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2.13 Problems Related to the Transfer of Servicing

Many servicing problems occur at or near the time of a transfer in servicing, often caused by the servicers’ inability to communicate with each other and reconcile account records. In some cases this is caused by the incompatibility of the servicers’ record systems. Borrower payments made during the transition period may not be properly credited, escrow account information may be inaccurate, and information about pending loss mitigation applications (sometimes called in-flight modifications) or offers may not be timely and accurately communicated to the transferee servicer. Errors involving just one or two payments can spiral into a threatened foreclosure despite borrower efforts to prove that the payments were in fact made.239

Due to incompatibilities between servicers’ record systems, during the transfer process account information can disappear or be corrupted. Unfortunately, servicers do not always engage in a robust verification process before servicing transferred loans. For example, in a recent enforcement action the Consumer Financial Protection Bureau documented that a servicer routinely “boarded loans that contained payment history data that it had reason to believe was inaccurate or incomplete.”240 The complaint further alleged that the servicer failed to verify that corporate advances and servicing-related fees were valid and actually owed by borrowers, even though in many instances the servicer did not have invoices or other documents to support the fees, and even though the servicer was receiving disputes from borrowers that the fees were not owed. These errors were not isolated, with as many as seventy-two to ninety percent of the verified loans containing errors or incomplete information that needed corrections during certain periods. The potential costs to borrowers from unwarranted fees was potentially significant. For the loans the servicer boarded in one year, it was missing invoices or other documents to support $98 million in corporate advances that it had charged to borrowers.

While servicing transfers can wreak havoc with any borrowers’ mortgage loan account, concerns are heightened for borrowers facing foreclosure and seeking loss mitigation. Borrowers frequently report getting the “run around” from new servicers that refuse to honor the terms of existing trial and permanent loan modifications.241 A recent CFPB Supervisory Highlight noted that:

[O]ne or more servicers failed to honor the terms of in-place trial modifications after transfer. Some borrowers who completed trial payments with the new servicer nevertheless encountered substantial delays before receiving a permanent loan modification. Supervision concluded that the delay caused substantial injury as trial payments were less than the amounts required by the promissory note, and consumers continuing to make trial payments while waiting for the permanent modification accrued interest on the unpaid principal balance.242

The Bureau noted that for some servicers “delays in honoring in-flight modifications were caused by their dependence on the information technology department to manually override data fields whenever the servicing platform rejected transferor data.”243 For borrowers who have submitted applications and are still waiting to be evaluated for loss mitigation at the time of the servicing transfer, the process can become even more daunting. Little information is communicated to borrowers about the status of their loss mitigation requests at the time of transfer. Transferee servicers routinely make duplicative and burdensome requests of borrowers for information and documents that have been previously provided to the transferor servicer. In many cases, new servicers require that the borrower start the process over again.

RESPA regulations address some issues with respect to transfers of servicing.244RESPA regulations with respect to pending loss mitigation applications were expanded by the 2016 mortgage servicing rule amendments, effective October 19, 2017.245 In addition to RESPA claims, problems that occur at the time that servicing is transferred may give rise to a number of claims, including contract claims and tort claims against both the transferor and transferee servicers.246

Footnotes

  • 239 {234} E.g., Rawlings v. Dovenmuehle Mortg., Inc., 64 F. Supp. 2d 1156 (M.D. Ala. 1999).

  • 240 {235} Consumer Fin. Prot. Bureau v. Ocwen Fin. Corp., Case No. 9:17-CV-80495 (S.D. Fla. filed Apr. 20, 2017).

  • 241 {236} See, e.g., Block v. Senaca Mortg. Servicing, 221 F. Supp. 3d 559 (D.N.J. 2016) (borrower stated claims for breach of contract and violation of FDCPA against transferee servicer); Dougherty v. Bank of Am., 177 F. Supp. 3d. 1230 (E.D. Cal. 2016) (borrowers stated a claim for negligence when transferor servicer failed to notify subsequent servicer of modification status); Hammer v. Residential Credit Solutions, Inc., 2015 WL 7776807 (N.D. Ill. Dec. 3, 2015) (denying transferee’s motion for judgment as a matter of law, new trial, and remittitur of $1.5 million in punitive damages); Kemboi v. Ocwen Loan Servicing, L.L.C., 2012 WL 2571287 (N.D. W. Va. July 2, 2012) (denying summary judgment to transferee servicer on breach of contract and UDAP claims).

  • 242 {237} CFPB Supervisory Highlights, Mortgage Servicing Special Edition, Issue 11, at 17–18 (June 2016).

  • 243 {238} Consumer Fin. Prot. Bureau v. Ocwen Fin. Corp., Case No. 9:17-CV-80495 (S.D. Fla. filed Apr. 20, 2017).

  • 244 {239} See § 3.4, infra.

  • 245 See § 3.8.3, infra.

  • 246 See Ch. 5, infra.