Mortgage Servicing Fraud
Since the global financial crisis in 2008, consumers have been faced with many difficulties when dealing with mortgage servicers. In particular, mortgages that were sold into the secondary market, and/or securitized, were very often misplaced, lost or even intentionally destroyed. This gave rise to a new form of consumer fraud.
This new form of Consumer Mortgage Fraud includes False Documentation, Loan Modification Fraud, Force-Placed Insurance Fraud and the Misapplication of Payment Fraud.
At MCL, our attorneys have considerable experience in holding mortgage servicers to account. In fact, I was the first attorney to coin the term “robo-signer” in any Louisiana court.
(A) False Documentation
First, mortgage servicers have engaged in a series of False Documentation fraud and have attempted to fabricate chains of title by having employees and third party individuals execute countless affidavits, mortgage assignments and endorsements, and all manner of conveyance documents, without any personal knowledge about that which they were attesting. This blind execution of documents relied upon by courts became known as “robo-signing,” as in, signing documents without any understanding of the meaning or utility of such documents. Robo-signing is but one example of False Documentation fraud.
At MCL, we were among the first to recognize, and litigate instances of False Documentation fraud by mortgage servicers.
(B) Loan Modification Fraud: Dual-Tracking
For example, a consumer may seek to reduce his or her interest rate via loan modification despite never having missed a payment, suffered reduced income or any other event. Because the servicers are incentivized to send such a consumer to foreclosure, that consumer may be told that he or she failed to produce requested documentation, signature pages, proof of income or the like. In reality, the servicer is seeking to “run out the clock” rendering the application stale, thus permitting foreclosure.
Recent Federal law has been enacted to grant remedies to victims of dual-tracking. In some cases, homeowners can recover their attorneys fees in addition to other damages resulting from this wrongful conduct. Attorneys at MCL have considerable experience litigating dual-tracking cases.
In addition to falsifying documentation, mortgage servicers, which were frequently owned outright by the largest national banks, engaged in what is now known as dual-tracking – the practice of assuring consumers that they were being considered for loss mitigation options, while surreptitiously pursuing foreclosure. Dual-tracking occurs when a mortgage servicer pretends to assist a homeowner with loss mitigation efforts to allow them to stay in their home, only to be pursuing foreclosure as their singular goal. Many of these efforts appear legitimate, such as short-sales or deeds-in-lieu of foreclosure, but usually, actions taken by mortgage servicers engaged in dual-tracking ultimately result in the home being lost. The most common method of dual-tracking involves loan modification. Frequently, servicers promise to seriously consider such applications without ever having any intention of doing so.
(C) Force-Placed Insurance
Force-placed insurance is coverage that mortgage servicers force a homeowner to pay for to cover the outstanding loan balance in the event a homeowner fails to maintain such coverage on their own. This is meant to insure the loan gets paid off should the property suffer significant damage, such as a flood or fire. Mortgage servicers, however, sometimes use this practice as a means of overcharging consumers for basic insurance coverage or even pushing consumers into default on their loan obligation, with foreclosure as their ultimate goal. In extreme cases, consumers have lost their homes to foreclosure despite never having missed a mortgage payment or suffered lapsed or inadequate insurance coverage. Servicers are incentivized through commissions or kick-backs, to procure expensive insurance policies on behalf of the consumer. On some occasions, the mortgage servicer’s parent company actually owns the insurance company selling the policies — obvious self-dealing and conflict of interest.
At MCL, we have extensive experience proving that certain forced-placements of insurance were not only unnecessary, but never reimbursed after the consumer proved adequate coverage. We at MCL can help in these situations, and monetary damages may be the remedy.
(D) Wrongful Foreclosure: Misapplication of Payments
In every mortgage contract, there is a specific formula for how a consumer’s mortgage payment is to be applied. Mortgage servicers do not always abide by this mandated formula. For example, payments may be applied to late charges, over-limit or escrow fees, or otherwise appropriate costs, but in an order that is intended to benefit the lender at the expense of the consumer.
Sometimes this is done to create a default, with foreclosure as the ultimate goal. While this situation can be incredibly frustrating to consumers, it is often worse than consumers imagined because their credit is also being ruined by reports of delinquent payments to national credit reporting agencies.
We at MCL have secured recoveries in similar cases involving wrongful foreclosure resulting from the misapplication of payments.