The Department of Justice issued a press release today regarding a billion dollar settlement it reached with Sun Trust, you can see that press release here.
This, and other settlements entered into as a result of DOJ litigation against financial giants should, at a minimum, serve as a good reminder of why real estate investors and servicers should always reflect on their business procedures and practices to make sure everything is above board.
The Sun Trust Admissions
The Press release has the full story, but I find the following admissions of particular interest:
- SunTrust admitted that between January 2006 and March 2012, it originated and underwrote FHA-insured mortgages that did not meet FHA requirements;
- that it failed to carry out an effective quality control program to identify non-compliant loans, and
- that it failed to self-report to HUD even the defective loans it did identify.
- SunTrust also admitted that numerous audits and other documents disseminated to its management between 2009 and 2012 described significant flaws and inadequacies in SunTrust’s origination, underwriting, and quality control processes,
- and notified SunTrust management that as many as 50 percent or more of SunTrust’s FHA-insured mortgages did not comply with FHA requirements.
Other Billion Dollar Settlements
Sun Trust isn’t the only mortgage loan servicer to go under federal government scrutiny.
December 13, 2013 the Department of Justice sued Ocwen Loan Servicing over similar deficiencies in loan servicing and foreclosure practices.
The Consumer Finance Protection Bureau issued a statement on its home page in this regard:
“The CFPB and its partner states believe that Ocwen was engaged in significant and systemic misconduct that occurred at every stage of the mortgage servicing process. According to the complaint filed in the federal district court in the District of Columbia, Ocwen’s violations of consumer financial protections put thousands of people across the country at risk of losing their homes.” – Consumer Finance Protection Bureau, press release December 19, 2013¹
¹ http://www.consumerfinance.gov/newsroom/cfpb-state-authorities-order-ocwen-to-provide-2-billion-in-relief-to-homeowners-for-servicing-wrongs/
In fact, check out this May 20, 2014 article about a recent class action lawsuit filed in Pennsylvania against Ocwen.
Non-Originators and Subsequent Loan Servicers – Take Heed
There are various federal and state laws that are intended to protect consumers from unfair debt collection practices, including the Fair Debt Collection Practice Act 15 U.S.C. 1692 et seq and the Michigan Collection Practices Act.
FDCPA
under the FDCPA, the debt collector pursuant to 1692(a)(6)(F)(iii) includes any non-originating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition.’ It matters not whether such treatment was due to a clerical mistake, other error, or intention. In re Tolliver, No. 09-21742, 2012 WL 2952239 (Bankr ED Ky July 19, 2012).
Therefore, a non-originating note holder (or servicer) could find itself implicated by the FDCPA, as well as the MCA.
MCA
The MCA is violated by a “regulated person” who, among other things, “mak[es] an inaccurate, misleading, untrue, or deceptive statement or claim in a communication to collect a debt.” M.C.L. § 445.252(e). “A state or federally chartered bank when collecting its own claim” is a “regulated person” under the Act. M.C.L. § 445.251(g)(ii) Martin v. Bank of Am., N.A., 2014 U.S. Dist. LEXIS 66662, at *5-6 (May 14, 2014).
What to make of these settlements?
I think these settlements are a good sign that hopefully will lead to sound business practices for lending and servicing institutions.
For those investors who are purchasing/servicing loans in default, the fact that the DOJ is coming down on these financial industry giants should also give them pause to review their own practices. At a minimum, protect yourself from borrowers/debtors who might be quick to raise these claims without merit. Knowing that a loan holder could be implicated in violating the FDCPA or the MCA should give you pause to make sure you are doing the right things in your business.
My contact info:
email: jeshua@dwlawpc.com
Purpose Driven General Counsel 