489, which implements the new Rev. Code 1349.72 regulating creditors, debt collectors, and mortgage servicers. It became effective on March 20, 2019 and poses significant compliance issues for servicers.
R.C. 1349.72 applies broadly, requiring any person or entity to provide a specific disclosure to the borrower before collecting or attempting to collect a defaulted debt that is also secured by a second mortgage or junior lien on the borrower’s residential property. The statute requires providing the borrower with all of the following:
- The name and contact information of the person collecting the debt
- The debt amount
- A statement that the borrower has a right to an attorney
- A statement that the borrower may qualify for debt relief under Chapter 7 or 13 of the U.S. Bankruptcy Code
- A statement that a borrower who qualifies under Chapter 13 of the U.S. Bankruptcy Code may be able to protect their residential real property from foreclosure
The statute also requires providing the borrower with a copy of the note and loan history upon request.
The language used in the statute is broad and can reasonably be interpreted to apply to mortgage originators and servicers, law firms, and debt collectors. The statute is also vague, leaving many key terms, including “default,” undefined.
In light of this, Manley Deas Kochalski, LLC believes that courts will generally look to the definition of “default” in the agreement between the parties. In the mortgage servicing industry, the note and mortgage would control the definition of this term. Unfortunately, even standard notes and mortgages contain varying definitions of default that range from the day after the missed payment to the end of a grace period or failure to make the payment by the date the next payment is due.
Likewise, the statute doesn’t define what is meant by “collects or attempts to collect.” The phrase could be interpreted to include activity such as payment reminder calls or reminder notices, which could easily occur before a breach letter is sent. There’s even a risk that receiving an ordinary late payment could create a lack of compliance.
The statute gives the borrower a cause of action for any alleged lack of compliance. For this reason, foreclosures could be delayed or burdened with additional claims asserted by borrowers.