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Is a Mortgage Loan Servicer a Debt Collector?

By September 13, 2011Uncategorized

By Brad Davidzik

The recent housing crisis has exposed a whole new group of people to the world of debt collection. It’s the segment of the population that’s current on all of their bills except one: the home mortgage.

Through the use of exotic products like adjustable rate, payment option, interest only, and teaser-rate mortgages, many tapped into their home’s equity to pay off credit card debt, make home improvements, or send their kids to college. These folks really had no idea what type of product they were getting, or that their monthly mortgage payment would eventually increase significantly.

And, they certainly never envisioned that, a few years later, they would be behind on their mortgage loans and subjected to persistent collection efforts by the loan servicer.

The loan servicer is the entity that administers the loan. It sends out billing statements, collects monthly payments, manages the escrow account, and is the point of contact for questions. Essentially, the servicer is the only company that the consumer deals with.

Sometimes the loan servicer also owns the mortgage, and sometimes the bank will sell the mortgage to another bank, but retain the loan servicing duties. It is common for the loan servicing to be transferred multiple times during the life of the loan.

Everyone knows the typical debt collector; that is, the agency hired to pursue debtors and convince them to pay back at least a portion of what is owed on, for example, an old credit card debt. The abusive tactics of some of these companies has led to a wave of lawsuits brought under the Fair Debt Collections Practices Act (FDCPA).

The FDCPA places many limitations on how a debt collector can go about collecting a debt. Collectors cannot lie, threaten, harass, or mislead you. They must also provide numerous notices, both verbal and written.

With millions of people behind on their mortgage loans, the loan servicers have had to ramp up their collection efforts in the past few years. Many are not sufficiently staffed or properly trained to handle the significant increase in loan defaults.

Once a person is a couple months behind, the loan servicer begins calling in an attempt to work out some sort of settlement or repayment plan. Since the foreclosure process in New York typically takes more than two years to complete, loan servicers are bombarding homeowners with telephone calls and letters in an effort to cure the default.

So, is a mortgage loan servicer subject to the limitations of the FDCPA? Like so many things in the law, it depends.

Under the FDCPA, a debt collector is an entity that is retained to collect on an account that is in default. Therefore, timing is everything.

If the loan servicer was administering your mortgage loan while you were current, and then you defaulted on the loan, subsequent collection activity will not be covered by the FDCPA.

If the loan servicer obtained the right to service the mortgage loan after you already defaulted on your monthly payments, then its collection activity will be subject to the FDCPA.

Mortgage loan servicing rights are transferred quite often. Through the secondary mortgage market, thousands of mortgages are pooled together and sold as a bundle, with a new loan servicer being appointed as well. Naturally, some of the loans are already in default when they are sold, triggering the applicability of the FDCPA.

If you think that a violation of the FDCPA has occurred, contact a consumer law attorney to explore your options. At the very least, the attorney can put an end to the telephone calls. You may also be able to sue the debt collector for the statutory and/or emotional damages that you incurred. Statutory damages of up to $1,000 can be awarded simply by proving a violation of the FDCPA. You may also be able to recover for the emotional distress that you experienced.