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Newrez Servicer Hit with Second Zombie Mortgage Suit
In recent months, the mortgage servicer Newrez has faced notable legal challenges concerning an issue known as “zombie mortgages.” These typically involve forgotten second mortgages which resurface long after their supposed resolution, often leaving homeowners confronted with unexpected fees or even potential foreclosure. A fresh lawsuit underscores Newrez’s tangled involvement in these cases, accusing the company of engaging in improper practices against homeowners.
Understanding the Lawsuit Against Newrez
A recent lawsuit filed in North Carolina targets Specialized Loan Servicing (SLS), a servicer acquired by Newrez, accusing it of improperly inflating balances on dormant second mortgages. The plaintiff, Gregory Tuttle, asserts that despite his second mortgage being discharged back in 2006, SLS contacted him in 2023 demanding payment of tens of thousands of dollars in retroactive interest, pushing his overall debt to over $160,000.
Allegations in the Case
This lawsuit aims to achieve class-action status, which could potentially influence thousands of similar borrowers. The accusations revolve around SLS’s handling of second mortgages and the consequent financial strain imposed on unsuspecting homeowners.
What are Zombie Mortgages?
Zombie second mortgages come into play when homeowners believe their mortgage debts have been resolved, often through bankruptcy or loan modifications. Unfortunately, these debts can unexpectedly reappear as the real estate market waxes and wanes, prompting servicers to demand payment for accrued interest and fees.
The Role of the Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) has pointed out that many homeowners haven’t been receiving regular mortgage statements for these loans. Some servicers also fail to comply with federal laws that necessitate periodic statements and genuine efforts to communicate with borrowers.
The Legal Implications for Servicers
The lawsuit levied against Newrez sheds light on compliance issues under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). These federal laws mandate servicers to provide regular mortgage statements and halt interest charges if communications with the borrower have ceased.
Consumer Protection and Law
Further complicating matters, the Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from employing threatening tactics or misrepresenting the status of a debt. This is relevant in cases where servicers intimidate or mislead homeowners about their financial obligations.
Exploring Similar Cases and Broader Concerns
Beyond the case in North Carolina, Newrez has been embroiled in multiple litigations, including a class-action lawsuit in Massachusetts. Plaintiffs in these cases frequently seek relief for systemic communication lapses and unreasonable fee collections.
Systemic Failures in Mortgage Servicing
These legal battles highlight persistent issues within the mortgage servicing industry, particularly concerning the management of dormant second mortgages. Both homeowners and servicers need to be vigilant and ensure that consumer protection laws are strictly followed.
As part of staying informed, homeowners can always seek expert guidance. The BD Mortgage Group offers insightful advice on issues related to mortgages, helping homeowners navigate the complicated terrain of financial and legal obligations.
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