Last week, regulators from 49 states and the District of Columbia announced a $45 million settlement with PHH Mortgage Corporation. Left unsaid was how that settlement would become legally enforceable and whether it would fully exonerate PHH. The answers to those questions are: the settlement will become enforceable through the Dodd-Frank Act and, no, PHH could face further liability. Continue Reading Swarming States Wield Dodd-Frank Against PHH Mortgage Corporation

Yesterday, the Florida Attorney General and the Consumer Financial Protection Bureau hit Ocwen Financial Corporation with twin lawsuits for the company’s allegedly improper mortgage-servicing practices. Regulators from nearly two dozen states are either issuing cease-and-desist orders against Ocwen or yanking its licensing. At the heart of the company’s problems lies a vexing issue: its software platform, which it developed itself, is supposedly junk. Continue Reading Faulty Software Lands Mortgage Servicer in Regulatory Nightmare

In recent years, the economic downturn and the practice of mortgage securitization converged, spawning all sorts of novel legal questions. Among those is whether a homeowner can sue an entity that foreclosed on her home but did not have proper legal title to the underlying mortgage. Last month, in a closely-watched decision, the California Supreme Court said “yes.” Lower courts will spend years, if not decades, deciphering the ruling’s implications. Continue Reading California Homeowners Gain Means of Attacking Non-Judicial Foreclosures

Wells Fargo Bank, N.A.’s former practice of charging more for broker price opinions (BPOs) than it paid for them could lead to class liability, a federal court in California ruled last month. The lone claim approved for class certification is a doozy: one count under the federal Racketeering Influenced and Corrupt Organizations Act (RICO). That disco-era statute, seldom invoked nowadays, is being dusted off and used by plaintiffs’ lawyers as a last-ditch effort to rescue seemingly doomed class actions. Continue Reading Wells Fargo Facing Class Action Over Alleged Racketeering

Earlier this month, Bank of America, N.A., convinced a California court to reject certification of a proposed class of homeowners who experienced long delays when modifying their mortgages under a federal housing program. The plaintiffs’ novel theory, while inappropriate on a class basis, still might result in lenders being liable to individual consumers. Continue Reading Federal Loan Modification Program Not Suitable for Class Status, Court Rules

In the latest chapter in an extended legal battle over robosigning, Mortgage Electronic Registration Systems, Inc. (MERS), and other industry participants convinced an Arizona federal court last month to deny several homeowners’ demand for class certification. The ruling leaves the plaintiffs’ case in disarray and is well-reasoned enough to deter future copy-cat lawsuits.

Continue Reading MERS Off the Hook for Potential Class Liability for Robosigning

 

Systemic failures to serve notices of mortgage payment changes resulted in Wells Fargo Bank, N.A., having to pay $81.6 million in restitution earlier this month. Payment change notices (PCNs) are required for borrowers who file Chapter 13 bankruptcy and try to cure their existing mortgage delinquencies. Other mortgage servicers with lax PCN procedures should take heed of Wells Fargo’s costly lesson.

Continue Reading Wells Fargo Pays $81.6 Million Due to Faulty Mortgage Servicing

The financial woes of mortgage-industry titan, Ocwen Loan Servicing, Inc., continue. After reporting a loss of over $500 million in 2014, Ocwen announced last week that it had agreed to settle a pending class-action lawsuit for $140 million. The lawsuit, which includes co-defendant Assurant, Inc., accuses Ocwen of receiving hefty, unlawful kickbacks from Assurant for force-placed insurance premiums from 2008 to January of this year. The settlement would benefit nearly 400,000 class members, who supposedly would receive roughly the amount of unwarranted kickbacks and commissions that were paid to Ocwen.

Forced-placed insurance is a policy that a mortgage lender buys to protect its collateral when its borrower has allowed coverage to lapse, whether through non-payment, abandonment, or an escrow shortage. Mortgages always have clauses that allow lenders to charge those premiums to borrowers. According to the lawsuit, force-placed premiums can range from double to ten times the cost of insurance that a homeowner can purchase on her own in the open market. The shocking price inflation, critics say, comes from exclusive and collusive relationships that exist between insurers, banks, and loan servicers.

The settlement, which still must be approved by a federal court in Miami, provides for nearly $10 million in attorneys’ fees. (That is a handsome sum considering that the case is barely a year old.) The settlement also bars Ocwen from charging inflated premiums for force-placed insurance for five years and from entering into quota-share reinsurance arrangements with Assurant or any other servicer.

Both companies denied wrongdoing, and Ocwen claimed that its decision to settle was driven by its desire to avoid “prolonged and distracting litigation.” This settlement comes on the heels of Ocwen’s most recent agreement, in December 2014, to pay $150 million to settle allegations by New York regulators that the company manipulated mortgage documents. That agreement also resulted in the sacking of William Erbey, the firm’s founder and executive chairman.

The on-going battle over property inspections for defaulted mortgages recently took an interesting turn. This latest skirmish pitted mortgage servicing giant Ocwen Loan Servicing against the famed plaintiffs’ law firm of Baron & Budd, P.C., which according to a federal court in Los Angeles, “specializes in suing large banking institutions for imposing unnecessary property inspection fees.” Ocwen was able to get the complaint dismissed on legal grounds, but the court ultimately threw the plaintiff a lifeline—which she promptly seized.

The background facts were not unlike those from other property-inspection cases around the country: the consumer, Mary Lou Vega, defaulted on her home mortgage, which Ocwen was servicing, and then she kept living there for free. Based on a computer algorithm, Ocwen had monthly inspections done of her property and billed her for those costs. (She never paid those bills, nor did she do anything to cure her mortgage delinquency.) But ignoring her mortgage obligations was not enough for Vega. No, she decided to sue—and not just on behalf of herself, but also on behalf of a whole class of mortgage cheats.

Vega argued that the property inspections were unnecessary, and therefore improper, because she stayed in contact with Ocwen and because she continued to occupy the house. She also claimed that Ocwen’s invoices were misleading because the company did not tell her that the inspections were unnecessary.

The court disagreed. It found that the many other cases that dealt with allegedly unnecessary property inspections had language in the mortgages that directly supported the claims. But here, no similar wording existed, the court held. That omission was supposedly explained by the fact that Vega’s lawyer “decided to reuse a previously filed complaint,” which contained different language, and he never bothered to modify his canned pleading. Also, there was no precedent holding that a company breaches a contract or is otherwise in the wrong if it sends a bill but does not admit to violating the underlying agreement, the court noted. The court then dismissed all the remaining claims, each of which relied on those flawed premises.

One possibly viable cause of action, not yet pleaded, remained. The court pointed out that Vega’s mortgage permitted charging her for “reasonable” steps to secure the property. Whether the automated ordering of inspections was reasonable is, according to the court, a plausible breach-of-contract question. The court then granted Vega 10 days to file an amended complaint along those lines, which she timely did. We’ll see if Ocwen can continue its successful run against the new complaint.