Firm Sues Major Mortgage Companies for Failure to Disclose Ownership of Loans

The Alabama consumer lawfirm of Underwood & Riemer, P.C, recently filed several class and individual lawsuits against national mortgage servicers for violation of a new law that requires that notice be provided to consumers when ownership of the loan is transferred from one entity to another.

One of the biggest problems presented in this modern era of mortgage lending is knowing who actually owns the mortgage loans.  Most mortgage loans are “securitized” in one way or the other.  Usually, this means the loans are bundled together and held in a trust.  Ownership of the trust is then sold to investors as securities.  The result is that the company that most homeowners pay their mortgage payments to is not the entity that actually holds the loan.  The companies that most of us deal with on a day-to-day basis only the service the mortgage.  The actual ownership of the loan lies with a separate entity.

There is a lot of confusion, even among the mortgage companies, as to the ownership history of many mortgage loans.  In the mad rush to convert home mortgages into securities to be bought and sold on Wall Street investors did not want to spend the time or money necessary to keep tract of ownership by filing papers in local probate offices.   Investors by-passed the traditional systems and replaced them with an electronic registration system which is not only inherently unreliable and unverifiable, it also  remained outside the public eye.  As a result, it is no longer possible for most Americans to go to their local courthouse and look property records to find out who their lender is.  

Congress addressed this problem when it passed the Helping Families Save Their Homes Act of 2009.  The new law amended the Truth in Lending Act to add a provision (Section 1641(g)) which required, for the first time, that the new owner of a mortgage loan notify the homeowner each time ownership interest is transferred from one entity to another.  Senator Barbara Boxer (D. Cal.), explained the reason for the new law this way: “It seems like common sense if you  have a mortgage on your home, you ought to know who holds the mortgage. But in today’s real estate market, where the original lender often sells the loan to another entity, you can lose track and not know who actually owns your mortgage.”

To make sure homeowners receive this basic information about their mortgage, the law requires a mortgage company to provide written notice within 30 days after that company acquires any loan. The required notice includes certain basic information about the new owner.

Although Section 1641(g) came into effect back in May 2009, it remains largely ignored by mortgage companies.  This is particularly true for mortgages that are in foreclosure.  In many cases, ownership of the mortgage and note is transferred just prior to a foreclosure to the entity that will be conducting the foreclosure.  The foreclosing entities routinely fail to provide notice of this pre-foreclosure transfer.  

In July and August 2011, the firm filed several class actions against major mortgage companies for violations of this new law.  These companies include Bank of America, Wells Fargo, CitiMortgage, Chase and Fannie Mae.  Class actions were also filed against several investment trusts which took ownership of mortgages just prior to foreclosure.

“Homeowners have a right to know who their lender is and they have a right to know when their loan is transferred from one entity to another,” says Earl Underwood, a consumer attorney and partner in the firm.   “The widespread failure to comply with the law should not be tolerated and this is the point of these suits.  Congress and the Obama administration have given the mortgage industry plenty of  notice and time to comply with this law.  In fact, giving the notice would be a relatively easy thing for the mortgage companies to do,” says Underwood.

Violation of Section 1641 subjects the mortgage company to a statutory penalty of no more than $1,000,000 for a class action.  In individual lawsuits, the violator is subject to a civil penalties not to exceed $4,000.

(For more information regarding this topic, contact Ken Riemer at This e-mail address is being protected from spambots. You need JavaScript enabled to view it )