Powerful Tools When Mortgage Modification Applications Are Wrongfully Denied
Consumer Litigation under the Consumer Financial Protection Bureau's
("CFPB") Regulations
Prior to January 10, 2014 mortgage loan servicers (hereinafter "servicers")
could move forward with their foreclose against homeowners and other real
property owners (hereinafter referred to as "borrowers"), even
though homeowners/borrowers were actively engaged with the servicer
in attempting to modify their loans (a phenomenon legally called
"dual tracking"). Borrowers had no remedy or private right of
action they could assert against their mortgage lender or its servicer;
nor could borrowers bring claims for mistakes in in connection with services’
escrow calculations, improperly assessed late fees, failing to properly
and timely respond to borrowers requesting help to understand monthly
mortgage statements difficult to comprehend, etc.
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 (hereinafter referred to as the "CFPB
regulations"). Borrowers and their attorneys who work with clients,
including bankruptcy practitioners in particular, should be on the
lookout for potential claims that borrowers may be able to assert against
their mortgage lender and/or servicer for violations of CFPB regulations
in connection with their mishandling of a borrowers mortgage modification
or other loss mitigation applications. See other articles in the bankruptcy
alternative section of this website.
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
non-bank 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 1) properly and promptly respond to requests for information;
2) correct irregularities with application of payments, remove late
fees and other charges wrongfully assessed against borrowers;, or 4) comply
with new strict timelines for handling applications for loan modifications
(hereinafter "mod apps"), deeds in lieu of foreclosures
and short sales (collectively referred to as "loss mitigation applications").
Prospective Clients/homeowners/borrowers who Could Benefit From Reg X and
Z Case Review
- Borrowers who believe their pending or prior loan modification application
was wrongfully denied (for substantive or procedural reasons).
- Borrowers who had to file for bankruptcy protection to avoid foreclosure
as a result of having their modification application or other loss
mitigation wrongfully denied, (for substantive or procedural reasons)
prior to filing for bankruptcy protection.
- Borrowers who had a contract to sell their home by way of a short sale
canceled by the short sale purchaser as a result of the servicer failing
to make a decision within 30 business days from submission of a substantially
complete short sale application for approval.
- Borrowers who had their mortgage loan modification applications approved
but then subsequently not honored by the mortgage lender or its loan servicer
or successor loan assignee and/or its servicer.
- Borrowers who have had their mod application is approved Subject to trial
loan modification payments that last beyond three months.
- Borrowers who initially paid for and provided their lender/servicer with
proof of their own homeowners’ insurance only to have their mortgage
lender and/or servicer subsequently charge them for forced placed homeowner's
or other insurance.
- Borrowers with excessive mortgage escrow deficiencies.
- Borrowers who procured a prior loan modification approval that is subsequently
not recognized by a new lender/servicer.
Homeowner/borrowers and their attorneys should be on the lookout for the
above referred to following fact patterns that form the basis of a RESPA
claim based on violations of CFPB regulations:
- 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 homeowner/borrower's pending bankruptcy case, filing
a dispositive motion in a judicial foreclosure, setting a foreclosure/
sheriff ’s sale date or failing to withdraw a scheduled foreclosure
sale date.
- When a mortgage loan servicer fails to honor an agreed to loan modification
or approved loan modification trial period payment plan.
- When a mortgage loan servicer fails to make a decision on a substantially
completed application for short sale approval within 30 business days.
- When a mortgage loan servicer refers homeowner/borrower's loan for
foreclosure before a borrower's mortgage loan is 120 days past due.
- When a mortgage loan servicer fails to properly calculate borrowers'
escrow payments or escrow shortages and overcharges borrowers based on
their failure to properly amortize escrow shortages. Note that a servicer
may only hold a two-month cushion for property taxes, homeowner’s
insurance and private mortgage insurance in escrow.
- Charging for unnecessary appraisals, legal fees, property inspections and
other sums not properly advanced by the mortgage lender/servicer.
Practitioners should also be aware of potential claims under the Federal
Truth in Lending Act (hereinafter "TILA"):
- When a mortgage loan lender or its servicer fails to provide correct information
on monthly statements to borrowers (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 lender or its servicer fails to send statements to
borrowers, whatsoever; (borrowers in bankruptcy or discharged from bankruptcy
are currently exempt). This happens more often than one might think.
- When a mortgage loan lender or its servicer fails to apply payments on
the same day as they receive them.
- When a mortgage loan lender or its servicer wrongfully applies loan
payments to loan fees or amounts advanced by the servicer before applying
said payments to unpaid principal, interest, taxes and insurance.
- When a mortgage loan servicer fails to provide the name of the current
owner and/or master servicer and servicer of the loan within 10 business
days of the date of receipt of a written request for same; and/or
a mortgage loan payoff or reinstatement amount within 7 business days
of receipt of a written request.
Marc G. Alster has been fighting for homeowners, consumers and small businesses since
he began his private practice in 1991. Prior to this, as a young attorney
Mr. Alster represented various lenders prosecuting foreclosure actions
against homeowners in New Jersey and New York and thus has an intimate
perspective from both sides of the foreclosure process which benefits
his clients who are dealing with a pending or facing imminent foreclose
of their homes or other real property in New jersey or New York.