Newrez servicer hit with second zombie mortgage suit

Specialized Loan Servicing, a mortgage servicer acquired by Newrez, faces fresh accusations of inflating balances on dormant second mortgages. 

A lawsuit filed in a North Carolina federal court alleges that SLS, now part of Shellpoint, failed to provide required monthly statements to post-bankruptcy consumers, violating federal law. The litigation seeks class-action status, arguing that thousands of borrowers may be affected.

The plaintiff in the suit, Gregory Tuttle, a resident of North Carolina, claims he stopped receiving monthly statements regarding his second mortgage in 2006.

In 2018 he was contacted by SLS once, alerting Tuttle it would begin sending him monthly statements, however, the statements never arrived.

But in 2023, "Out of the blue, plaintiff started receiving statements from SLS stating that he now owed tens of thousands in retroactive interest for the period in which he had not received the required monthly statements," litigation said.

Tuttle alleges his discharged second mortgage has now ballooned to over $160,000 in fees. The mortgage has been serviced by SLS since March 2005.

He is currently at risk of losing his home, in part because Tewrin Mortgage Trust, the owner of Tuttle's second mortgage debt and an additional defendant, filed for foreclosure.

"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 reads.

Newrez declined to comment on pending litigation.Tuttle ended up with a second mortgage in 2005 when he refinanced his home using a 80/20 mortgage arrangement, where the primary loan covered 80% of the home's appraised value, while the second "piggyback" mortgage acted as a down payment.

In 2006 the homeowner filed for bankruptcy, which voided Tuttle's liability in paying the second mortgage. At that point it had a balance of $54,000. However, the lien on his house remained, obligating Tuttle to continue paying for his mortgage, or putting him at risk of foreclosure.

Tuttle claims he has lost $20,000 of equity in his property because of the "illegal fees and charges."

"Had a reasonable investigation occurred, Shellpoint/SLS would have discovered that no interest could lawfully accrue on the loans because SLS and Shellpoint had not sent periodic statements to Plaintiff since the April 2018 Regulation Z updates," litigation said. 

This is a second such suit accusing SLS of inflating the balance of a second mortgage. In December 2024, Janice Moody, a Georgia resident and the plaintiff, lodged litigation accusing SLS of assessing $20,000 in improper fees tied to her long dormant second mortgage.

Both suits accuse 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

Since Newrez's $720 million acquisition of SLS in May of last year, a plethora of legal items have sprouted against the servicer.

Apart from second mortgage-related litigation, SLS has been accused of overcharging borrowers for processing mortgage payments over the phone. A lawsuit filed in September claims that before being acquired by Newrez, SLS charged borrowers $7.50 for processing mortgage payments made by phone, a significantly higher fee than what other servicers charge.

In response, Newrez said that since its acquisition of SLS, "no fees are charged to SLS homeowners who make a payment on their accounts."Shellpoint, the servicing arm that absorbed SLS, was also hit with litigation by a couple claiming it approved a fraudulent $500,000 home equity line of credit wire transfer.