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Powerful Tools when Mortgage Modifications Are Wrongfully Denied - Federal Cause of Action

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").

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.

Practitioners and Borrowers Should Be on The Lookout for The Following Fact Patterns that Form the Basis of A Respa Claim:

  1. 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.

  2. When a mortgage loan servicer fails to honor an agreed to loan modification.

  3. When a mortgage loan servicer fails to make a decision on a short sale within 30 business days.

  4. When a mortgage loan servicer refers for foreclosure before a borrower is 120 days past due.

  5. 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.

  6. Charging for unnecessary appraisals, legal fees, property inspections and other corporate advances.

Practitioners and Borrowers Should Also Be Aware of Po­tential Claims Under Tila:

  1. 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.

  2. 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.

  3. When a mortgage loan servicer fails to apply payments on the same day as they receive them.

  4. When a mortgage loan servicer ap­plies payment to fees or corporate ad­vances before principal interest taxes and insurance are brought current.

  5. 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 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.

By: Marc Dann
Used with permission

From his office in Hackensack, New Jersey, Attorney Alster's services extend throughout the state of New Jersey, as well as New York. Some areas he serves in New Jersey are Passaic County, Bergen County, Hudson County, Essex County, and more; in New York, he serves Rockland County, Queens, and the Bronx.