Even After Big Settlement, Mortgage Servicers Still Screwing Up

You would think they would learn their lesson. Even after federal and state regulators announced a $26 billion settlement with mortgage servicers for improperly foreclosing on homeowners, a new survey of consumer attorneys finds that servicers are still making mistakes that can land families in foreclosure — through no fault of their own.

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“Unfortunately it is not a surprise to learn that wrongful foreclosures continue to occur,” Ira Rheingold, Executive Director of the National Association of Consumer Advocates, said in a press release. The survey was conducted by the association, the National Consumer Law Center and the National Association of Consumer Bankruptcy Attorneys.

Mortgage servicers are companies that handle the day-to-day management of loans and paperwork for investors. 80% of the 265 consumer attorneys surveyed said they had clients who wound up in foreclosure due to servicer errors. These gaffes included wrongfully assessed fees, including late fees and inspection fees. 79% of the attorneys said their clients were foreclosed on after servicers misapplied their payments. That means the homeowner sent in the right amount of money, at the right time, but they got treated like they hadn’t paid correctly.

In addition, nearly 60% of the attorneys surveyed said they’ve represented homeowners placed in foreclosure after their servicers wrongfully force-placed insurance. That’s usually done when homeowners obtain home loans with low downpayments or fail to buy insurance themselves.

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Even more common, survey respondents said, are cases in which servicers foreclose on homeowners who are in the middle of applying for a loan modification. 90% of the lawyers said that had happened to their clients in the past year.  And 80% represented consumers where the servicer attempted an auction sale while the loan modification process was still ongoing.

All combined, the 265 lawyers surveyed estimated that they’ve represented over 3,700 homeowners who were placed in foreclosure while they were still applying for a loan modification, according to the report.

Despite the continued problems, the settlement between federal regulators and the largest mortgage servicers protects the companies from most new lawsuits that otherwise could be filed by state and federal law enforcement agencies.

Image: Mel Sharlene, via Flickr

[Related Article: Unfairly Foreclosed On? Feds Give More Time to Fight]

Tagged as: debt, foreclosures, laws, mortgage

Christopher Maag Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics. Have a question for our experts? Email them at CreditExperts@Credit.com.