Newrez wants to dismiss a trio of “zombie” second mortgage lawsuits, suggesting its servicing arm didn’t violate, nor is subject to, the lending laws consumers cite.
Borrowers accuse Newrez’s Shellpoint of inflating the balances of their long-dormant second mortgages, and for long periods failing to send them monthly statement notices. The prospective class action complaints in Georgia, Massachusetts and North Carolina allege various violations of state and federal consumer and lending laws.
Newrez fired back last month, filing motions to dismiss the Massachusetts and North Carolina suits and asking for summary judgment in the older Georgia case. Federal judges have not yet responded to those latest filings. While the motions have various nuances, the mortgage player commonly argues Shellpoint isn’t subject to Truth in Lending Act claims.
In Massachusetts, Eva Hodges is suing Shellpoint and Bank of New York, as an assignee and holder, over a $100,000 home equity line of credit loan she obtained in 2005 with Countrywide Home Loans. Hodges filed for bankruptcy in 2008, received a discharge of her HELOC that year, and stopped receiving monthly mortgage statements, according to her lawsuit.
Early last year, Shellpoint allegedly asked her to pay $152,820 to cure the arrearage on her HELOC, or face foreclosure; the total amount due had grown to $200,000. Hodges sued the servicer and bank in January for violating TILA, but removed that claim in place of other state statute violations in an amended April complaint.
Counsel for both institutions responded to Hodges two weeks ago, and accused her of improperly trying to backdoor a TILA claim into a Fair Debt Collection Practices Act claim.
“TILA only applies to creditors, and it is well-settled that mortgage servicers that do not also own the loan are not ‘creditors’, and therefore, cannot be liable under TILA,” wrote attorneys for Shellpoint and BNY.
The servicer cited precedent from other federal court rulings, including a case involving Newrez in 2020. Spokespeople for both Newrez and Bank of New York declined to comment, while attorneys for Hodges didn’t respond to requests for comment Monday.
Counsel for Newrez in the Georgia and North Carolina cases raise similar TILA arguments, alongside defenses against other statutes like the Real Estate Settlement Procedures Act. Those cases involve “80/20” loans originated prior to the Great Financial Crisis, where their second loans covered their homes’ remaining 20% of value.
Each lawsuit refers to Shellpoint by its former Specialized Loan Servicing name. Newrez parent Rithm Capital acquired SLS as part of its $720 million Computershare Mortgages purchase in 2023. SLS is also accused of up-charging borrowers in a “pay-to-pay” suit which remains pending in a Texas federal court.
The spate of zombie second claims against Shellpoint cite Consumer Financial Protection Bureau guidance from 2023, which discusses companies coming to collect on Great Financial Crisis-era second mortgages as home values have risen. The regulator said those servicers could be violating the FDCPA.
The CFPB under acting Director Russell Vought last month rescinded widespread bureau guidance, although the “zombie” mortgages bulletin was not mentioned in that federal register update. Vought nonetheless has moved to defang the agency and pulled back widespread enforcement of mortgage businesses.
