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2014 Mortgage Rules Could Provide Recourse Against The Modification Run-Around And Dual-Tracking

2014 Mortgage Rules Could Provide Recourse Against The Modification Run-Around And Dual-Tracking

A law that took effect in January will open the door for thousands of people to be able to seek recourse against their mortgage lenders and loan servicing companies whose tactics made it difficult or impossible to work through modifications or defend themselves against foreclosure.

The Dodd- Frank Act was signed into law in 2010 but significant portions that change how mortgage lenders and servicers do business has become effective just this year.  The rules are designed to protect homebuyers from risky mortgages and shady mortgage practices.  Anyone wrestling today with a lender or loan servicer may be able to sue for damages.

The changes require lenders to provide the borrowers with detailed information about their loan. They also must credit payments promptly and give a prompt response to request for pay-off information. Lenders also must give notification to borrowers before slapping a new homeowner’s insurance policy onto their loans. So-called forced-place insurance policies were responsible in themselves for many foreclosures.

The list sounds like sound business practices that any lender or servicer already would be doing – except history shows those facing foreclosure or attempting to modify their mortgage loans faced ridiculous communication hurdles in getting the simplest information from their lenders and servicers.

Practices like a servicer not applying payments promptly to a borrower’s account or never sending statements to borrowers who are struggling have had the effect of pushing many borrowers into foreclosure. Many major loan servicing operations have settled allegations with the states and federal government, but previously, the law did not support individuals making claims against the servicers.

“People may not be aware that they now have rights,” said Korte & Wortman Senior Partner Brian Korte. “Had it been done in 2008, all those people who lost their houses illegally would have had recourse.”

Another significant change restricts “dual tracking,” the practice of a mortgage lender beginning a foreclosure action at the same time it offers a borrower a loan modification.

“This has been a common practice,” Korte said. “There have been countless times where we’ve been attempting to work with a lender on a modification when a foreclosure court date would appear on the court calendar. A lender who does this now could face a lawsuit from the borrower.”