Banking Law

The latest "hot" area for class action litigation? You guessed it: suing mortgage loan servicers.

"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.

Ohio lawyer Jennifer Monty (we assume she's not The Full Monty) gave some guidance about another growth area, this one the manufactured "right" to a HAMP modification. Those modifications are discretionary, but HEY! Don't let an inconvenient truth stand in the way of trial lawyer spin doctoring. Sue first, back-and-fill later. Monty also revealed that the Justice Department may be looking into whether HAMP modifications might have been denied on a prohibited basis that might violate ECOA.

"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.

Makes a servicer glad it decided to play ball with the Obama administration and participate in HAMP, rather than just telling the government to stick it in its ear and foreclosing, doesn't it? No good deed goes unpunished.

Apparently, servicers are also running afoul of the Fair Debt Collections Practices Act. One lawyer described the use of the FDCPA by some lawyers "as somewhat of a bandwagon business." The band must be playing sour notes. According to Florida Lawyer Daniel Consuegra, it's easy to violate the law.

...[I]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 if all this ammunition wasn't enough for plaintiffs' lawyers, they've got a Big Bertha in the reality that, for most servicers, the economics usually make a quick settlement the preferred outcome, regardless of the merits of any individual complaint.

"You have to settle these cases," he said. "Settle fast. Settle often."

For borrower's counsel, it appears that the land inhabited by mortgage loan servicers will remain a target rich environment.