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Counsel’s Corner: Complying With CFPB Consent Orders

Josh Podolsky

Josh Podolsky

Josh Podolsky is a partner in the Tampa office of Phelps Dunbar LLP. He practices in the areas of real estate, banking, and finance. His practice involves the representation of buyers, sellers, investors, developers and financial institutions in a variety of areas, including business and real estate dispositions, acquisitions and other transactions; the formation and counseling of limited liability companies, partnerships, joint ventures and corporations; and the representation of financial institutions, including lenders, servicers and borrowers in loan documentation, title insurance, loan workouts and in commercial real estate leasing. Podolsky recently spoke with DS News about the issues that some of his firm’s servicer clients are faced with in this current market.

What is the main issue your servicer clients are dealing with?

We represent servicer clients that have interacted with the CFPB, and hope to counsel more lender and servicer clients when they are either preparing for or dealing with a CFPB audit or implementing a rules compliance program. What I’ve seen over the last year to maybe 16 months is most of those complaints relate to mortgage servicers not being able to timely process loan modification and short sale requests. Consumers complain regularly about the on boarding process—they complain regularly about the time in which it takes to respond, lost documentation,and denials without explanation.  In fact, I recently read that consumer complaints to the CFPB regarding mortgage servicing have increased over 20 percent in the past several months as compared to this time last year.

The CFPB was implemented to protect consumers, so they expect full disclosure to and cooperation with borrowers. The rules are not necessarily inflexible or difficult to comply with—from my experience it seems that the volume of loans and the ever-changing regulatory landscape makes it difficult for servicers to timely and adequately staff teams to work efficiently through the on boarding process. Our goal at Phelps is not to just be an advocate for our servicer clients that are involved in litigation (i.e., representing clients throughout foreclosures, loan workouts, wrongful foreclosures, or related lender liability claims, etc.) and say “on to the next one.” Rather, we try to help servicer clients on the front end with their business processes and high-level planning decisions in order develop a more comprehensive compliance plan to reduce complaints. We’ve worked with clients implementing compliance plans and try to assist them with enhancing those programs. In the industry, there are a handful of relatively large monetary judgment consent orders, and everybody in the industry is looking at those and saying, “We don’t want that to be us.” It really just takes a small collaborative team to dig in to pending investigations (if available) and consent orders, analyze them, and work with your clients to make sure they are doing, at a minimum, what the CFPB is asking of the industry, not only in the CFPB rules, but also from what has made its way into the consent orders.  It’s much more gratifying and easier to advise clients when you are telling them where their competitors have made mistakes and how to avoid them than it is to simply recite rules to them and hope for the best.

I’m licensed in Florida and in Texas and regularly review case reporters in both jurisdictions. There are cases being filed daily in both states involving allegations of wrongful foreclosure, servicer failures associated with internal loan mod review processes, or breach of a settlement. We’re seeing these cases being filed regularly. I am hopeful the uptick in these cases has a lot more to do with the timing of consolidation of servicers within the industry than one might think. You see servicers merging and you can’t help but see there is a new on boarding process that is going to occur, and clearly the CFPB has an interest in whether those teams are staffed well enough to handle the volume. That seems to be one of the bigger issues. I think as servicers continue to consolidate, which seems to me to be an industry trend, that we’re going to continue to see consumer complaints to the CFPB until policies are tightened up and clarified.  We will continue helping clients develop and improve their processes within the framework of the rules, with the end result hopefully being that the client has improved and become more proactive rather than reactive.

What is the biggest issue that you have found your clients have had during the on boarding process?

We’re seeing new defensive litigation files come in where there was a pending short sale that was in place, or a loan mod review in place with an existing servicer and the file was service transferred or the servicer was consolidated or acquired. The new or resulting servicer that is boarding the documents in the intake process either allegedly failed to get them all uploaded timely or refused to accept the prior servicer’s documentation and required the borrower to go back through the submittal process. Sometimes these matters are referred to us where borrowers are about to lose their property or they have lost it and they file for a temporary restraining order in Texas, or a wrongful foreclosure-type complaint in Florida, and their allegations are specifically that—“I had a loan mod with the prior servicer and they promised me that it was under review, and it got service transferred, and I’m losing my property and they never notified me of the workout decision.”  That’s probably a more common allegation in cases we’ve seen.

The other allegations we’ve seen are the in the length time in which it takes for servicers to respond to a loan workout request. With any larger business, sometimes you see the right arm not talking to the left or working in concert with one another, and you get a situation where a foreclosure firm is out chasing down the foreclosure judgment and the servicer told the borrower, “we’ll consider your loan mod, and in the meantime stop the foreclosure process.” However, the servicer never instructed the foreclosing firm to abate, a judgment was entered, a foreclosure sale occurred, and all along the borrower believed the servicer was reviewing the loan mod.  Then the borrowers after losing their property say, “That’s not right,” and they sue.

Over the last 16 months or so, it seems to have gone from a couple of those cases a month to a couple of those cases a week being filed in jurisdictions throughout our firm’s footprint.  It's those allegations and complaints, the faulty on boarding and communication practices, if you will, that appear to be part of the recent case trend.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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