Common Legal Claims Against Mortgage Servicers

Mortgage servicing companies handle the day-to-day management of your home loan, including processing payments and managing escrow accounts. When these companies fail to perform their duties properly, homeowners may have grounds for legal action.

The most frequent claims against mortgage servicers include improper fee assessments, misapplication of payments, and failure to provide required disclosures. For example, if your servicer continually applies your payments to fees first rather than principal and interest as required by your mortgage agreement, this may constitute a breach of contract. Similarly, if they fail to properly manage your escrow account for taxes and insurance, causing unnecessary penalties or insurance lapses, this could be grounds for legal action.

These issues often begin with communication breakdowns between homeowners and servicers, but can escalate to serious financial consequences if not addressed properly and promptly.

Breach of Contract Claims

Your mortgage agreement is a legally binding contract between you and your lender. When the lender or servicer fails to honor the terms outlined in this agreement, you may have a breach of contract claim. This is perhaps the most straightforward cause of action against a mortgage company.

Typical breach scenarios include charging fees not authorized in the original loan documents, changing interest rates outside of contractually permitted adjustments, or failing to credit payments properly. For instance, if your mortgage specifies that payments will be applied in a specific order (principal, interest, escrow, fees), but the servicer applies them differently to maximize their fee collection, this violates your contract.

To pursue a breach of contract claim, you'll need to carefully review your mortgage documents, identify the specific terms that have been violated, and document how the mortgage company failed to meet its obligations. Success in these cases often depends on having clear documentation of both the contractual terms and the specific violations.

Federal Regulation Violations

Several federal laws provide important protections for mortgage borrowers, and violations of these regulations can form the basis of legal action against mortgage companies. The Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) are two of the most significant federal protections.

RESPA requires mortgage servicers to respond to qualified written requests within specific timeframes and provide certain disclosures. If your servicer ignores your written inquiries about account discrepancies or fails to acknowledge receipt within the required period, they may be violating RESPA. Similarly, TILA requires accurate disclosure of loan terms and costs. Violations can include failing to properly disclose interest rates, fees, or payment terms.

The Consumer Financial Protection Bureau enforces these and other mortgage-related regulations. Their website offers resources for understanding your rights and filing complaints about potential violations. Mortgage companies that violate federal regulations may face not only individual lawsuits but also regulatory enforcement actions.

Foreclosure-Related Legal Actions

Improper foreclosure practices have led to significant legal actions against mortgage companies. If your mortgage servicer initiates foreclosure proceedings without following proper procedures, you may have grounds to challenge the foreclosure.

Common improper foreclosure practices include dual tracking (pursuing foreclosure while simultaneously working with the homeowner on loan modifications), robo-signing (processing foreclosure documents without proper review), and proceeding with foreclosure without proper documentation of ownership of the loan. During the foreclosure crisis, many major servicers including Bank of America and Wells Fargo faced legal consequences for these practices.

If you're facing foreclosure and believe your mortgage company hasn't followed proper procedures, consider consulting with a housing counselor approved by the Department of Housing and Urban Development or a foreclosure defense attorney. In many cases, identifying procedural errors can provide leverage for negotiating alternatives to foreclosure.

Loan Modification and Servicing Transfer Issues

Mortgage companies sometimes mishandle loan modification applications or create problems during servicing transfers, giving rise to potential legal claims. Homeowners seeking assistance through programs like the Home Affordable Modification Program (HAMP) have frequently encountered issues with lost documentation, unreasonable delays, and improper denials.

When mortgage servicing rights transfer between companies, problems often occur with the transfer of accurate information. Chase and other major servicers have faced legal action when servicing transfers resulted in lost payment histories, misapplied payments, or failure to honor previously approved modifications.

Under the Consumer Financial Protection Bureau's mortgage servicing rules, servicers must provide certain notices before and after transfers, maintain accurate records, and honor existing loss mitigation agreements. Violations of these requirements can form the basis for legal action, particularly if they result in financial harm such as improper fees, credit reporting errors, or wrongful foreclosure proceedings.

Conclusion

Taking legal action against a mortgage company requires careful documentation and often specialized legal knowledge. Before pursuing litigation, consider submitting a complaint to the Consumer Financial Protection Bureau or consulting with a housing counselor. Many states also have mortgage assistance programs that can help mediate disputes before they escalate to lawsuits.

If you do need to take legal action, consider consulting with an attorney who specializes in consumer protection or foreclosure defense. Many legal aid organizations offer assistance to homeowners facing mortgage issues, particularly those at risk of foreclosure. Remember that statutes of limitations apply to different causes of action, so it's important to address potential violations promptly.

The mortgage servicing industry continues to evolve with changing regulations, but your rights as a borrower remain protected under various state and federal laws. Understanding these protections is your first step toward holding mortgage companies accountable for their legal obligations.

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This content was written by AI and reviewed by a human for quality and compliance.