In January 2014 homeowners with mortgage loans obtained a significant tool for disputing errors in the collection and application of their mortgage loans. The tool in question is known as a Notice of Error, which was made part of the Real Estate Settlement Procedures Act (RESPA), originally enacted in 1974. Drafted by the Consumer Financial Protection Bureau, Regulation X which includes the Notice of Error rule is a great tool that should be utilized by aggrieved homeowners seeking to fix errors on their mortgage loan accounts.
A Notice of Error is merely a written letter sent to the loan servicing company that sets forth an explanation of the alleged error and includes sufficient identifying information for the servicing company to determine what account the problem relates to. Errors covered by the rule are those having to do with loan servicing. By way of example this includes monthly payments that are not properly credited to the account, a modification agreement that is not honored following a change in loan servicing company, errors with tax and insurance disbursements and fees that are inappropriately assessed to an account. A notice of error does not include claims of errors that occurred at the time the loan was originated.
By issuing a Notice of Error, a homeowner can compel a loan servicing company to conduct an investigation of the error. The loan servicer must complete its investigation within 30-45 business days and provide the homeowner with a written response. In responding to a Notice of Error the loan servicer must correct the error or provide the homeowner with a detailed letter explaining the reasons why no error was found. Thus, if the servicing company disagrees with the homeowners allegations, they must explain what research was done in finding that no error occurred. The loan servicer must also make available upon request and at no cost, documents reviewed by the servicing company during its investigation. This allows a homeowner to obtain a level of transparency that was not previously available.
If the loan servicer fails to respond to the Notice of Error or otherwise fails to conduct an investigation in the manner and time required by the rule, a homeowner can seek relief in court. RESPA provides that a successful plaintiff homeowner will be entitled to the Notice of Error investigation and will recover attorney fees and costs incurred pursuing the case. In some circumstances the homeowner might also be entitled to damages of up to $2,000 per violation of the RESPA requirements by the loan servicing company.
Homeowners who have been subject to an error by their loan servicer may have found themselves in financial trouble as a result of the error, or even worse, facing a foreclosure. Using the Notice of Error early on can prevent the snowball effect of an error.