Lawyers say mortgage servicers are big targets for litigation
Wednesday at the Mortgage Bankers Association Servicing conference in Grapevine, Texas, attorneys from around the country came to enlighten servicers and lawyers alike on new trends in litigation surrounding the servicing industry. What they've noticed is an exponential spike in cases being brought against servicers across all targeted areas of litigation. "Wrongful disclosure, deceptive trade practices, right of title, negligent representation, predatory lending, servicing transfers," said Anne Sutherland, executive vice president and general counsel at NationStar Mortgage. "As you all probably well know, contested foreclosure litigation is increasing." As a result, she said delays in the foreclosure process, alongside servicer fees and attorney fees, are steadily growing. Jennifer Monty, attorney with Weltman, Weinberg & Reis out of Cleveland, Ohio, spoke about a newer type of servicer litigation that just manifested in the last two years. President Obama's Home Affordable Modification Program and Home Affordable Foreclosure Alternatives program, she said, is the catalyst. "Due to the amount of media coverage that both HAMP and HAFA received, borrowers feel they are entitled to mortgage modification under these programs," Monty commented. "And when that doesn't happen they end up filing litigation." The issues in this department are far reaching and concern everything from fee disclosures under the Truth in Lending Act to wrongful denial of a trial modification. One thing Monty said that will be a priority for the Department of Justice going forward will be determining if these modifications are being rightfully granted or appropriately denied under the Equal Credit Opportunity Act. "The DOJ will look at neighborhoods that are being denied modifications as well as other factors that could be in violation of this law," she said. Cases concerning the Fair Debt Collection Practices Act on a federal basis have increased three-fold since 2006, as lawyers are using this statute as somewhat of a bandwagon business. According to Daniel Consuegra, managing partner with Floridian firm Law Offices of Daniel Consuegra, litigators on the consumer side are "looking for clients to sue us." "Things don't look good," Consuegra commented. "Things have always been difficult, but we need to be careful and vigilant." And he means it. Consuegra broke down the step-by-step process for typical loss mitigation. What was surprising, however, was the exact phone behavior and language servicers are required to comply with so as not to violate the FDCPA. According to his presentation and panelist commentary, if servicers leave a message with their intention to collect debt and someone besides the targeted consumer hears the message, the servicer has violated third party disclosure requirements. If a servicer leaves a message on a borrower's cell phone, the borrower can claim the servicer used up minutes and cost the borrower money. Even if the servicer hangs up and the borrower has caller ID, the borrower can claim harassment based on the number of calls they received. As servicer litigation increases, so do the amount that end in settlements, according to the MBA panel, which had mixed feelings about the trend. Monty said the amount of settlements in the industry is troubling because it gives consumers an incentive to bring a case against a servicer. But Consuegra sees them as an easy solution to what could be a lot of headache. "You have to settle these cases," he said. "Settle fast. Settle often." Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.