Mortgage brokers alleged to have violated any applicable statutes or regulations may face liability from two primary avenues: DFI enforcement actions and private civil litigation. This page pertains to civil litigation.
Separate from a DFI enforcement action, a mortgage broker may be the subject of a civil lawsuit. Certain statutes, such as the Truth in Lending Act allow private litigants to bring direct causes of action based on mortgage brokerage practices, while other statutes such as the Graham Leach Bliley Act limit civil actions to those brought by government agencies, and still others like the Real Estate Settlement Procedures Act allow private litigants to bring direct actions under some sections of the Act but not others.
Whether or not a statute allows a private litigant to sue a mortgage broker for a violation of that statute, under Washington law a violation of statutes and regulations involving disclosures to clients, representations to clients, the handling of client funds, and several other mortgage broker requirements are actionable under the Washington Consumer Protection Act. A Mortgage Broker found to have violated the Washington Consumer Protection Act, whether due to a violation of a statute or by having found to have engaged in an unfair or deceptive practice that caused a person to incur injury (such as lost money), may be liable for the actual damages proven that may be tripled, up to an additional $25,000 and be required to pay the legal costs and attorney’s fees the other person incurred in bringing the action. See, Brazier v. Sec. Pac. Mortg., Inc., 245 F. Supp. 2d 1136 (W.D. Wash. 2003); Anderson v. Wells Fargo Home Mortg., Inc., 259 F. Supp. 2d 1143 (W.D. Wash. 2003).
Not all lawsuits against mortgage brokers arise from deliberate malfeasance. The mortgage lending process is complicated and often moves quickly and dynamically with last minute changes. Even careful mortgage brokers may find they failed to comply with all statutory and regulatory requirements. A nonexclusive list of common errors that can lead to enforcement actions, litigation, and to potential liabilities include:
Inaccurate or incomplete details
The mortgage lender may represent specific rates, fees, or figures during the lending process that the mortgage broker then conveys to the client. Some lender representations may constitute guaranteed promises, while others may not. Discrepancies between what a borrower expected and the final terms of a loan can lead to disruptions and disputes. The borrower can end up making payments with higher monthly rates than under terms that were conveyed to them earlier in the loan process. While these may have been the result of unexpected changes, the borrowers may believe they have a legal case against their mortgage broker or lender based on the discrepancies.
Whether it’s in print or digital, paperwork can present significant legal issues for mortgage lenders and brokers. Most errors that happen within the mortgage paperwork process resolve before the procedure is complete and the loan takes effect. But if errors are not resolved, they can cause other delays or complications and can lead to the borrower being obligated to make higher mortgage payments, can disrupt money transfers, or can prevent necessary renovations or repairs. In such cases, an aggrieved borrower may look to the mortgage broker’s paperwork errors as the cause of such losses.
The Devil in the Details
In addition to errors in paperwork, changing the fine print in the written agreement at certain times during the loan process can lead to legitimate grievances against the mortgage broker or lender. For example, even a well-meaning lender or underwriter may have made certain modifications to ensure that a loan would process quickly, but without considering how the changes could impact the borrower’s ultimate costs or even the borrower’s ability to repay the loan. If the borrower cannot make these payments, this could be attributed to faulty or even predatory lending or brokerage processes that negatively impacted the borrower. In such cases, the borrower may look to the broker as being liable for the resulting negative impacts.
Some errors from mortgage lenders aren’t accidental. Unfortunately, some lenders have imposed conditions or restrictions that may be found to constitute intentional steps to keep certain people from obtaining a loan or to steer certain people into loans on less favorable terms. Such practices are actionable under the Equal Credit Opportunity Act, Fair Housing Act or Fair Credit Reporting Act. If a potential borrower feels they have suffered discrimination in some form on their application, they may file a complaint not only against the lender who imposed those terms, but against the broker who conveyed them.
A Broker or a Broker’s agent who is facing an action, whether in the form of a DFI investigation or enforcement action or a private civil action should not ignore the first notice they receive of the action. Such actions rarely, if ever, disappear on their own. It is important that a mortgage broker or anyone working with a mortgage broker respond to such allegations promptly and with the help of an experienced attorney. In many cases, an early, legally informed, and well thought out response can prevent an investigation from escalating to an enforcement action or can prevent a dispute from becoming a lawsuit.
Ari Brown has litigated a variety of issues involving lending, mortgage origination and disclosures, loan servicing, broker and lender liabilities, and debt collection for more than twenty years. Cases he has litigated have informed application of the Mortgage Broker Practices Act; the Consumer Loan Act; Escrow Agent Registration Act and Washington Consumer Protection Act. Years of litigating cases pertaining to banking and lending practices both on individual bases and as class actions have informed Mr. Brown’s approach to dealing with alleged violations and has heightened his ability to mitigate common mistakes and to help financial licensees avoid actions that DFI may perceive as misconduct. Case decisions he has litigated regarding mortgage origination, loan servicing, lending, or debt collection issues include:
- Anderson v. Wells Fargo Home Mortg., Inc., 259 F. Supp. 2d 1143 (W.D. Wash. 2003). A case regarding faulty mortgage broker disclosures and liability under the Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), Washington Mortgage Broker Practices Act (MBPA), and the Washington Consumer Protection Act (CPA).
- Brazier v. Sec. Pac. Mortg., Inc., 245 F. Supp. 2d 1136 (W.D. Wash. 2003). Among the first federal court decisions to apply alleged violations of the Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA) to the Washington Mortgage Broker Practices Act (MBPA) and Washington Consumer Protection Act (CPA).
- Cornejo v. Channel Lending Co., 2005 WL 668388, (W.D. Wash. 2005). A case involving violations of the Washington Mortgage Broker Practices Act (“MBPA”) and its application to a mortgage broker surety bond.
- Pierce v. NovaStar Mortg., Inc., 238 F.R.D. 624 (W.D. Wash. 2006). Class action regarding company-wide loan origination policies and practices alleged to violate the Washington Consumer Loan Act (CLA), Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), and Washington Consumer Protection Act (CPA).
- Blaylock v. First Am. Title Ins. Co., 504 F. Supp. 2d 1091 (W.D. Wash. 2007). Pertaining to title insurance and allegations that practices violate the Real Estate Settlement Procedures Act (RESPA).
- Miran v. Am. One Fin. Inc., (W.D. Wash. 2008). A case regarding practices by escrow agents in the mortgage origination process.
- Sampson v. Wells Fargo Home Mortg., Inc., 2010 WL 5397240 (C.D. Cal. 2010). Regarding mortgage modifications and foreclosure practices under the Home Affordable Modification Program (HAMP).
- George v. Urb. Settlement Servs., 2017 WL 4222620, at *1 (D. Colo. Sept. 21, 2017). Regarding home mortgage modification practices under the Home Affordable Modification Program (HAMP).
- Carrillo v. Wells Fargo Bank, N.A., 2019 WL 3927369 (E.D.N.Y. 2019). Regarding allegations of deceptively marketed mortgage loan programs.
- Jammeh v. HNN Assocs., LLC, 2020 WL 5407864 (W.D. Wash. 2020). Regarding allegations of deceptive collection practices in rental agreements.
Robert Rhodes works with Mr. Brown on an as-needed basis. He has handled hundreds of administrative and licensing investigations and enforcement actions in various forums. He often draws on his extensive background in criminal and whistleblower law that occasionally becomes useful. Other team members are available as necessary.