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2.16 Untimely or Inaccurate Payoff Statements or Reinstatement Figures

Today most mortgages are paid off before their originally scheduled maturity date. Servicers routinely provide payoff statements to borrowers advising them of the amount needed to satisfy the debt and extinguish the loan. The Truth in Lending Act and Regulation Z require, for any loan secured by the consumer’s dwelling, that the servicer, creditor, or assignee provide, upon written request, an accurate statement of the total outstanding balance required to pay the obligation in full.297 The statement must provide a payoff amount as of a specified date and must be provided within a reasonable time.

Reinstatement quotations are similar. They represent the amount required to bring a delinquent mortgage loan current. Like payoff statements, reinstatement quotations are typically good through a certain date. The standard Fannie Mae security instrument permits a borrower to reinstate the loan after acceleration but prior to a nonjudicial foreclosure (five days) or judgment enforcing the security instrument.298 Reinstatement is conditioned on the borrower paying not only the outstanding periodic payments due, but also any expenses, fees, or costs owed under the agreement.299

If the borrower believes that a payoff statement or reinstatement figure is incorrect, the borrower should send the servicer a notice of error. For notices of error regarding incorrect payoff statements, servicers must respond within seven business days.300 Sometimes, however, the error is not discovered until after the payoff or reinstatement funds have been sent to the servicer, when the servicer then demands additional funds to bring the loan current or release the lien.301 For example, in Moss v. Ditech Financial, L.L.C.,302 the servicer provided a reinstatement quotation that unbeknownst to the borrower failed to include sums for corporate advances. The borrower called to verify the amount before sending in the reinstatement amount. Subsequently, the servicer attempted to collect these corporate advance fees by increasing the borrower’s escrow account payment. The court determined that the borrower had sufficiently pleaded Fair Debt Collection Practices Act (FDCPA), deceptive practices, and breach-of-contract claims. In Ruvalcaba v. Ocwen Loan Servicing, L.L.C., due to an accounting error the servicer sent an incorrect payoff statement to the closing agent.303 As a result the payoff funds were approximately $5000 short, the servicer placed the funds in suspense, did not release the lien, and began reporting derogatory credit information to the consumer reporting agencies. The borrower sufficiently alleged claims for negligence and violations of the FDCPA and Fair Credit Reporting Act. State law claims may also be available when a payoff statement is untimely or inaccurate.304

Footnotes

  • 297 {289} 12 C.F.R. § 1026.36(c)(3). See § 4.2.6.1, infra.

  • 298 {290} Single-Family Fannie Mae/Freddie Mac Uniform Instrument ¶ 19 (Jan. 2001).

  • 299 {291} See § 2.10, supra (discussing servicer’s improper assessment of fees).

  • 300 {292} 12 C.F.R. § 1024.36(e)(3)(a). See § 4.2.6.5, infra.

  • 301 {293} See, e.g., Jamison v. Bank of Am., 194 F. Supp. 3d 1022 (E.D. Cal. 2016) (alleging insurance proceeds were not credited prior to payoff statement); Ruvalcaba v. Ocwen Loan Servicing, L.L.C., 2016 WL 7178855 (S.D. Cal. Dec. 9, 2016) (servicer’s double-posting of payment led to short payoff amount which was not communicated to closing agent until three weeks after closing).

  • 302 {294} 2016 WL 4077719 (D. Md. Aug. 1, 2016).

  • 303 {295} Ruvalcaba v. Ocwen Loan Servicing, L.L.C., 2016 WL 7178855 (S.D. Cal. Dec. 9, 2016).

  • 304 {296} See § 4.2.6.6, infra; Appx. D.2, infra (summary of state payoff statement requirements).