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Reporter Kate Moran of the Times Picayune wrote a terrific article on a lawsuit the Sterbcow Law Group LLC and Melancon Rimes LLC filed on in behalf of their client and plaintiff Sarada LeBourgeois who was the victim of mortgage fraud.

“Lawsuit alleges that a loan originator stole money from a client” was published on May 12, 2009 and briefly describes the events surrounding the lawsuit. The federal case was recently remanded back to Civil District Court in New Orleans by U.S. District Judge Lance Africk.

Kelly McCarel with RESPA News also wrote an excellent article on the case on Feb. 12, 2009 entitled Louisiana case ties RESPA violations to alleged mortgage fraud”

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Oregon Senator Jeff Merkley has introduced two new legislative bills that the real estate industry and public need to be keenly aware of: Senate Bill 911 known as The Transparency for Homeowners Act and Senate Bill 912 known as The Promoting Mortgage Responsibility Act. Sen. Merkley believes that abolishing the Yield Spread Premium (YSP) will stop the real estate mortgage problems in the United States because by eliminating the YSP will kill off the mortgage brokerage industry who rely on the YSP as part of their compensation. There have been abuses with the YSP and never was that more apparent during the sub-prime mortgage craze but if Senator Merkley was really interested in reigning in abusive practices they why didn’t he address the Service Release Premium (SRP) abuses which far exceeded the abuses of the Yield Spread Premium? Robert Blake of the Mortgage Insider criticizes both bills as an attempt by the banking lobby to kill off their competition.
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The Obama Administration is pushing new legislation which would create a financial services regulatory commission. The commission would be called “The Financial Product Safety Commission” and it would regulate all mortgages, credit cards, and mutual funds. The Washington Post’s Zachary A. Goldfarb, Binyamin Appelbaum and David Cho wrote an article on May 20, 2009.

The Senate version of this bill under Section 10: Enforcement has some very strong criminal and civil money penalties that could further strengthen consumer protections against businesses. The current senate & house versions of the bill could add considerable consumer protections against loan servicing companies which under Section 6 of RESPA offer consumers very little protection from some mortgage servicing companies abusive practices. This is definitely one of those bills to keep an eye on as the ramifications could be huge for businesses and consumers.
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The Real Estate Settlement Procedures Act’s (RESPA) Section 9 (12 U.S.C. §2608) and Regulation X (§ 3500.16) prohibits, either directly or indirectly, a seller from requiring a purchaser to buy title insurance from a specific title company in any transaction as a condition of the sale.

Section 9 of RESPA (12 U.S.C. §2608) states that:
1. No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.

2. Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.

The only way a Seller can mandate that purchaser use a particular title company is if the seller paid 100% of all title insurance and related title costs. HUD’s RESPA Division has stated on numerous occasions that unless the seller pays 100% of the title related costs then the seller has violated RESPA. REO companies need to pay particular attention to Section 9 because required use practices by REO companies are on the HUD’s radar right now.

Additionally there are several local real estate purchase agreements that are in use in parts of the United States where the language in the purchase contract states that Seller picks the title company but purchaser pays for title costs. It should be clearly noted that you can not contract out of a RESPA Section 9 violation. Just because the purchase agreement is signed by the borrower doesn’t prohibit the borrower from coming back and suing the seller for required use if the borrower is stuck with any of the title related fees.

Lastly another clever technique that is in use is where the seller says they will pay for the owner’s title insurance policy but that purchaser has to pay for the lender’s title insurance policy and all other costs. This does not pass the smell test nor does it pass HUD’s smell test. The practice while novel in its approach is still considered a Section 9 violation. If you are a borrower has been a victim of this technique within the last year please give our firm a call.
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The Financial Services Committee for the House of Representatives voted to suspend the implementation of the new Good Faith Estimate (GFE) and Housing and Urban Development (HUD-1) Settlement Statement. The committee voted to amend the Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728) because the Federal Reserve Board is coming out with a new Truth-in-Lending Act (TILA) disclosure. Many in the industry are concerned that the new TILA disclosure will not integrate properly with the new HUD-1 and GFE. The bill will soon go to the full House and the Senate has its own version it will be pushing. So it looks like the new GFE and HUD-1 will have to wait until the TILA is finalized by the Federal Reserve Board.

The Real Estate Services Providers Council, Inc. (RESPRO) has more information on the House committee action.

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U.S. District Court for the Northern District of Alabama’s Southern Division handed down a decision on April 20, 2009 in the Vicki V. Busby v. JRHBW Realty, Inc. d/b/a RealtySouth case. The case centered on Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) and whether Administrative Brokerage Commissions (ABC Fees) are illegal.

United States District Judge Virginia Emerson Hopkins ruled the ABC Fees that RealtySouth charged consumers in a residential real estate transaction involving a federally related mortgage was nothing more than an unearned fee because the ABC fee would not be linked to a bona-fide settlement service that RealtySouth performed in the transaction.

The Birmingham News “Homebuyers were unfairly charged fee, federal court in Birmingham rules” by Russell Hubbard broke the story.

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Freelance reporter Marcie Geffner for Bankrate.com had a story picked up by the Seattle Times’ titled “New appraisal rules may hurt home buyers” with respect to the Home Valuation Code of Conduct (HVCC) which goes into effect on May 1, 2009. The rule which takes effect on all Freddie Mac and Fannie Mae loans is highly controversial in the real estate industry.

The appraisal industry could see an increase in the number of national Appraisal Management Companies at the expense of the independent appraisal company. The concern that many in the real estate industry have towards the HVCC is the potential ramification that a national appraisal management company will not understand a local real estate market. The lack of local appraisers in a particular real estate market could further depress home prices because the fear is that a national appraisal management company would create a home valuation process that is determined by Freddie Mac or Fannie Mae not by what the true value of the immovable property actually is.

As to how this relates to the Real Estate Settlement Procedures Act (RESPA), many appraisal management companies are owned by lenders or other settlement service providers. Lenders & title insurance underwriters can own appraisal management companies so long they disclose their ownership relationship within twenty four (24 hours) of the referral and their use is not required. Many are under the impression that lenders or other settlement service providers are forbidden from owning their own appraisal management company but that is inaccurate as this practice is completely legal under RESPA.

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The Real Estate Settlement Procedures Act (RESPA) has strict guidelines on Escrow Accounts under Section 10. Sec. 10 places limits on the amount of money a lender requires a borrower to hold in an escrow account for payment of taxes, homeowners insurance, flood insurance, private mortgage insurance, or any other charge related to the property. RESPA’s Section 10 does not require that all loans have an escrow account, instead it regulates the maximum amount of money that can be deposited into an escrow account.

Lenders under Section 10 must conduct a escrow account analysis at least once a year and if there is a shortage they must notify the borrower of the problem and if a borrower’s escrow account has more than $50.00 the lender is required to refund the borrower the difference.
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Section 6 of the Real Estate Settlement Procedures Act (RESPA) provides borrowers with consumer protections relating to the servicing of their loans. When a borrower sends a “Qualified Written Request” or “QWR” to his loan servicer concerning the servicing of the loan, the loan servicer must provide a written acknowledgment within 20 business days of receipt of the request. Not later than 60 business days after receiving the request, the servicer must make any appropriate corrections to the borrower’s account, and must provide a written clarification regarding any dispute. During this 60-day period, the loan servicer is strictly prohibited from providing information to a consumer reporting agency (i.e. Transunion, Equifax, etc) concerning any overdue payment related to such period or qualified written request.

Under RESPA Guidelines , a borrower can institute a private lawsuit for a Section 6 of Real Estate Settlement Procedures Act “RESPA” violation and/or a group of aggrieved borrowers may bring a class action lawsuit if a pattern of non-compliance can be shown within three years of the violation against a loan servicing company who refuses to comply with Section 6.

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Reporter Kristi Marohn with the St. Cloud Times wrote an excellent article, “Experts: Improper fees play part in crisis–Servicers may benefit from loans in default” on how some loan servicing companies are engaging in abusive tactics which is helping fuel mortgage defaults across the United States.

The loan servicing companies typically do not own the loans they service and profit margins of just servicing loans is actually fairly small but they can make a tremendous amount of money in tacking on fees and penalties. Loan servicing companies can make even more money if a loan goes into foreclosure because they can charge even more fees.

The ongoing frustration for homeowners, attorneys, and others is that many loan servicing companies are simply none responsive to problems associated with the loans they service. We are seeing fees being charged to consumers for such things as Pre-paid Late Fees for all of 2009, 2010, 2011 or Pre-paid monthly inspection fees for years in advance when there is no inspection even done.

The charging of these fees is a direct cause for an increase in foreclosures across the United States. We are seeing these fees and many other unknown fees being charged now when borrowers enter into loan modification agreements which is why the default rates are so high for those borrowers who have entered into a loan modification only to find themselves stuck again in foreclosure because the fees that were charged forced them into foreclosure once again.

RESPA’s Section 6 is routinely ignored by the loan servicing companies as most Qualified Written Requests are either totally ignored or the information they provide is non-information or a letter stating that the law does not require them to give information to the borrower on his/her own loan.

Loan servicing fraud is very prevalent and one must be very diligent when evaluating causes of action. When evaluating a claim please make sure you pull the courthouse records to make sure the signatures of the borrowers are actually the borrowers. We are seeing and hearing of many cases where the loan servicing employees are forging borrowers signatures to documents. These documents often increase the fees so much that it forces homeowners into foreclosure because they can’t get anyone on the phone from the loan servicing companies to fix or even address the problems the loan servicer itself caused.

We urge everyone to call your congressman and senator and request they regulate this industry. This is a completely unregulated industry and the abusive behavior is fueling the credit and housing crisis in the United States. Consumers need real protection and relief from those loan servicing companies are preying on the American public.
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