Often in the course of defending foreclosure lawsuits, we encounter wrongdoing committed by our clients’ lenders or loan servicers. Sometimes the lender wrongdoing is what leads our clients to default on their loans in the first place. Banks are large institutions and a lot of their responsibility for receiving and recording borrowers’ payments and other important loan details is automated. This automation, as well as human error, can cause mistakes or inaccuracies that can be devastating to a borrower’s mortgage loan account or credit history. Often, the wrongdoing is found where servicers have violated federal or state laws that control how loan modification applications and the underwriting process is supposed to work. When lenders, loan servicers, or other parties such as debt collectors commit wrongdoing that impact our clients—whether negligent or intentional—we seek to hold them accountable through several recognized statutory and common law legal frameworks.
The Consumer Fraud Act
The Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505 et seq., is intended to protect consumers against unfair or deceptive acts and fraud in conduct of trade or commerce. 815 ILCS 505/2 broadly defines unlawful practices as: “Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent, that others rely upon the concealment, suppression or omission of such material fact…in the conduct of any trade or commerce are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby.” When appropriate, we use the Consumer Fraud Act to hold mortgage servicers accountable and win monetary damages for our clients or use the servicers’ violations as leverage to obtain our clients a favorable loan modification. Some people want to develop leverage that may help save their homes, while others want their day and court and to seek damages—we handle both types of scenarios on a case-by-case basis and advise our clients which scenario is better for their particular situation. We take great care to leave no stone unturned when evaluating our clients’ cases to make sure we take the right steps to get them everything to which are entitled under the law.
The Department of Housing and Urban Development originally promulgated Regulation X, the implementing regulation for the Real Estate Settlement Procedures Act (RESPA). The Consumer Financial Protection Bureau issued final rules to amend Regulation X. The purpose of the final rules was to make technical and substantive changes to the regulations that already existed, and included revisions to the parts of Regulation X’s servicing provisions that relate to state law. The Regulation X final rules became effective as of January 10, 2014. They contain a lot of protections for borrowers and when used in conjunction with Section 6(f) of RESPA, legal mechanisms to hold loan servicers accountable for violations. We use these legal mechanisms to get our clients better results in the loan modification application or monetary damages, depending on the goals of the individual client.
A particularly powerful part of this law is Section 1024.41(g) of Regulation X, which prohibits a lender or servicer from taking certain foreclosure related legal actions while a borrower is actively working with them to restructure their loan and avoid losing their home to foreclosure. Specifically, if a borrower submits a complete loan modification application (or even an application for certain types of non-retention options) after a servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process but more than 37 days before a foreclosure sale, “a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale.” RESPA provides that borrowers can directly sue the servicers for violation of this section and obtain monetary damages if the servicers are found liable. When a complete application is pending, a servicer or lender cannot advance the foreclosure lawsuit in court or sell the property at auction. If they do, they are guilty of violating RESPA and Regulation X and may have significant legal exposure. This is a powerful tool we use on behalf of our borrower clients to greatly slow down or even stop a foreclosure lawsuit completely while we work with the lender on their behalf to obtain a loan modification and save the home long term.
There are several other provisions of RESPA and Regulation X that contain powerful protections for borrowers. We give each case that we handle the same careful attention to ensure all potential avenues to servicer liability (which equals negotiating leverage for our clients) are explored and exploited. We strive always to deliver our clients the maximum results they are entitled to under the law.
The Fair Debt Collections Practices Act
The Fair Debt Collections Practices Act, 28. 15 U.S.C. §1692 broadly prohibits unfair or deceptive acts or practices in connection with the collection of any debt. We frequently encounter default loan servicers running afoul of this law in the foreclosure context—foreclosure is arguably the most aggressive debt collection tactic around.
The FDCPA prohibits debt collectors from making any false, deceptive, or misleading representation in connection with the collection of any debt. This includes conduct such as:
- The false representation of the character, amount, or legal status of any debt; or any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.
- The threat to take any action that cannot legally be taken or that is not intended to be taken.
- Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.
- The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.
In the foreclosure and post-foreclosure context, we see default servicer debt collectors violate these laws by attempting to collect on an account that was settled which borrowers had no further legal obligation on, including misreporting the balance due and owing to the credit reporting agencies. Sometimes, the collector will falsely misrepresent that a debt is legally actionable when in fact the collector does not intend to or cannot actually take any legal action.
Another provision of the FDCPA prohibits a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt. Violations of this provision can occur when collectors seek the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) that is not expressly authorized by the agreement creating the debt or permitted by law.
Frequently encountered FDCPA violations include collectors who:
- Communicate information which is known or which should have been known to be false to the credit reporting agencies, in violation of 15 U.S.C. §1692(e)(8).
- Make false, deceptive, or misleading means to attempt to collect a debt in violation of 15 U.S.C. §1692(e)(10).
- Attempt to collect an alleged debt from Plaintiff when Defendant had no legal right to collect in violation of 15 U.S.C.§§1692f and 1692f(1).
- Contact borrowers by mail and telephone even though it knew that they were represented by an attorney regarding the account in violation of 15 U.S.C. §1692c(a)(2).
- Engage in conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt in violation of 15 U.S.C. 1692d.
If you believe that you have suffered violations of these consumer laws—inside or outside of the mortgage foreclosure context—contact us right away. Some types of consumer law cases require no upfront fees from our clients—many are “fee shifting cases.” This means that our legal costs and fees will be recovered directly from the debt collector as part of the settlement or trial verdict obtained on your behalf.
Breach of Duty or Contract
Sometimes, in addition to violating one or more of the above statutes, lenders or servicers will also commit violations of the “common law” (which just means the source of the law is not a code, regulation, or statute, but instead a court case or collection of cases that have made the law or laws). The most common example of this in the mortgage foreclosure context is when lenders or servicers themselves violate the very mortgage contract or promissory note that they are suing the borrower to foreclose or collect This is known as breach of contract—if it occurs, borrowers have the right to sue their lender back within the foreclosure case. This is called a counterclaim and is a very powerful mechanism for slowing foreclosure cases down and generating leverage to resolve them favorably for our clients.
In other instances, the lender will commit violations of law that are not based on the mortgage contract, but instead, on the professional duty, it owes their customers (the loan borrowers) to handle the mortgage loan account with reasonable care. When servicers fail to use ordinary or reasonable care in their handling of the borrower’s account, they can be sued for negligence. Just like when you drive on a road you have a duty to use ordinary care not to run into other people who are driving, so too must lenders use ordinary care to avoid errors in their loan servicing practices that could damage borrowers by destroying their credit, causing mental anguish and stress, causing them to lose money or to be wrongfully dragged into court. If our clients’ lenders committed negligence or breach of contract, we hold them accountable.
These are just some of the ways the Law Offices of Adam J. Feuer uses the law to advance their clients’ goals and deliver the results, inside and outside of the mortgage foreclosure context. If you need help with your creditors, please contact us to discuss all the options you may have.