Housing Counselor Certification (HUD) Practice Exam

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

1. The client is currently in bankruptcy

2. The client has a pending loan modification application

3. The property is listed for sale

4. The client has made a recent payment

The correct answer is: The client has a pending loan modification application

A servicer must refrain from beginning the foreclosure process when the client has a pending loan modification application. This is a protective measure that acknowledges the client's efforts to seek a resolution regarding their mortgage situation. The law and federal guidelines, including those from the Consumer Financial Protection Bureau (CFPB), often require servicers to pause foreclosure proceedings while a loan modification application is under review. This approach allows the borrower a fair chance to keep their home by potentially restructuring their loan terms. In contrast, while other circumstances like being in bankruptcy can directly halt foreclosure actions due to legal protections, having a pending loan modification is specific to the servicer's obligation to consider an alternative solution before resorting to foreclosure. Additionally, listing a property for sale does not inherently prevent foreclosure, as it can be viewed as an attempt by the homeowner to remedy their financial situation but does not stop the legal proceedings. Lastly, having made a recent payment might indicate good faith but is not sufficient to mandate a cessation of foreclosure actions if the servicer is already in the process of conducting them.