Just two years ago when mortgage loan servicers moved forward to foreclose on a homeowner, even though that homeowner was actively engaged with the servicer in attempting to modify their loan (a phenomenon identified as dual tracking in the national mortgage settlement) that borrower had no remedy or private right of action. The same impediments prevented a borrower bringing claims for mistakes in escrow calculations or unfair corporate advances or late fees or against lenders who failed to send easy to understand monthly mortgage statements.
On Jan. 10, 2014, the Consumer Finance Protection Bureau (CFPB) enacted a powerful new regulatory scheme under the Real Estate Settlement Protection Act (RESPA) 12 U.S.C 2601 et seq. and the Truth in Lending Act (TILA) 15 U.S.C. 1026 et seq that set new high standards for the conduct of mortgage loan servicers. Lawyers who work with clients who have potential issues with their home mortgage lenders and bankruptcy practitioners in particular should be on the look out for potential claims that their clients may have against their mortgage loan servicer.
Awareness of potential liability of mortgage loan servicers has become even more important in light of the recent decision by many national bank loan servicers to get out of the loan servicing business resulting in more and more mortgage loans being serviced by small, thinly capitalized nonbank servicing companies.
Regulations X and Z in a Nutshell Powerful new regulations that have been promulgated by the CFPB, under RESPA and TILA, create a private right of action when mortgage loan servicers fail to properly and promptly respond to requests for information, correct irregularities with application of payments, assessments of fees and charges, or to comply with new strict timelines for handling applications for loan modifications, deeds in lieu of foreclosures and short sales.
Clients Who Could Benefit From Reg X and Z Case Review • Borrowers who have been recently discharged from Chapter 13 or Chapter 7. • Borrowers who have filed bankruptcy to avoid foreclosure but who had an application for loss mitigation pending. • Borrowers who had a contract to sell their home by way of a short sale, the servicer failed to make a decision within 30 business days from submission of application and the buyer withdrew. • Borrowers with loan modifications where the loan modification has not been honored by a loan servicer or successor loan servicer. • Borrowers who have trial loan modifications that last beyond three months. • Borrowers with lender placed or forced placed insurance. • Borrowers with excessive escrow deficiencies. • Borrowers with a loan modification that is not recognized by a new servicer.
Practitioners should be on the look out for the following fact patterns that form the basis of a RESPA claim:
- When homeowner/borrowers have submitted a facially complete loan modification application and loan servicer moves forward in any way to foreclose. This includes referral to foreclosure counsel, filing of a foreclosure complaint in a judicial foreclosure state, filing or recording a foreclosure notice in a non-judicial state, filing a motion for relief from stay in bankruptcy, filing a dispositive motion in a judicial foreclosure, setting a date for a sheriff ’s sale or failing to avoid a judgment or withdraw a sale.
- When a mortgage loan servicer fails to honor an agreed to loan modification.
- When a mortgage loan servicer fails to make a decision on a short sale within 30 business days.
- When a mortgage loan servicer refers for foreclosure before a borrower is 120 days past due.
- When a mortgage loan servicer fails to properly calculate escrow or an escrow shortage and overcharges to amortize escrow shortages. Note that a servicer may only hold a two-month cushion for taxes, homeowner’s insurance and private mortgage insurance in escrow.
- Charging for unnecessary appraisals, legal fees, property inspections and other corporate advances.
Practitioners should also be aware of potential claims under TILA:
- When a mortgage loan servicer fails to provide correct information on monthly statements to borrower (borrowers in bankruptcy are currently exempted) For example, for someone who is 45 days behind, each statement is required to show a six-month history.
- When a mortgage loan servicer fails to send statements at all (borrowers in bankruptcy or discharged from bankruptcy are currently exempt). This happens more often than one might think.
- When a mortgage loan servicer fails to apply payments on the same day as they receive them.
- When a mortgage loan servicer applies payment to fees or corporate advances before principal interest taxes and insurance are brought current.
- When a mortgage loan servicer fails to provide the name of owner, master servicer and servicer within 10 business days of the date of receipt of written request, payoff or reinstatement figures within seven business days of receipt of written request. Marc Dann