Federal mortgage-servicing regulations are complex and fraught with traps for the unwary. A recent court decision involving Bank of America, N.A., shows how easy it is for borrowers to sue over alleged mortgage-servicing violations—and how difficult those lawsuits are to defeat.
In the decision, Jackson v. Bank of America, N.A., a married couple accused BOA of botching their mortgage-assistance applications, which supposedly allowed the bank to hit them with excessive delinquency fees. The couple’s mortgage default occurred in the aftermath of the 2008 recession, and at that time many lenders including BOA struggled to keep up with the deluge of mortgage-assistance applications. The bank and the couple corresponded many times over the course of several years, during which period BOA repeatedly asked for papers the couple had already submitted. The parties later reached what seemed to be a suitable loan-modification agreement, but even that eventually cratered because the couple ran into more financial trouble. They then sued BOA for violating the mortgage-servicing regulations under the Real Estate Settlement Procedures Act (RESPA).
BOA moved to dismiss the lawsuit, but the court allowed at least some of the couple’s claims to survive. The court recognized that RESPA regulations are geared toward initial mortgage-assistance applications and not toward later ones. So the alleged improprieties associated with later applications were not actionable, the court held. But the court did find that the couple had alleged sufficient actual damage by virtue of increased delinquency fees and, surprisingly, the inconvenience of a botched application, which consisted of postage fees, copy costs, and travel expenses.
What Jackson shows is how little a borrower needs to harangue a lender with mortgage-servicing allegations. Most mortgage-assistance applications are messy affairs, so they will nearly always present at least some possible grounds for a borrower to claim improper delay or to assert a technical violation. And the need to prove actual damages is extraordinarily low, given the reasoning in Jackson. Anyone who goes to the trouble of filing a lawsuit can easily meet that test.