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.