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2.14 Credit Reporting Issues

Almost any mortgage servicing error, such as the misapplication of payments or improper force-placed insurance, can eventually lead to incorrect credit reporting.247 Other problems arise in servicers’ reporting of short sales and loan modifications. Postbankruptcy reporting of home mortgage loans is also an area fraught with error.248 Even borrowers who have fully paid off their loans have experienced credit reporting issues.

Short sales occur when the borrower is able to obtain a release of the mortgage lien by paying less than the full amount owed. Because the industry reporting format does not have a specific code for short sales, they may be reported as foreclosures.249 Such reporting is inaccurate and misleading. The Consumer Financial Protection Bureau has indicated that servicers violate the Fair Credit Reporting Act (FCRA) by incorrectly reporting short sales as foreclosures.250 An incorrect foreclosure notation may preclude borrowers from accessing new mortgage credit for an additional three to five years.251 Other issues that may arise include the reporting of uncollectable deficiencies after a short sale and the failure to properly credit foreclosure proceeds to the amount reported due.252

Loan modification is another area in which borrowers often experience credit reporting problems. Various loss mitigation programs have different reporting standards within the industry. For example, if the borrower was current with payments prior to entering a trial period modification plan under the Home Affordable Modification Program (HAMP) and the borrower made each month’s payment on time, the borrower should have been reported as current during the trial period.253 If the borrower was at least thirty days past due prior to entering the trial period plan, then the account status during the trial period should have reflected the appropriate level of delinquency. If the loan is permanently modified, the modified terms should be reflected in the credit reporting, and if the borrower is performing on the modified loan, the account status should be current. Servicers sometimes continue to report the mortgage as delinquent, per the original terms of the mortgage, even though the consumer is paying in compliance with the terms of the new, permanent modification.254 Other servicers have promised to report payments pursuant to a loan modification but have failed to do so.255

Servicers have damaged borrowers’ credit even after borrowers have fully paid their loans, by continuing to report the debt as due and owing.256

Incorrect reporting of foreclosures, short sales, loan modifications, and other mortgage-related events can cause significant damage to consumers’ credit ratings. The impact of the mistakes varies depending on what credit score the consumer had prior to the mistaken reporting. For example, improperly reporting a borrower as thirty days late on a mortgage can cause a sixty to eighty point drop in score for those with a FICO score of 680, but can cause a ninety to one-hundred-ten point drop for those with a FICO score of 780.257 A lower credit score will typically result in reduced access to credit or a higher cost of credit. Damages may include loss of credit opportunity, out-of-pocket expenses, and intangible damages, such as emotional distress and injury to reputation.

When the mortgage servicer reports inaccurate or misleading information, claims under the Fair Credit Reporting Act should be explored.258 Additionally, claims for negligent servicing, slander of title, and defamation have also been maintained.

Footnotes

  • 247 {240} See, e.g., Memmott v. OneWest Bank, 2011 WL 1560985 (D. Or. Feb. 9, 2011) (mag.; denying motion to dismiss FDCPA claim when servicer allegedly reported false information to credit reporting agencies), adopted by 2011 WL 1559298 (D. Or. Apr. 25, 2011); Sites v. Nationstar Mortg., L.L.C., 646 F. Supp. 2d 699 (M.D. Pa. 2009) (servicer reported borrowers as delinquent because of typographical error in processing payment); Calloway v. Green Tree Servicing, L.L.C., 607 F. Supp. 2d. 669 (D. Del. 2009) (denying motion to dismiss FCRA claim when servicer was incorrectly reporting two outstanding mortgages when borrowers had only one mortgage); Hukic v. Aurora Loan Services, Inc., 2006 WL 1457787 (N.D. Ill. May 22, 2006) (reporting borrower delinquent based on clerical error—payment recorded as $1135 instead of $1335).

  • 248 {241} See § 2.18.4, infra.

  • 249 {242} See, e.g., Young v. TransUnion, 2015 WL 2384153 (S.D. Cal. May 19, 2015) (class action against Equifax and TransUnion for reporting short sales as foreclosures).

  • 250 {243} CFPB Supervisory Highlights 8 (Winter 2013).

  • 251 {244} See, e.g., McCalmont v. Fed. Nat’l Mortg. Ass’n, 677 Fed. Appx. 331 (9th Cir. 2017) (Fannie Mae underwriting software incorrectly coded plaintiffs’ short sale as a foreclosure, preventing them from obtaining mortgage).

  • 252 {245} See Abdelfattah v. Carrington Mortg. Services L.L.C., 2013 WL 495358 (N.D. Cal. Feb. 7, 2013) (reporting entire mortgage balance as unpaid even though a portion was satisfied from foreclosure sale proceeds); Rex v. Chase Home Fin., L.L.C., 905 F. Supp. 2d 1111 (C.D. Cal. 2012) (alleging that mortgage servicer attempted to collect uncollectable deficiency and reported the failure to pay to credit reporting agencies).

  • 253 {246} See Consumer Data Indus. Ass’n, Credit Reporting Resource Guide, Mortgage Loan Modifications 11–12 (2015). But cf. Felts v. Wells Fargo Bank, 893 F.3d 1305 (11th Cir. 2018) (borrower complied with payment requirements of unemployment forbearance, but servicer reported loan as past due; borrower failed to show servicer reported inaccurate or misleading information; agreement with servicer and CDIA guidelines did not affect obligation on original note).

  • 254 {247} See, e.g., Pittman v. Experian Info. Solutions, Inc., 901 F.3d 619, 630 (6th Cir. 2018) (“We think [borrower’s] FCRA claim can proceed for at least two reasons: (1) while there was no written permanent modification document, there may have been an enforceable agreement to modify his loan; and, (2) the Servicers did not report the existence of the TPP.”); Tieffert v. Equifax Info. Services, L.L.C., 2014 WL 7240263 (E.D. Va. Dec. 19, 2014) (declining to dismiss FCRA claim); Giessen v. Experian Info. Solutions, Inc., 2014 WL 4058419 (C.D. Cal. July 2, 2014) (declining to dismiss federal and state FCRA claims against servicer); Darrin v. Bank of Am., 2013 WL 877087 (E.D. Cal. Mar. 7, 2013); Boudelais v. JPMorgan Chase Bank, 2012 WL 5404084 (E.D. Va. Nov. 5, 2012); Henderson v. Chase Home Fin., L.L.C., 2012 WL 4006686 (D. Ariz. Sept. 12, 2012) (servicer promised no negative reporting); Pundt v. Select Portfolio Servicing, Inc., 2012 WL 2312074 (N.D. Iowa June 18, 2012); Bradshaw v. BAC Home Loans Servicing, L.P., 816 F. Supp. 2d 1066 (D. Or. 2011).

  • 255 {248} See, e.g., Russo v. Bank of Am., 2014 WL 3811116 (N.D. Ill. Aug. 1, 2014) (declining to dismiss breach-of-contract claim for failure to report payments).

  • 256 {249} See, e.g., Islam v. Option One Mortg. Corp., 432 F. Supp. 2d 181 (D. Mass. 2006) (alleging false reports to credit reporting agencies after failure to properly credit payoff funds).

  • 257 {250} See Chi Chi Wu, National Consumer Law Center, Solving the Credit Conundrum: Helping Consumers’ Credit Recods Impaired by the Foreclosure Crisis and Great Recession 4 (Dec. 2013), available at https://www.nclc.org.

  • 258 {251} See § 4.4, infra.