Newrez's servicer accused of charging interest on zombie loans

Newrez's recently acquired company Specialized Loan Servicing is accused of unfairly inflating the balances on long-dormant second mortgages.

According to litigation that is seeking class certification, Shellpoint's predecessor, SLS, failed to send post-bankruptcy consumers monthly statements on their zombie second mortgages, as is required by law. This alleged failure caused Janice Moody, a Georgia resident and the plaintiff, to assume her second mortgage was rolled into her primary mortgage or forgiven as a part of bankruptcy proceedings in 2010. In reality, she was being charged interest and fees on the second mortgage without her knowledge. 

As a result, Shellpoint, the company SLS became a part of, assessed $20,000 in improper fees in July and is seeking to collect that amount through the foreclosure of the plaintiffs home, litigation claims.

"When companies like SLS and Shellpoint attempt to collect and actually collect these improper charges, including through foreclosure, they not only rob consumers of their homes, but they also strip them of tens of thousands of dollars in equity — one of the primary ways that low- and middle-income families build wealth," the complaint said.

Newrez said it is aware of the suit, but cannot comment on pending litigation. 

"Shellpoint strives to support its homeowners and service their loans in compliance with applicable laws and regulations," a Newrez press person said.

Law360 first reported on the complaint.

Moody, who purchased her home in 1999, utilized an 80/20 subprime mortgage, where the primary loan covered 80% of the home's appraised value, while the second "piggyback" mortgage acted as a down payment. (This kind of second mortgage often can overextended borrowers, resulting in the mass foreclosures that caused the Great Recession.)

In 2006, Moody refinanced her two mortgages to get better terms, but fell into financial trouble in 2010 and filed for Chapter 7 bankruptcy. Following the restructuring of her finances, where her second mortgage was discharged, the plaintiff never heard from SLS again.

But more than a decade later, Moody received notice from Shellpoint's attorney that her second mortgage had been referred to foreclosure and would be sold at auction if she did not pay the thousands of dollars that accumulated.

The suit is accusing Shellpoint of violating the Real Estate Settlement Procedures Act because it failed to adequately respond to the borrower's qualified written requests, which asked the servicer to provide loan information.The suit also accuses the company of breaching the Truth in Lending Act (TILA). Amendments in 2018 required servicers to send monthly statements to borrowers even after their mortgages were discharged in bankruptcy, which the complaint claims SLS – not Shellpoint–  never did.

Moody is asking the court to stop the foreclosure sale of her house, among other demands.

Since the acquisition of the servicer, Newrez has seen other SLS-related litigation sprout.

In September, SLS was sued for allegedly upcharging borrowers for processing mortgage payments over the phone. Prior to being bought by Newrez, SLS required borrowers to pay $7.50 for processing mortgage payments made by phone, representing a significantly higher amount than what other servicers charge.

At the time, Newrez highlighted that since its acquisition of SLS "no fees are charged to SLS homeowners who make a payment on their accounts.""Additionally, Newrez does not charge pay-to-pay fees," the company stressed.Real estate investment trust Rithm Capital Corp, parent company of Newrez, bought the company for close to $720 million as a means to further expand its servicing presence. The deal was announced late last year and closed in early May.