Mortgage Lender Misconduct in New Jersey

The New Jersey Home Ownership Security Act provides citizens of the state with some of the strongest protections in the nation. New Jersey mortgage lender laws were adopted to put an end to predatory mortgage lending practices and prevent homeowners from losing their homes through foreclosure. Among the practices that are prohibited by the Act are the following:

• Expensive mortgage loans with balloon payments. A loan with a balloon payment is a loan in which the monthly payments made over time are sufficient to repay the entire loan. The borrower still has to make a final payment that is a large part of the remaining principal, referred to as a “balloon payment;”
• Charging excessive interest rates that are not justified by the credit risk posed by the borrower;
• Charging and financing excessive points and fees;
• Loaning money based on the appraised value of the property when it is clear that the borrower will not be able to repay the loan;
• Adding to loans the sales prices of additional products like credit insurance or club memberships that the borrower does not need;
• Using aggressive and deceptive practices to sell single-premium credit insurance;
• Charging prepayment penalties that trap people into high-interest loans because they cannot refinance;
• Inflating the appraisal value of a house to justify a larger loan amount;
• Using “mandatory arbitration” clauses that deny borrowers their right to go to court;
• Collection practices that amount to harassment and intimidation;
• Targeting high-cost loans to vulnerable borrowers, including the elderly, low-income and minority families.

A borrower may have other, more serious issues with a mortgage lender, servicer, or other person, such as the following:

• Mortgage Fraud: Mortgage fraud on the part of lenders or others may be perpetrated as follows:
  • A person may ask a borrower for payment in advance to get a borrower’s mortgage company to modify, refinance, or reinstate their mortgage. A borrower is likely to pay the fee and never receive the service;
  • A person guarantees a borrower they can stop a foreclosure or get the borrower’s loan modified. There are never any guarantees of this type available in fact;
  • A person may advise a borrower to pay them instead of their mortgage company in exchange for a promise of some kind. A borrower should never do this;
  • A company may pressure a borrower to sign over the deed to their home or to sign other paperwork that a person has not had the chance to read and understand;
  • A company other than a borrower’s own mortgage company contacts the borrower and claims to offer “government-approved” or “official government” loan modifications. There are no such things;
  • A company or person that a borrower does not know asks for personal financial information either online or via the telephone. A person should never provide this information to someone they do not know;
• Wrongful Foreclosure: Foreclosure can come about if a borrower falls behind on their mortgage payments. In foreclosure, the lender takes possession of the borrower’s home and sells it to pay the mortgage debt. Lenders do not always act legally in the course of a foreclosure. Wrongful foreclosures can happen because of errors in processing payments or miscalculations of the amounts paid. If a person is threatened with foreclosure, they want to consult a local New Jersey lawyer;
• Predatory Lending: Predatory lending takes place when lenders target financially vulnerable buyers, offering loans with excessively high-interest rates or other terms that are not favorable to the borrower and not reasonable;
  Discrimination: The federal Fair Housing Act and Equal Credit Opportunity Act prohibit lenders from discriminating in their lending on the basis of race, gender, religion, national origin, or other federally protected characteristics;
• Tax, Interest, and Other Credit Issues: Legal action against mortgage lenders and servicers may also become necessary when they incorrectly compute interest or taxes or are involved in other illegal credit practices.

What Is a Mortgage Lender?

A mortgage lender is an entity, a person or business, that loans money to people to finance the purchase of residential dwellings. In many cases, it is a bank, credit union, or other corporate entity. In some cases, however, it might be an individual or group of investors. Mortgage lenders also make loans secured by the equity that people have in their homes. Borrowers may use the loan proceeds for various purposes, e.g., accomplishing a renovation project on their home.

In the most basic terms, a lender provides a sum of money to the borrower. The loan is secured by the owner’s interest in their home. The borrower pays the loan back over a period of years. The number of years the borrower has to pay the loan back is part of their loan agreement. Commonly, borrowers have 15 or 30 years to pay their mortgage loan in full.

The borrower also pays interest on the principal amount owed. A borrower also has to pay a host of costs at the time they borrow the money. In addition, many lenders require a borrower to have a policy of mortgage protection insurance in place.

This insurance would pay off the mortgage loan in the event of the death of the policyholder and mortgage borrower before the mortgage loan is paid in full. Some MPI policies also offer coverage for a limited time if the borrower becomes unemployed or unable to work due to disability after an accident.

Another important player in the mortgage loan industry is the loan servicer. Loan servicers are companies that are paid a small percentage of loan payments in order to perform certain tasks after a loan has been made.

A servicer may collect monthly payments, pay taxes, maintain records during the life of the loan, and forward the portion of a loan payment that is owed to the note holder to them and others as well. The servicer for a loan that a borrower has may well be different from the bank or other entity that originally made and funded the loan.

Who Regulates Mortgage Companies?

As noted above, the state of New Jersey has some significant regulations that apply to mortgage lenders.

In addition, several federal government agencies are involved in regulating mortgage companies and enforcing federal mortgage lender laws. One agency was created to serve as the main agency for enforcing financial and consumer protection laws and regulations. That is the federal Consumer Financial Protection Bureau (CFPB).

The Federal Reserve also supervises the banking industry, which, of course, includes banks engaged in mortgage lending.

The U.S. Department of Housing and Urban Development (HUD) supervises Federal Housing Administration (FHA) programs, which have provided $1.3 trillion in mortgage insurance to homebuyers. The FHA supervises Fannie Mae and Freddie Mac, which are mortgage market liquidity providers.

A number of federal laws apply to the mortgage industry and give several federal agencies the authority to regulate it. Some of them are as follows:

• Regulation Z in the Truth in Lending Act: Regulation Z gives borrowers the information that they need to make informed decisions about interest rates, fees, and credit terms;
• The Real Estate Settlement Procedures Act (RESPA): RESPA prohibits real estate agents from receiving kickbacks and prevents lenders from demanding that borrowers use a title insurer whom they designate;
• The federal Department of Housing and Urban Development (HUD): Both the CFPB and HUD act on reports of discrimination.

The penalties for violating federal mortgage regulations include the payment of monetary fines to permanent exclusion from the mortgage lending industry.

What Happens if a Mortgage Company Makes a Mistake?

Mortgage servicers sometimes make mistakes when servicing a borrower’s loan. The Federal Real Estate Settlement Procedures Act (RESPA) provides a process for the borrower to make the mortgage servicer correct the mistake. The law also gives the borrower a way to get specific information about their loan account.

A borrower needs to send a letter to their mortgage servicer informing them of the mistake they have made or the information they wish to have. This letter is presumed to be a “notice of error” or a “request for information.” A notice of error tells the servicer that they must correct the error, provide notification of the correction made, and give the borrower contact information for follow-up. Or, of course, the service may tell the borrower that no error occurred and the reasons why there is no error.

How much time the servicer gets to respond to a borrower’s notice of error depends on the type of error that a borrower reports. The servicer may generally extend a 30-day response period by 15 days if, within the 30 days, it informs the borrower of the extension and explains why there is a delay.

Borrowers with complaints about mortgage lenders should first reach out to the CFPB via the agency’s website. On the website, borrowers may find many tools to help them with their complaints.

The Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the National Credit Union Administration (NCUA) also invite borrowers to alert them about mortgage lender complaints.

A borrower should keep careful track of the activities of their mortgage lender or servicer. If they find mistakes, their best bet is to use the “notice of error” process. If that is not successful, a borrower would contact the CFPB of their issue. If all else fails, a borrower would want to consult a New Jersey mortgage attorney.

What Should I Do if I Have a Dispute with a Mortgage Lender?

Borrowers in disputes with mortgage lenders should first reach out to the CFPB via the agency’s website. On the website borrowers may find many tools to help them with complaints they may have.

The Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the National Credit Union Administration (NCUA) also invite borrowers to alert them about mortgage lender complaints.

A borrower should keep careful track of the activities of their mortgage lender or servicer. If they find mistakes, their best bet is to use the “notice of error” process noted above. If that is not successful, a borrower would contact the CFPB about their issue. If these efforts do not solve the problem, a borrower would want to consult a New Jersey mortgage attorney.

A person who believes that they have been victimized by a mortgage lender or servicer may also contact the New Jersey Division of Consumer Affairs. Contact information is available on their website at www.njconsumeraffairs.gov.

You may also contact the New Jersey Department of Banking and Insurance at www.nj.gov/dobi/index.html, where there is a link for “Consumer Inquiries and Complaints.” A person may also report their experience to the Federal Trade Commission via its website at www.ftc.gov where there is a link to “Report Fraud.” Or a person may write to the FTC at the Federal Trade Commission, CRC 240, Washington, DC 20580.

Can I Sue My Mortgage Lender for Negligence?

It might be possible to sue a mortgage lender for negligence, but every mistake of a loan servicer would not offer grounds for a lawsuit for negligence. Actions on the part of a lender or servicer that might amount to negligence would include failing to include agreed-upon terms in the loan agreement or actions that would amount to breach of a fiduciary duty. These would be especially egregious actions.

If a lender or servicer were to engage in negligent or intentional fraudulent misrepresentation, this might give a borrower grounds to sue for negligence.

How Do I File a Complaint Against a Mortgage Company in New Jersey?

One of the options is to try to negotiate a settlement of the dispute. Alternative dispute resolution procedures, e.g., mediation with the lender or servicer, are always an option. Of course, if these options do not produce a settlement, then a person would think about going to court. Even a foreclosure can be resolved by a mortgage settlement.

To file a lawsuit against a mortgage lender or servicer, a person would need to prepare a complaint. When the complaint is filed with the clerk of the court and served on the defendant lender or servicer officially, a lawsuit is underway.

A person would have to choose the court in which to file their lawsuit. A person can sue for no more than $5,000 in a New Jersey small claims court. If a person seeks more than $20,000 in damages, they would file in a New Jersey district court. They would file in a special civil division of a district court if they seek more than $5,000 up to $20,000.

However, if a person has a significant problem with a mortgage lender, they would want to have a lawyer handle a lawsuit for them.

What Kind of Lawyer Do I Need to Sue a Mortgage Company?

If you have a significant problem with a mortgage lender or servicer, you want to talk to a New Jersey mortgage attorney. LegalMatch.com can connect you to an experienced attorney who will help you protect your rights and your home. You do not want to risk the equity you have in your home; you want to talk to an experienced New Jersey mortgage attorney right away.