Posted on Thursday, June 30, 2011
Litigation related to mortgage servicing surged during the first quarter, after last fall’s robo-signing issues raised questions about servicers’ procedures and garnered widespread attention from mainstream media.
Mortgage servicing litigation increased 88 percent over the first three months of this year, according to industry data released Monday. Investor-related litigation, however, eased, as did actions related to loan modification disputes.
The report, prepared by the law firm of Patton Boggs LLP and MortgageDaily.com, tracked 151 lawsuits linked to residential mortgage actions during the first quarter.
Even with the jump in servicing litigation, declines in other categories helped to balance the overall index, which was unchanged from the prior quarter and lower than the same period a year ago, when 155 cases were reported.
Mortgage servicing lawsuits totaled 49 in Q1, nearly doubling from 26 the prior period. The report notes that “only a handful” of these were servicer actions.
Close behind were foreclosure cases, which totaled 46. That’s up from 40 recorded during the fourth quarter of last year. This category includes disputed foreclosure actions with rulings in favor of the borrowers and activity related to foreclosure-rescue schemes.
Litigation filed on behalf of investors and suits involving loan modifications declined from the fourth quarter.
“The dramatic increase in mortgage servicing lawsuits is due to heightened focus from regulators, bankruptcy trustees, and other parties on servicers’ alleged failure to implement and follow procedures for collection and modification of loans, as well as foreclosures,” said Patrick McManemin, a partner in Patton Boggs’ Dallas office.
“We expect that all aspects of servicing litigation will remain active as state and federal regulators as well as financial institutions, investors’ bankruptcy trustees, and borrowers continually seek new avenues to pursue claims based on servicers’ conduct,” McManemin added.
FDIC Chairman Sheila Bair warned lawmakers last month that the extent of the damages from servicing deficiencies, the resulting overhang of foreclosures, and looming litigation exposure from both investors and borrowers “could take years to materialize.”
“Servicers have already encountered challenges to their legal standing to foreclose on individual mortgages,” Bair testified before the Senate Banking Committee. “[W]e will not know the full extent of the problems and potential litigation exposure they face until we have a thorough review of foreclosed loan files.”
By Carrie Bay DS NEWS