American Home Mortgage Servicing Allegedly Messed With Texas

On August 30, 2010, Texas Attorney General Greg Abbott filed suit against Texas-based American Home Mortgage Servicing, Inc. (“AHMSI”) alleging violation of the Texas Debt Collection Act and the Texas Deceptive Trade Practices Act. In a press release, the Attorney General’s office explained that the lawsuit alleges that AHMSI engaged in “illegal debt collection tactics and improperly mislead[] struggling homeowners.” A copy of the Complaint can be found here.

The Complaint includes a laundry list of allegations regarding violations of the Texas Debt Collections Act, including:

• Repeatedly calling consumers several times on the same day;
• Failing to properly credit consumers for payments made;
• Using false claims that consumers did not make payments in order to justify the imposition of late fees and the establishment of escrow accounts;
• Failing to recognize that consumers' have insurance policies in effect, and then force placing insurance policies unnecessarily;
• Withdrawing funds from consumers checking accounts, but failing to show the withdrawal as a payment on the mortgage;
Failing to timely post consumers' payments;
• Making payment for taxes on consumers' homes when the consumers had already paid the taxes;
• Refusing to accept proper payments from consumers, allegedly because the consumer is in default and the payment is not large enough to cure the alleged default, thereby causing more late charges to be added and false reports made to credit bureaus; and
• Repeatedly sending dunning letters when the loans are not in default.

The AG’s Office also alleges that AHMSI has mislead consumers in a number of ways, including:

• Contrary to the provisions of some of the loan modification programs, American Home insists that consumers bring the loan current prior to becoming eligible, pay a fee to it for the modification, and agree to a release of American Home.
• Contrary to the above described professions of efficiency and compassion, American Home has, on numerous occasions, agreed to receive consumers' modification applications, including financial statements, wage records, tax returns and other documents, by fax or by certified mail, and then has lost or claims not to have received such despite the proofs of receipt held by the consumers. American Home then will require the consumer to resend the modification application, in some cases as many as three or four additional times. Then, in many cases, by the time American Home acknowledges receipt of the application, it claims the information is stale and requires the consumer to resubmit the application and all documents.
• Consumers complain of never speaking to the same representative twice, in spite of American Home's claim that it gets to know consumers through personal attention.
• If the consumer's modification request is at all unusual, the initial representative must send it to the supervisor for approval, contrary to the claim that its Team members are empowered to work out problems directly with the consumer.
• On numerous occasions, American Home offered loan "modifications" that did nothing more than add the amounts claimed to be in default to the principal.
• On numerous occasions, American Home offered loan "modifications" that did not lower the consumers' monthly payment, and in many cases increased it.

The AG’s office alleges that “[t]he cumulative effect of the foregoing acts and practices was to place more homes into foreclosure than there should have been.”

The Complaint seeks heavy penalties against AHMSI. The Complaint request injunctive relief prohibiting AHMSI from engaging in the practices outlined in the Complaint; a civil penalty of up to $100 per violation of the Texas Debt Collection Act; a civil penalty of up to $20,000 per each violation of the Texas Deceptive Trade Practices Act; a civil penalty of up to $250,000 for “committing acts and practices calculated to acquire or deprive money or other property from consumers who were 65 years of age or older”; an order requiring AHMSI to repay “all money or property taken from identifiable Texas consumers by means of unlawful acts or practices”; and costs, interest, and attorneys fees.

According to records from the El Paso County Clerk of Court, AHMSI was served with the lawsuit on September 9, 2010. AHMSI’s answer is due on or before September 29, 2010. It is expected that AHMSI will vigorously dispute the Attorney General’s characterization of its activities.

-- Chris Jones is a member in Womble Carlyle's business litigation practice group and a leader of the firm's Consumer Finance Investigation and Enforcement Team. He regularly represents a wide variety of clients in both state and federal venues throughout the United States.