Why to Sue a Mortgage Company
Commonly used as leverage to extract adjustments or concessions from your mortgage company, legal claims can also be used to hold lenders accountable for breaches of Contract, TILA and RESPA violations, accounting errors, slander of title, and predatory lending practices. Commonly filed claims that are against lenders include:
Inaccurate Payment Application
Your Loan Documents, Promissory Note and Deed of Trust require your lender to properly apply payments and fees.
Slander of Title
Your deed of trust is a real property instrument. Your lender will have caused a true statement to be published which adversely claims that a monetary obligation is due and that an interest in your Property has vested in the lender. Claims of "encumbrance" will cloud title and make it difficult to refinance or sell your property.
Negligent and/or Intentional Infliction of Emotional Distress
The law imposes a duty on lenders to act in good faith and deal fairly with borrowers. Lenders can be held liable for emotional distress from breach of duty and breach of Contract.
Unlawful Foreclosure
The laws in each State provide certain conditions that must be satisfied prior to a foreclosure sale being duly executed. Failure to give proper notice and allow for any demanded time period that must pass prior to the sale of your property can be harmful.
Predatory Lending – Disclosures
In many cases the lender will fail to provide a borrower with move in conditions , or APR and or payment calculations that reduces the subject loan. This is a violation of various state statutes as well as the TILA.
Predatory Lending-Misrepresentation
Lenders in their underwriting disclosures and/or processes will often misrepresent the value or condition of a property, making the borrower uncomfortable with the purchase or worse, liable for more than they bargained for. Lenders will often utilize outside contractors and manipulate those fees in such a manner so as to keep the borrower captive.
Grounds for Suing Your Mortgage Lender
Your right to sue your mortgage lender stems from the common law development of judicial procedures for breach of contract. Your mortgage company may be liable for negligent acts, fraud, or other conduct that constitutes a violation of federal or state statute. These are just a few examples of when it might be possible for you to prevail in a civil action against your mortgage company.
Breach of Contract
Contract law is a body of law that governs oral and written contracts. The ‘elements’ (or conditions) of a valid contract are; (1) mutual agreement (an offer and an acceptance) (2) capacity (age and mental competence) (3) consideration (something of value) (4) mutuality (both parties agree to be obligated to do something). Mortgage agreements contain several representations and warranties; they are are contracts – and the failure of a mortgage company to abide by its contract may make that mortgage company legally liable for your loss.
Negligence
Negligence refers to careless conduct that cause harm to another. Mortgage companies owe a duty of care to their borrowers. In other words, mortgage companies have an obligation to act reasonably, if they fail to do so, they may be liable for any harm that results.
Fraud
Fraud refers to willful misrepresentation and deceit done to deceive and induce another to take some action. Mortgage companies often make material representations to induce you to enter into a loan agreement. If the mortgage company knew the representation was false when it was made or made the representation without caring whether it was true or false, then the mortgage company may be liable if the representation induced you to take action and you suffered damages as a result.
Federal statutes that provide a borrower with a cause of action against a mortgage company include the Real Estate Settlement Procedures Act (RESPA), the Equal Credit Opportunity Act (ECOA), the Fair Housing Act, the Fair Credit Reporting Act, and the Truth-In-Lending Act.
Things to Do Before You Sue
A lawsuit should be the last resort, not the first step in any dispute with a mortgage company. There are steps, that do not include suing your mortgage company, you should take before filing a lawsuit against your mortgage company.
Before taking any legal action against your mortgage company, take these steps:
Do NOT send your lender a letter indicating your intention to sue them. This is silly and accomplishes nothing.
Gather Documentation- Document Everything and Keep It All Together. Gather and keep together all correspondence with your mortgage company. Have copies of all loan documents, payment receipts, and payment records. If you have a package of relevant documents, it is much easier to review them than if you constantly have to track down the documents. Think of it as an investment in your sanity. Much like car insurance or the gym membership you never use. But better because you have to do it to preserve your legal claim.
Seek Legal Advice-Consult with a Lawyer- If you have had no success getting your mortgage company to resolve your complaint within a reasonable time period, it may be time to consult with a qualified attorney. Tell the attorney your situation and legal issues with your mortgage company, and see what solutions the attorney offers and whether you agree with their approach. If you’re not comfortable with an attorney’s answers or recommendations, consider consulting with another attorney. This is America, you are entitled to multiple opinions. Or at least that’s what the loud guy in the back of the diner said.
Consider Alternative Dispute Resolution-Attempt Mediation or Arbitration- Ask your attorney if a third party mediator or arbitrator may be able to assist you in resolving your dispute with your mortgage company. Depending on the wording of your mortgage, it may be required.
What Your Lawsuit Could Achieve
If you prevail in a lawsuit against your mortgage company, there are several possible outcomes. For most people, they will not all involve an actual award of damages or "cash." It is just as likely that you may end up with a loan modification or even your foreclosure case will be cancelled.
If the court finds that the mortgage company committed violations, the court might order them to modify the loan. This usually happens when there is a problem with fees, payments, portions of the contract or if the mortgage servicer threatens foreclosure. If the plaintiff wins in court, a judge can try and cure the violation by ordering the company to correct any errors in the borrower’s favor.
Most litigation does not end in "damages". A court might excuse you from paying a certain part of the loan or the court might order a change in the loan terms.
It is also possible for a judge to vacate the foreclosure by ruling the mortgage company behaved improperly. When a mortgage company forecloses on a property improperly, the result is a "void" foreclosure judgment, meaning it did not happen. In a recent case, the Massachusetts Supreme Court voided a foreclosure because the bank’s attorney filled out a sworn document incorrectly. While this example focuses on Massachusetts, Arizona, California and many other states have similar rules.
While a voided foreclosure is a desired outcome for many borrowers, it can create a lot of bank litigation. While the bank must return the house, they can still sue to recover any missed payments, fees and stricter payments terms within the loan itself after the case has been voided.
It is possible for a borrower to "win" a lawsuit against their mortgage company and then have to pay a little more in cash to the lender. You should also keep in mind that even if you do win the case, you could still be responsible for court costs and attorneys fees.
Besides changing the terms of the loan, a verdict could also excuse you from paying certain fees and costs or the reverse is also possible. Sometimes when the plaintiff is being unreasonable or there are other problems with the settlement, judges will just waive costs, attorneys fees and just about anything else the plaintiff could claim.
Winning a lawsuit means the plaintiffs will often be offered the same terms, so expect the judge to order a change in the terms of the loan. Sometimes the judge works with the borrower and mortgage company to inspect the financial records and find a solution.
How to Get Legal Help
If you do decide to take action against your mortgage company, having a qualified real estate or mortgage litigation litigation lawyer on your side will prove invaluable when fighting for your rights. Depending on the severity of your dispute with the lender, you may be able to recover damages. Additionally, if you’ve had your home wrongfully foreclosed on (due to a wrongful foreclosure), you may even be awarded damages, including your home back. Finding an attorney you can rely on to fight for you is essential. Usually, you’re looking at choosing from a few different attorneys , most of which have their own approach to suits involving lenders. You want to make sure you’re selecting the best attorney for your case based on their experience and your comfort level with the attorney. A dispute against a mortgage company can be a costly fight—it’s easy to lose sight of how much money you’re spending on the legal battle, but it always pays to have an attorney represent you. An experienced attorney can help you to understand the case you’re fighting, whether it be a wrongful foreclosure case or a mismanaged loan, and the options you have to take action against lenders to recover damages.
Cost and Risk of Lawsuits
Before considering whether you have a good case for legal action, start thinking about whether you have the resources to back up your claims. Some of the cases that I have filed are listed under my blogposts under the label "cases". I have spent a lot of time filing lawsuits only to have the court recognize that the allegations were so trivial and the point of each case so small that the actions were not even pursued further. Trust me, none of these cases meaningfully changed the business practice of any mortgage company or servicer.
Still, if a mortgage company/servicer crosses the line from bad behavior to illegal behavior, you may indeed have a good case that warrants pursuing legal action. However, that does not mean it is the best way to resolve your problem.
Most Americans are on fixed incomes. They have lost money in this mortgage meltdown and to finish the job, a lawsuit will be another hit on their already beleaguered finances. So, if you’re considering a lawsuit against a mortgage company, be careful. It’s very expensive.
A lawsuit will require the homeowner to pay an attorney hourly fees or on a contingency basis. Remember, hourly represents the time the attorney has to spend reviewing your files and writing motions to the court explaining the legal basis upon which your claim is based. If you sue a mortgage company, expect them to vigorously defend any action.
Each state has rules about how many hours of attorney work it will allow for a given type of case. So the hours are limited. Most states will allow at most 50-100 hours for a breach of contract case. Depending upon where you live, even these hours may be considered too high.
If you are contacting attorneys to ask if you can sue your mortgage company, and the attorneys’ responses to you is the same as what we hear in our office, you may well be wasting your time. You will see the term "sanctions" in the applicable court rules regulating litigation. There are penalties that a court can impose on a party who wastes the time of the court or the defendant.
It is just human nature that a defendant will oppose those requests that it considers too frivolous. There are sanctions that a defendant can request. A main sanction are attorneys’ fees, usually charged to the plaintiff.
Look – I am telling you this because I have lived this life. We have all experienced it. You’re trying to get a mortgage company to stop cutting up your payments. When you complain to them, they create more problems and take more of your time. It is frustrating. You tire out. Then you get mad and want to fight.
I understand this. In my world, what lawyers do is file lawsuits, make motions, hold hearings, negotiate and settle cases, and go to trial. For those of us who practice litigation, this is what we do for a living. We write briefs and argue cases because that is what clients pay us to do.
My advice to you, though, is to maintain your perspective. Think about why you want to sue your mortgage company. If they have committed outright fraud and you want to expose them and get punitive damages, then hire an attorney and go forward.
However, if you are just tired of them refusing to respond to your letters, or trying to foreclose on your home while you are actively filing an application for HAMP, then you may well be wasting your time filing a lawsuit.
What to Do Besides Sue Your Mortgage Company
Thankfully, there are alternatives to suing a mortgage company. These alternatives are available whether your mortgage company has engaged in bad behavior or the relationship between you and the mortgage company has simply soured for a reason totally unrelated to any conduct of the mortgage company. Let’s first discuss formal alternatives.
One formal alternative to a lawsuit is a mediation process. Mediation is basically a way of bringing the parties together with a neutral third party that is charged with facilitating resolution of the case. The mediator cannot impose a solution on the parties. Although mediation is not used much in disputes involving banks or mortgage companies, that doesn’t mean that you should rule it out completely. The formal mediation process can be used in conjunction with filing a claim against the mortgage company in court.
Sometimes a claim against the mortgage company in court is heard in the form of arbitration instead of litigation. Arbitration can be very similar to the litigation process with one key difference: the final result of the arbitration is usually binding on both parties. So, if the arbitrator determines that there was no wrong-doing by the mortgage company, the borrower is bound by the determination and usually has no further recourse other than an appeal of the arbitration determination. This can be a risk for borrowers, especially if the outcome of the mediation process was favorable to the borrower. Sometimes a party to the mediation ends up with a reality check and decides that they don’t want to go to court or that their position may not be as strong as they thought.
In addition to a formal mediation process, the borrower has several options to contact the mortgage company in the hopes of resolving the issues . It is possible that the borrower or the borrower’s attorney can reach out to a customer service representative at the mortgage company or a member of the legal department to discuss the concerns. The borrower should be prepared for the mortgage company to require the borrower and the borrower’s attorney to sign a non-disclosure agreement prior to anyone discussing the case. This is because the parties discuss the details of the case so that he or she can evaluate the merits of the case. If the mortgage company agrees to review the concerns, it may be in the borrower’s best interest to sign the agreement. Of course, the borrower should read the agreement beforehand and consult with an attorney if he or she has any questions or concerns. Keep in mind that with some formal agreements, the borrower may give up any right to bring a lawsuit or arbitration proceeding against the mortgage company. Likewise, the mortgage company may give up its right to bring a lawsuit or arbitration proceeding against you.
An informal alternative is to use a third-party consumer group or agency. The Consumer Financial Protection Bureau provides tools to help consumers solve their problems with financial companies. The CFPB accepts and forwards complaints to companies for review. If there is no response from the mortgage company, a complaint can be submitted to state and local consumer agencies for investigation or help. A borrower can also reach out to his or her state attorney general who has a consumer division that investigates complaints. A complaint can be submitted online, by phone, through fax and by mail. As with most complaints, it helps to have copies of account documents, information about a foreclosure or default, copies of previous correspondence and any documentation that addresses efforts to resolve the dispute.