Consumer Finance Litigation

As Burr & Forman has offices located in five southeastern states (Alabama, Florida, Georgia, Mississippi and Tennessee), our attorneys have been actively involved in various forms of litigation involving Chinese drywall for the last several years. While standard Chinese drywall lawsuits have involved claims related to construction and products liability, a recent case handled by our financial services litigation attorneys involved the interplay between Chinese drywall and mortgage servicing. In Buckentin v. SunTrust Mortgage Corporation, No. 2:11-cv-00532-RDP, 2013 WL 830887 (N.D. Ala. Mar. 4, 2013), the plaintiffs asserted eleven separate state and federal law claims against their mortgage servicer related to the servicer's act of providing the borrowers a forbearance after it was discovered the borrowers had Chinese drywall in their home. The eleven claims were as follows: (1) wrongful foreclosure, (2) fraud, (3) breach of contract, (4) breach of the implied covenant of good faith and fair dealing, (5) outrage (IIED), (6) negligent hiring, training and/or supervision, (7) negligence, (8) wantonness, (9) slander of title, (10) the Real Estate Settlement Procedures Act ("RESPA"), and (11) the Fair Debt Collection Practices Act ("FDCPA"). While discussing why each of the plaintiffs' claims failed provides little insight into the interplay of mortgage servicing and Chinese drywall (the court found that plaintiffs were unable to establish any critical element of their eleven claims), the Buckentin court did have some insight into a mortgage servicer's role when a borrower discovers Chinese drywall may have been installed in their home. From the time that plaintiffs moved into their home, they alleged that they had problems with appliances failing in their home and, during the spring of 2010, the presence of Chinese drywall was confirmed. Shortly thereafter, the plaintiffs sued Knauf, the manufacturer of the drywall, and that case was centralized as part of a Multi-District Litigation in New Orleans, Louisiana. Eventually, the plaintiffs entered into a settlement with Knauf that would eventually result in their home being remediated. At some point, however, the plaintiffs decided they no longer wanted to live in the home and moved out. The plaintiffs called their mortgage servicer to request a forbearance from paying mortgage payments because of the presence of Chinese drywall. Their mortgage servicer offered a three month forbearance and transmitted the offer in a written letter. After the expiration of the initial forbearance, the parties had not agreed on additional forbearance. However, despite no agreement, the plaintiffs did not make their next mortgage payment and, in fact, never made another mortgage payment. Approximately one month after the expiration of their forbearance agreement, the mortgage servicer verbally offered a three month extension of the prior forbearance agreement. Prior to offering the verbal agreement, and because the previous forbearance had extinguished and no payment was made, the mortgage servicer had approved the plaintiffs' loan for foreclosure and had retained the services of a foreclosure law firm to initiate foreclosure proceedings. During this time, the foreclosure firm had sent an acceleration letter and foreclosure notice to the plaintiffs. After the verbal forbearance ended, the parties were unable to agree on another forbearance agreement. However, the mortgage servicer never foreclosed and the plaintiffs sued for the claims listed above. In the opening paragraph of its analysis, the Judge Proctor of the U.S. District Court for the Northern District of Alabama framed the major issues and explained why the plaintiffs' basic theory -- that their mortgage servicer was somehow obligated to assist them because of the Chinese drywall -- was flawed: Initially, it bears emphasis that there has been no foreclosure. Plaintiffs have not made a payment on their home since August 2010. Nonetheless, to date the home is still theirs. Admittedly, Plaintiffs' home has been uninhabitable, but [the mortgage servicer] is in no way responsible for the Chinese Drywall in Plaintiffs' home. Plaintiffs appear to be under the impression that the Chinese Drywall issue necessarily relieves them of the burden of making their mortgage payment, but they have presented no factual, legal, or logical support for this assertion. The court went on to state that while the mortgage servicer could have been more clear in communicating with the plaintiffs, it was apparent that the plaintiffs had allowed their mortgage to slip into default and, after rejecting an offer of a third forbearance, had been in default ever since. Analyzing the Buckentin facts and decision, it is clear that the mortgage servicer was sued based upon its attempt to assist the borrowers. By providing the initial forbearance, and attempting to help the borrowers with their payment obligations, it created a fluid situation that plaintiffs attempted to exploit by demanding additional forbearances and claiming confusion regarding their mortgage situation. With hindsight, it would be easy to say that no lawsuit would have arisen if no forbearance offer was ever extended. Thus, prior to offering any type of assistance, mortgage servicers should be aware that allowing a borrower any payment forgiveness can oftentimes create numerous unforeseen problems down the road. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.