Can You Sue Your Mortgage Company? Exploring Your Options

When Should You File a Lawsuit Against a Mortgage Company?

When you Should and Should Not Sue Your Mortgage Company
There are certain limited situations in which a suit against your mortgage company is a viable option. These are instances where there is documented proof that the mortgage company, knowingly, broke federal or state law. For example, suppose your mortgage company owned services rights on your loan, then it sold it to another servicer. A few months later, the new servicer informs you that you must pay the fees and past due balance or else it will initiate foreclosure. If you’re able to prove that the servicer, knowing full well that it did not own the mortgage during this time frame, initiated foreclosure anyway, then you can likely recover damages in the form of a settlement or a personal injury award. If you have proven that the mortgage company broke the law, as mentioned above, you’ve already proven that the mortgage company acted with negligence . From there, you can possibly claim compensation for the following:
A breach of contract occurs when one party to a contract violates his or her duties under the terms of the contract. If, for example, your mortgage company never offered you a loan modification even though it had a legal duty to do so, then you can possible sue for a breach of contract. You have to prove that the defendant acted with negligence and you have to prove your damages.
The Fair Debt Collection Practices Act is set up to prohibit "unfair and deceptive debt collection practices." Your lender is required by law to strictly follow the terms of the loan agreement and all other related documents. If the lender does not follow the law or loan agreement terms, it may be liable for negligent misrepresentation. For example, if the loan documents state that you will not be charged more than 10% interest, but your lender charges you 12%, you could have the grounds for a lawsuit. Since negligent misrepresentation has much in common with fraud, the standard for proving its existence is very high.

Common Causes of Action

While lawsuits against mortgage companies are not all that common, they can be justified when these companies engage in certain practices that violate the law or your contractual agreement with them. The most common legal grounds for suing a mortgage company include the following:

• Wrongful Foreclosure. Homeowners may believe they have grounds to sue their mortgage company when their mortgage lender has wrongfully denied them the opportunity to avoid foreclosure. The mortgage company may have denied you a loan modification or an opportunity to resolve outstanding payments in other ways, or they may have attempted to foreclose on your home when they have no proper legal right to do so.
• Loan Servicing Errors. When you pay your mortgage, making timely payments according to your mortgage contract as well as any additional payments above the minimum, you expect to see your loan serviced properly. While many loan servicers have a difficult time properly accounting for additional principal payments, your lender should be able to apply these additional payments to your mortgage – not hold them in limbo for 45 days or longer. Call your lender and speak with a supervisor if you believe your loan servicing agent is misapplying your payments incorrectly. Bring legal action against your mortgage company if someone has given you incorrect information or falsely overcharged you for fees.
• Predatory Lending Practices. When applying for a mortgage, you are supposed to be given a loan that you can afford to repay over time. Some lenders will benefit themselves at your expense by giving you a loan that all but guarantees you will default in a few months or years. If you suspect you were given a predatory loan, an attorney can help you find out if you were a victim of this practice and discuss the various legal options available to you.
• Violation of Fair Debt Collection Practices Act (FDCPA). This federal act protects loan customers from abusive debt collection practices. If you have received threatening letters or phone calls from your mortgage company, they may be in violation of this important law. You can review your rights under the FDCPA and even send letters of cease and desist to your abuser. Again, if you’ve received threatening contact from a mortgage company, you may have grounds to file a lawsuit under the FDCPA.

What To Do Before You File a Lawsuit

Before a homeowner even considers filing a lawsuit, he or she should first make a concerted effort to resolve the dispute with the mortgage company. To this end, homeowners should follow these steps: Gather All Documentation: Any time a homeowner feels the need to take legal action against their mortgage company, he or she should force themselves to go through all of their records regarding their mortgage. In most lawsuits, it is very important for a homeowner to have a lengthy and fully detailed record of all interactions with their mortgage company. These records can be called upon by both parties in a court of law; if the records or documentation are not thorough, the homeowner’s case will likely not survive a legal challenge. In addition, homeowners should be mindful of the fact that some types of disputes are subject to a "statute of limitations." This means that any legal action or claim must be initiated within a certain period of time. For this reason, it pays to get started on this process as soon as possible. Communicate with Your Mortgage Company: Before taking legal action against their mortgage company, homeowners should first reach out and try to resolve their concerns with the mortgage company directly. Mortgage companies usually have a public customer service number, email, and/or website set up for this purpose. If communications fail, homeowners may want to consider filing a complaint with the Consumer Financial Protection Bureau or the state attorney general. In addition, homeowners should consider bringing in a mediator to help resolve the dispute. Generally, it is a good idea to reach out and try to resolve the matter with your mortgage company before initiating legal action. Make Sure You Have a Legal Case: Once a homeowner has gathered his or her documentation and communicated with the mortgage company, he or she should carefully consider whether they have a case worth pursuing. If there is still no relief for the problem, it may be time to consider bringing in an attorney to help them out with the process.

How the Legal Process Works

If you end up deciding that you want to sue your mortgage company, the process you will follow is fairly standard. At the beginning of the lawsuit, the process starts with filing a complaint in the court, which outlines your claim against the mortgage company. After you file your complaint, the mortgage company will respond to the complaint with an answer. The next step is called discovery. This is when both sides share information they have with each other so that all relevant facts about the case will be known. This process tends to be where most of the work is done for a lawsuit. You and the mortgage company’s attorneys will be able to formally ask each other for documents, answer questions verbally under oath, and interview witnesses. These measures are called interrogatories, depositions, and requests for production of documents. After discovery is completed, the attorneys from each side have a better idea of what the claims and defenses are and can begin to determine how strong their argument is regarding each aspect of the case. After discovery, there is a good chance that the case can be settled before it goes to trial. When you decide to sue your mortgage company, both sides can try to negotiate a settlement during the case. Many cases are settled at this point, because both sides want to avoid the costs and uncertainties of going to trial. If the case cannot be settled during this process, then you and your mortgage company will go to trial.

Possible Solutions and Remedies

When a lawsuit is filed against a mortgage company, the outcome can vary widely depending on the nature of the complaint and the relief that is being sought. Several potential remedies may be available to a successful plaintiff, including financial compensation, a modification of the mortgage loan terms, or an injunction ordering specific performance.
Financial Compensation: This can take the form of actual damages or, in certain cases, punitive damages. Some of the most common forms of compensatory damages are the out-of-pocket expenses incurred by a borrower as a result of the alleged wrongful conduct, such as charges, fees, penalties, or costs incurred in contacting the servicer or attempting to resolve the issue. If the foreclosure sale has already taken place, the borrower may seek to have the sale set aside and to recover the value of the property, or, if the property has not sold , to recover the difference between the foreclosure judgment and the fair market value of the secured property. A borrower may also recover costs associated with the loss or destruction of property prior to the foreclosure sale in the event of a wrongful foreclosure.
Modification of Loan Terms: In some cases, a court may order the mortgage servicer to modify the loan terms. If a court finds that a mortgage company breached the terms of the loan agreement, for example imposing fees that were not upheld by the original agreement, it may order the company to refund those charges or reduce fees.
Injunctions: A court may also grant injunctive relief, or an injunction, to prevent a lender or mortgage company from continuing practices that are believed to be wrongful. Common examples include an injunction preventing a mortgage servicer from proceeding with a foreclosure sale while a lawsuit is pending or prohibiting the company from taking any action against a borrower while the court is considering a request for temporary relief.

Risks and Dangers

While suing a mortgage company can be an effective course of action for some specific legal problems, it can also carry unnecessary risks and challenges. The most obvious obstacle is the cost. Legal fees can easily run into the thousands of dollars when hiring a lawyer. The length of time it takes in court can also be prohibitive. Even if a case is not dismissed right away, it could be a year or more before a resolution is reached. Relying on the courts to handle a dispute with your mortgage company also presents a certain amount of vulnerability. A judge may not rule in your favor, especially if the company did not break any laws or contractual agreements. If you are pursuing a case against your lender, you must understand the possibility that you could lose your case. On top of that risk is the potential that opposing counsel may try to use your lawsuit against you. A foreclosure or eviction is still possible, even if you are engaged in a lawsuit over your mortgage terms or the services you have received.

Alternatives to Suing

Alternatively, before or instead of litigation, litigants may consider alternative dispute resolution options such as mediation, arbitration, or seeking assistance through a government regulatory agency. In many instances, the Federal Housing Administration ("FHA") offers help via its Regional Center Directors at no cost to its beneficiaries. They can be reached at (800) 669-9071 or (202) 708-1112 (TTY). State Attorney Generals, as well as the FTC have started to aggressively investigate and prosecute lenders for foreclosure abuses.

Finding an Attorney

An experienced attorney who is intimately familiar with mortgage law and a firm that regularly confronts mortgage companies will have the knowledge and experience necessary to assemble a strong case against a lender or mortgage company. When researching the right representation for your case, a few tips may help narrow down the options and determine the exact fit:
Consider the law firm’s experience. A reputable law firm has handled many mortgage law cases before, providing a confident opinion of the right course of action. A recent win in court is encouraging, but as there are many different facets of mortgage law, a firm may be more experienced in specific areas than others.
Experience with the specific lender . Finding a firm composed of attorneys experienced with your particular lender, lender lawyer work with others that oppose them specifically, can give your case a significant edge over other cases they have handled.
Professionalism and personality. Meeting with an attorney can tell you a lot about their personality and whether a confident and competent attorney, or if an individual is a poor fit for your case.
Fees. Legal fees can vary greatly between different firms, often because fees on certain cases are contingent on a favorable outcome. A free legal consultation and case review may help you determine whether it is worth pursuing.
Getting the right legal support can mean the difference between winning and losing in your case, and having the right moral support and legal representation gives you the confidence to pursue the case to its rightful end.