Lawsuit Alleges Predatory Servicing

EMC Mortgage Corp. and Bear have been charged with “unfair and predatory servicing practices” that violated the Fair Housing Act and Civil Rights laws in a class action suit that was filed Dec. 10 and entered on Dec. 11.

Those practices “targeted and exploited nonprime borrowers,” resulting in “a disparate impact on Hispanic and African American borrowers,” according to the suit which was filed on behalf of an Hispanic couple, an African American couple and an African American woman in U.S. District Court in Connecticut.

“As part of this nefarious servicing system,” the suit alleges, “EMC routinely and systemically mismanaged Hispanic and African Americans mortgage loans by charging them unauthorized fees, such as force-placed insurance and other charges, and refusing to properly credit loan payments made by borrowers,” which “caused many minority borrowers to become delinquent or to default on their mortgage loans through no fault of their own.”

EMC also, the suit alleges, mishandled escrow accounts, making untimely payments for casualty insurance, property taxes and other charges, and failed to “adequately staff its payment processing, customer service departments, and back-end support departments, making it impossible for EMC to adequately service loans or to respond to borrowers.”

And Bear allegedly “devised a securitization process that would yield it heretofore unheard of profits by controlling the acquisition, servicing, bundling and master servicing under one roof, allowing it to exploit Hispanic and African American nonprime borrowers.”

Bear, as well as Hatcher Norris, a lead attorney for the plaintiffs, did not immediately respond to MortgageDaily.com’s request for comment.

The suit seeks an order determining that the action is a proper class action.

It also seeks punitive damages, costs and disbursements, and equitable and/or injunctive relief “including rescission, reformation, attaching, impounding or imposing a constructive trust upon, or otherwise restricting, the proceeds of defendants’ ill-gotten funds to ensure that plaintiffs and class members have an effective remedy.”

In the plaintiffs’ cases, the suit alleges, EMC failed to either pay or timely pay property taxes and failed to credit or timely credit monthly mortgage payments, resulting in unjustified fees and erroneous credit reporting, derogatory credit and the denials of loans. Further, according to the suit, in each case, plaintiffs were unable to get EMC to resolve these problems promptly, if at all.

U.S. District Court Judge Janet C. Hall, who has been assigned to the case, has signed a protective order giving counsel for both plaintiffs and defendants EMC and Bear Stearns the right to designate any document or information as confidential to protect the interests of their clients.

Bear and EMC have until March 10 to file motions to dismiss the complaint.