Servicer Mistakes Lead to Litigation

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7 · 17 · 12

Many of the lawsuits that mortgage servicers are defending themselves against are the result of their own mistakes. A lawsuit against the Federal Home Loan Mortgage Corp. sought to collect lost servicing fees after the secondary lender backed out of a servicing agreement.

Community Resource Mortgage Inc.’s motion for summary judgment in an adversary proceeding filed in a Washington, D.C., bankruptcy court by Timothy Clark Bryan was denied on April 13. Bryan is attempting to recover the statutory penalty provided under S.C. Code § 29-3-320 based on Community Resource’s failure to mark his mortgage as “satisfied” until September 2011 even though the loan was paid in full within three days after it was made in 2002.

“Viewing the facts in the light most favorable to plaintiff, the court finds that the plaintiff has produced sufficient evidence showing a genuine issue of material fact on its statutory claim and its negligence claim,” the ruling stated.

U.S. Bank, N.A., settled a dispute with Williams Island Property Owners’ Association over unpaid association fees on a property owned by deceased borrower Danny Tadmore, according to MFI-Miami — which claims it provided findings to the bank that prompted its decision to settle. U.S. Bank, which was acting as the Trustee for HarborView Mortgage Loan Trust 2005-10, reportedly had argued that Florida Statute 720.3085 limited the amount it owed to the association to 1 percent of the original mortgage principal. But MFI claims it found a technical mistake in way the trust was listed on an assignment and used that as leverage to extract more from U.S. Bank on behalf of the association.

A lawsuit filed by Lisa Bridge and William W. Bridge III against several plaintiffs including Ocwen Loan Servicing was dismissed by an Ohio federal court. The couple claimed violations of the Fair Debt Collection Practices Act. A check was mistakenly not honored by the borrowers’ bank, Firstar, but then subsequently replaced. However, Ocwen “made endless collection calls” to the borrowers despite cease and desist requests and registry on the federal “Do Not Call” directory. It also threatened foreclosure, assessed monthly late fees and reported derogatory information to the credit reporting agencies.

The U.S. Court of Appeals, Sixth Circuit, found that while defendants Deutsche Bank National Trust Co. and Ocwen Federal Bank, FSB, were not proven to be “debt collectors” since the plaintiffs did not assert that those defendants are principally or regularly engaged in the collection of debts, it did find that Ocwen Loan Servicing was subject to the act and reversed the district court’s dismissal of the FDCPA claim against the servicer.

A federal court in Los Angeles granted a preliminary injunction in February against JPMorgan Chase & Co. as successor to Washington Mutual Bank, the Law Office of Kenneth Eade reported. Predatory lending is alleged because WaMu provided the borrowers with a first mortgage and a HELOC to purchase a property. The attorney claims that “as a result of the real estate crash, both loans went into foreclosure in 2008.”

WaMu allegedly ignored a short sale offer that would have prevented the foreclosure. After taking over WaMu, JPMorgan allegedly tried to collect a $250,000 deficiency judgment in violation of California statutes for purchase-money mortgages and reported the deficiency as negative credit. Violations of the California Consumer Legal Remedies Act and the federal Fair Credit Reporting Act are alleged.

Freddie Mac entered an interim servicing agreement with Doral Bank PR to take over the servicing on a portfolio of mortgages. But when the existing servicer brought court actions preventing Freddie from transferring the servicing, Freddie canceled the agreement with Doral. So Doral sued Freddie seeking 24 months of lost servicing compensation. But the district court ruled in favor of Freddie that Doral only needed to collect $124,588 in actual damages. Doral appealed, and the U.S. Court of Appeals, Fourth Circuit, affirmed the district court’s decision on April 10.

The Idaho Attorney General’s Office announced in March an agreement with Corvus Law Group LLC to modify its direct mail ads to comply with the Idaho Consumer Protection Act and better inform potential clients about its services.

The Post Falls, Idaho, law firm had been sending direct mail solicitations labeled “Form CLG 0127 Litigation Settlement Notification” claiming that consumers were eligible to participate in a pending multi-plaintiff lawsuit against their servicers. But consumers complained to the state that they learned no lawsuit had yet been filed when they called Corvus. In addition, they were told they would have to pay $5,000 retainer fees to participate in potential lawsuits.

Action plans released earlier this year by the Federal Reserve Board outlined how mortgage servicers will correct deficiencies in residential mortgage loan servicing and foreclosure processing. The action plans, which are required by formal enforcement actions issued last year by the Fed, “describe, among other things, how the institutions will strengthen communications with borrowers by providing each borrower the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust, third-party vendor controls; and strengthen compliance programs.”

Borrowers have until July 31 to submit requests for review of their foreclosures under an extension granted by the Fed in February.


Mortgage Daily Staff


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