D&G Law

Consumer Fraud: The Smiths (A case story)

Consumer Fraud: The Smiths (A case story)

The Smiths’ Mortgage Nightmare

When you take out a mortgage to buy a new home, you expect that if you make the payments in full and on time that you will be able to own the house.  But what if the mortgage company tries to foreclose even after you have made all of the payments?  Mortgage servicing disputes can be a nightmare for homeowners. This is a true story taken from an actual Guin Stokes & Evans case. The Plaintiffs’ names have been changed to protect their identities.

When the Smiths purchased their home, they were given an initial mortgage escrow statement advising them that their monthly mortgage payments would be $2,250.00, including taxes, insurance and other escrow items. About nine months later, their mortgage company sold their loan to Big Mortgage Company, which performed an “escrow analysis” and sent the Smiths a statement claiming that their escrow account had a “shortage” of $7,000. Big Mortgage advised the Smiths that unless they sent it a check for $7,000.00, Big Mortgage would increase their monthly mortgage payments by $750 to $3,000.00 per month.

This so-called “shortage” resulted from the mortgage company’s errors. Prior to the assignment, the old mortgage company had paid the Smith’s property taxes. After the mortgage was assigned, Big Mortgage again paid the taxes, despite the fact that no taxes were due at that time because the taxes had already been paid. To complicate matters, Big Mortgage (an out-of-state corporation) failed to recognize that under Alabama law, the Smiths were entitled to a “Homestead Exemption” that would cut in half the property taxes were coming due at the end of that year – the taxes for which funds were to be escrowed. By double-paying the prior years taxes and doubling the estimate of the next year’s taxes, Big Mortgage had greatly exaggerated the amount that should be set aside in the escrow account.

During the following months, the Smiths wrote numerous letters and spent countless hours “on hold” trying to get the problem resolved. They sent documentation proving that the property taxes had been paid twice and that Big Mortgage’s estimate of the next year’s taxes was double the actual amount that would be due.

Big Mortgage refused to lower their monthly payment. The Smiths were the kind of people who paid their bills in full, but they refused to pay an additional $750 per month that they did not owe. When the Smiths continued to pay “only” $2,250 per month (the amount they owed), Big Mortgage began sending threatening letters and having bill collectors call their house at night and on weekends. Many a night Mrs. Smith went to bed worried that Big Mortgage would try to take the roof from above her children’s heads.

After several months of unwarranted harassment, Big Mortgage declared a “default” in the mortgage and instituted foreclosure proceedings. To prevent Big Mortgage from wrongfully taking their home and their equity, the Smiths refinanced their mortgage through another mortgage company.

At the closing of their new loan, the Smiths recounted their tale of woe to the closing lawyer, who recommended that the Smiths contact Guin Stokes & Evans. Our firm filed suit for the Smiths to recover their refinance costs and their other damages, including the emotional distress caused by the wrongful foreclosure. The case was ultimately resolved by a settlement. Big Mortgage insisted that the amount of the settlement be kept confidential.