OAKLAND, CALIFORNIA – A class-action lawsuit filed in the U.S. District Court for the Southern District of California alleges that Specialized Loan Servicing (SLS) improperly processed loan modification applications for customers in California that often led to overpayments on the loan and unjust foreclosures of the borrower’s home.
Plaintiffs’ representative Tycko & Zavareei LLP said in a news release that the U.S. Consumer Financial Protection Bureau (CFPB) implemented a series of guidelines designed to force banks and mortgage servicers to process loan modification requests quickly, accurately and transparently to stem the tide of defaults and foreclosures after the Great Recession of 2007 and 2008.
Those guidelines went into effect in January 2014 and give homeowners the right to sue mortgage servicers who violate them.
The class-action lawsuit alleges that SLS violated the CFPB’s new guidelines and failed to bring its system for processing loan modification applications into compliance.
“We believe that SLS’s noncompliance has caused borrowers to lose their homes or to be placed in foreclosure,” Tycko & Zavareei partner Lorenzo Cellini told the Northern California Record. “We also believe that borrowers have lost equity in their homes as a result of SLS assessing improper and unwarranted fees to the balance of their mortgage.”
In addition, Cellini said borrowers have had been forced to unnecessarily spend substantial amounts of time and endure administrative burdens and costs of resubmitting documents to SLS, creating a stressful and fearful environment among borrowers who are facing the prospect of losing their homes.
Specifically, the lawsuit alleges that SLS failed to timely respond to loan modification applications; failed to inform borrowers about what information was missing in order to process their loan modification application; falsely told borrowers their applications were missing information that had already been provided on numerous occasions; denied borrowers’ loan modification requests without an appropriate explanation; and wrongfully threatened foreclosure while a borrower’s application was still under review.
“The lawsuit seeks to force SLS to comply with the guidelines and to compensate borrowers that were harmed as a result of its noncompliance,” Cellini said.
Margarette Smith, an 88-year old homeowner, is the named plaintiff in the lawsuit.
The firm said Smith attempted to comply with the requirements set forth by SLS in numerous letters each month, but, despite providing SLS with all the paperwork requested, including providing some documents multiple times, was still denied a proper loan modification. Tycko & Zavareei said the inability to modify her mortgage means Smith may lose her home.
Cellini said the plaintiffs’ attorneys do not know the precise number of affected borrowers at this time.
“We believe there have been thousands affected by SLS’s failure to comply,” Cellini said.
The firm said it is seeking homeowners who have applied for a home loan modification with SLS since January 2014 and were denied a modification, or believe their application was processed improperly.
In addition, Cellini said SLS is likely not the only mortgage servicer that is guilty of noncompliance with the new CFPB guidelines.
“We believe that noncompliance with the new guidelines is widespread and that other servicers besides SLS are also not in compliance,” he said.