QUESTION
I am the General Counsel of a large Western mortgage lender. I am writing on behalf of myself and our Chief Compliance Officer. We have received notice from an executor of a borrower’s estate. The executor wants access to our digital portal. The executor’s purpose is to review the decedent’s account, assets, and liabilities.
A careful reading of estate-related documents and reviewing the power of attorney show that the borrower did not grant the executor specific authority to access a digital portal. We do not want costly litigation. It is our view that we cannot give the executor access to the digital assets of the deceased borrower’s account.
We could use some guidance on applicable regulatory requirements in two ways:
- Broadly, what is the regulatory landscape for an executor being denied access to loan records after a borrower’s death?
- In particular, is there any regulatory requirement or case law that applies to denying an executor’s access to a digital portal if such access is not specifically granted in a will or power of attorney?
COMPLIANCE SOLUTION
ANSWER
Your questions touch on several regulatory and legal issues, including “successor in interest” as well as the nexus between estate law and regulatory requirements.
In October 2016, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z, effective April 19, 2018, to apply to “successor in interest” all of the January 2013 Mortgage Servicing Rule provisions, including the payment processing requirements, once a servicer has a "confirmed successor in interest."
The Truth-in-Lending Act’s Regulation Z defines “successor in interest” to mean
… a person to whom an ownership interest in a dwelling securing a closed-end consumer credit transaction is transferred from a consumer, provided that the transfer is:
(1) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(2) a transfer to a relative resulting from the death of the consumer;
(3) a transfer where the spouse or children of the consumer become an owner of the property;
(4) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the consumer becomes an owner of the property; or
(5) a transfer into an inter vivos trust in which the consumer is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.[i]
Regulation Z[ii] defines “confirmed successor in interest” as a “successor in interest” once a servicer has confirmed the "successor in interest" identity and ownership interest in the dwelling.
Regulation Z and Regulation X (the regulation implementing the Real Estate Settlement Procedures Act, RESPA), both affected by the 2013 Mortgage Servicing Rule provisions, work together to address the criteria for the "confirmed successor in interest."
Regulation X offers guidance on how to confirm a "successor in interest." In general, a mortgage loan servicer must respond to a written request indicating that the person making the request may be a "successor in interest" by providing a written description of the documents the servicer reasonably requires to confirm the person’s identity and ownership interest.
Further, Regulation X requires mortgage loan servicers to maintain policies and procedures reasonably designed to ensure that the servicer can, upon receiving notice of the death of a borrower or any transfer of the property securing a loan, promptly facilitate communication with any potential or "confirmed successor(s) in interest."[iii]
The definitions of “successor in interest” and “confirmed successor in interest” are important because Regulation Z defines the term “consumer” (viz., RESPA similarly defines the term “borrower”) to include a "confirmed successor in interest" for purposes of various (but not all) of its provisions, including its requirements regarding escrow account closing notices, ARM adjustment notices, crediting of payments, late charge pyramiding, payoff statements, mortgage transfer disclosures, and periodic statements.
In general, a loan servicer is not required to provide notices to a "confirmed successor in interest" if it is already providing the same disclosure to another consumer on the account. For example, a loan servicer is not required to provide a periodic statement for a mortgage loan to a "confirmed successor in interest" if the servicer provides the same periodic statement to another consumer.
What you should note here is that both the Regulation X and Regulation Z definitions of “successor in interest” are limited to transferees who receive ownership in property that secures closed-end credit, because Regulation X[iv] defines “mortgage loan” for purposes of its servicing provisions to exclude open-end lines of credit, while the Regulation Z[v] definition refers to closed-end consumer credit transactions.
To be clear, transferees of properties that secure open-end credit are entitled to protections as borrowers under Regulation X and consumers under Regulation Z if they assume the loan obligation under state law or are otherwise liable for the mortgage loan obligation.[vi]
Regulation X offers an option for servicers to provide an initial explanatory notice and acknowledgment form to “confirmed successor(s) in interest” who have not assumed the mortgage loan obligation and are not otherwise liable for it. The notice must explain that the servicer has confirmed the "successor in interest" identity and ownership interest and that the “confirmed successor in interest” is not liable unless and until the “confirmed successor in interest” assumes the mortgage loan obligation under state law.
The notice must also explain that
the “successor in interest” may be entitled to receive certain notices and
communications about the mortgage loan if the servicer is not providing them to
another “successor in interest” or consumer on the account. The notice must
indicate that the "confirmed successor in interest" has to return the
acknowledgment to receive servicing notices under the Mortgage Servicing Rule ("Rule").
Regulation X[vii] and Regulation Z[viii] relieve servicers that send this optional notice and an acknowledgment form from certain obligations set forth in the Rule, including notice requirements and the requirement to engage in live contacts with the "confirmed successor in interest."
In effect, the Rule suspends these obligations until the “confirmed successor in interest” provides the servicer an executed acknowledgment indicating a desire to receive the notices or assumes the mortgage loan obligation under state law.
Your question about an executor’s access to a deceased borrower's digital account seems similar to a case considered by a federal district court in Maryland. The case, Holland v. Signal Financial Credit Union, involved a TILA periodic statement claim filed by the executor of a borrower’s estate.[ix]
Here’s a brief outline of the case. Evelyn Holland was diagnosed with Alzheimer’s disease in March 2013, after which she asked William Holland, her first cousin, “to accept her power of attorney to manage her financial affairs, and to act as eventual estate Executor.” He agreed. Evelyn died in July 2022. William was the sole heir of the decedent's estate. He alleged that Signal Financial Credit Union had blocked his digital access to Evelyn’s accounts, including her home equity line of credit (HELOC).
William sued. He alleged that the credit union’s refusal to grant him digital access violated the Maryland Fiduciary Access to Digital Assets Act and TILA. The court granted summary judgment to the credit union.
According to the court, the credit union did not violate the Maryland statute because William testified that he was not granted authority to access digital assets either in Evelyn’s power of attorney or will nor did he ever make a written request for access as required by the statute.
Regulation Z and TILA only required periodic statements to the “consumer,” defined as the person to whom the loan was made or any “confirmed successor in interest.” The TILA claim failed because Evelyn was the only consumer on the HELOC, and no “confirmed successor in interest” had been designated.
It is undisputed that William never requested digital access to Evelyn's HELOC accounts. And even if he had requested such access, the court found that TILA and its implementing Regulation Z do not require that digital access be granted to anyone other than the person who took out the loan.
William failed to allege actual damages from the purported TILA violations, which left him without standing.[x]
Jonathan Foxx, Ph.D., MBAChairman & Managing Director
[i] § 1026.2(a)(27)(i)
[ii] § 1026.2(a)(27)(ii)
[iii] The provision makes clear that
servicers do not need to search for a potential "successor in interest" if the
servicer has not received actual notice of their existence.
[iv] § 1024.31
[v] Op. cit. 1
[vi] For example, see Regulation Z §
1026.20(f) and Regulation Z Comments 2(a)(11)-4.
[vii] § 1024.32(c)
[viii] §§ 1026.20(f), 1026.39(f), and
1026.41(g)
[ix] Holland v. Signal Financial Credit
Union, D. Md. Jan. 16, 2024
[x] The court did not point out that Regulation Z’s “confirmed successor in interest” provisions do not apply to open-end credit (i.e., HELOCs) unless the “successor in interest” assumes the loan obligation.
