Disputes between a mortgagee (lender) and a mortgagor (borrower)

For disputes between a mortgagee (lender) and a mortgagor (borrower), the central factors typically revolve around the loan contract and the conduct of the parties

Disputes often arise from payment issues, errors in loan servicing, misrepresentation, and issues with the foreclosure process.

Contractual issues

• Breach of contract: The foundation of any mortgage dispute is a breach of the loan agreement. The borrower may claim the lender violated the terms of the mortgage or the associated promissory note, potentially through miscalculating the interest rate or fees. Conversely, the lender’s claim is often based on the borrower’s failure to make timely payments.
• Mortgage terms and documents: A dispute can originate from conflicting interpretations of the mortgage agreement or the promissory note. These documents detail the loan amount, interest rate, repayment terms, and payment schedules. Lenders also can be liable for damages if they fail to follow through on an agreement to provide a loan after documents have been signed.
• Breach of the covenant of good faith and fair dealing: Both parties have an implied duty to act in good faith. A borrower can sue if the lender unfairly denies a loan modification, misleads them about the terms, or wrongfully accelerates the loan.

Mortgage servicing issues

• Payment handling errors: Common disputes involve the mortgage servicer—the company that manages the loan—improperly applying or crediting payments, or incorrectly managing the borrower’s escrow account for taxes and insurance.
• Failure to communicate: Lenders and servicers are required to respond to borrower complaints and information requests. Disputes can arise from the servicer not responding to an inquiry or not providing an accurate payoff balance.
• Improper fees: Lenders may face disputes for charging unreasonable or improper fees or for placing unnecessary insurance on the property.

Foreclosure-related issues

• Wrongful foreclosure: In California, disputes frequently involve wrongful foreclosure, which occurs when a lender fails to follow the strict legal procedures for foreclosure. This can include:
  • Failure to follow procedure: The lender or servicer does not issue the legally required notices on time or record the correct documents.
  • Dual tracking: Under the California Homeowner Bill of Rights (HBOR), lenders are prohibited from proceeding with a foreclosure while a borrower’s loan modification application is under review.
  • Robo-signing: A foreclosure can be challenged if documents were signed without proper review, a practice known as “robo-signing”.
• Loan modification denial: A dispute can arise if a lender unfairly denies a loan modification request, especially when the borrower has a valid basis for a modification. The HBOR provides a right to sue in some of these cases.

Lender misconduct

• Mortgage fraud and misrepresentation: Disputes can arise from fraudulent conduct, such as misrepresenting loan terms during the underwriting process. Evidence of fraud could potentially invalidate the mortgage agreement.
• Predatory lending and discrimination: If a lender engages in discriminatory practices or predatory lending, borrowers may have grounds to sue. Federal laws like RESPA and TILA protect borrowers from such actions.
• Failure to fund: A dispute can occur if a lender commits to providing a loan but then fails to advance the funds, causing damage to the borrower.

Resolution and legal remedies

• Dispute resolution process: For smaller issues, disputes can often be resolved by communicating directly with the servicer or filing a written complaint. For more serious disputes, remedies include mediation, litigation, or challenging the foreclosure in court.
• Legal action: Depending on the issue, a borrower can file a lawsuit for damages, specific performance, or rescission of the contract. If a foreclosure is wrongful, a lawsuit can seek to halt the sale or set it aside after it has occurred.

Statute of limitations: The time frame for filing a lawsuit is a critical factor. For a written contract in California, the statute of limitations is generally four years, though this can vary depending on the specific claim.