Under what circumstance must a servicer refrain from beginning the foreclosure process?

A servicer must refrain from beginning the foreclosure process when the client has a pending loan modification application. This is because the application for a loan modification indicates that the borrower is actively seeking to change the terms of their loan to make it more affordable. Foreclosure is generally considered a last resort, and when a borrower is pursuing a modification, they are signaling their intent to stay in the home and meet their mortgage obligations.

Legally, servicers are often required to pause foreclosure actions once a loan modification application is submitted. This allows the lender time to review the application and determine whether a modification can be approved, potentially providing the borrower with an alternative to foreclosure. By pausing the foreclosure process, the servicer ensures compliance with regulations and promotes a fair opportunity for borrowers to resolve their financial issues.

In contrast, situations where a borrower is making regular payments or where the property is under contract for sale do not necessarily halt foreclosure actions, as these circumstances do not address the underlying issues causing potential default. Additionally, while a borrower seeking bankruptcy protection may delay foreclosure, it is not the same as having a pending loan modification application, which explicitly requires the lender to evaluate and possibly amend the loan terms.