Mortgage Servicing Mistakes
If your mortgage servicer mishandled your payments, ignored your loan modification application, or moved forward with foreclosure while you were seeking relief, federal law may provide a remedy.
Regulation X under the Real Estate Settlement Procedures Act and Regulation Z under the Truth in Lending Act impose detailed procedural duties on mortgage servicers. These laws were strengthened after the foreclosure crisis to ensure that homeowners are not harmed by careless or abusive servicing practices. When those duties are violated and a homeowner suffers harm, the servicer may be liable for damages and attorney fees.
Todd Murray represents Minnesota homeowners in serious mortgage servicing disputes involving federal statutory violations.
What Is a Mortgage Servicing Error
Your mortgage servicer is the company that collects your payments, manages your escrow account, and communicates with you about your loan. It may or may not be the original lender. Federal law regulates how servicers must apply payments, evaluate loss mitigation applications, respond to written information requests, and conduct foreclosure activity.
A servicing error is not simply a disagreement about loan terms or a denial of a modification. It involves a failure to follow required federal procedures. When servicers ignore timelines, misapply payments, or advance foreclosure activity in violation of regulatory restrictions, the issue moves from customer service into federal statutory territory.
Misapplication of Mortgage Payments
Servicers are required to credit mortgage payments as of the date received and apply them properly under the loan documents. Improper application of payments can create artificial delinquencies, trigger unnecessary fees, and increase the risk of foreclosure.
When payment misapplication results in measurable financial harm, including additional interest, fees, credit damage, or foreclosure activity, statutory claims may arise.
Failure to Process Loss Mitigation Applications
When a homeowner submits a complete loss mitigation application, including a request for a loan modification, short sale, or deed in lieu, Regulation X requires the servicer to evaluate that application within defined timeframes. Servicers must request any missing information promptly and must provide a written decision after review.
Indefinite delay, repeated document requests, or unexplained denials may violate federal law if procedural requirements are not followed. The issue is not whether the homeowner ultimately qualifies for a modification. The issue is whether the servicer complied with the regulatory process.
Dual Tracking and Foreclosure Activity
Federal regulations restrict a servicer’s ability to move forward with foreclosure while a complete loss mitigation application is under review. This practice, commonly referred to as dual tracking, can occur when a servicer continues to advance foreclosure proceedings despite an active modification review.
Advancing a foreclosure sale, seeking judgment, or otherwise pushing the case forward during protected periods may violate Regulation X. These cases are highly fact specific and often turn on the timing of submissions and notices.
Damages and Attorney Fees
Mortgage servicing statutes are not merely technical. They provide real remedies when violations cause harm. A homeowner may recover actual damages tied to the violation, including financial losses and credit-related harm. In certain circumstances involving patterns of noncompliance, additional statutory damages may be available. The statutes also allow recovery of attorney fees and litigation costs, which makes enforcement practical in appropriate cases.
Not every servicing dispute supports a lawsuit. The strongest cases involve documented communication, clear regulatory violations, and measurable harm connected to the servicer’s conduct.
Interaction with Chapter 13 Bankruptcy
Mortgage servicing errors frequently arise when a homeowner is in Chapter 13 bankruptcy. Servicers must comply with both bankruptcy law and federal servicing regulations. Misapplied payments or inaccurate accounting during bankruptcy can create serious complications and lead to legal claims.
The Bottom Line
Mortgage servicers are subject to detailed federal rules. When those rules are ignored and homeowners are harmed, the law provides remedies.
Ready to talk to a lawyer about a mortgage servicing mistake in Minnesota?
Schedule a free consult with attorney Todd Murray.
Since 2009, Todd has been helping Minnesotans combat illegal practices by consumer predators. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.