Ohio has become the first state to file suit against a mortgage servicer, accusing it of not doing enough to modify loans of distressed homeowners.
Ohio Attorney General Richard Cordray teamed with the Ohio Department of Commerce to sue Carrington Mortgage Services, LLC, alleging that Carrington breached its agreement with the state to offer reasonable loan modifications to eligible borrowers.
The lawsuit also alleges that Carrington violated Ohio's Consumer Sales Practices Act by providing incompetent, inadequate and inefficient customer service in connection with its servicing of Ohio mortgage loans.
"This lawsuit makes it clear that we have reached zero tolerance for this kind of behavior from loan servicers," said Cordray. "We've tried to work with them, but now we must take action. I am determined to see that mortgage servicers step up, take responsibility and start making it right with Ohioans. No more excuses."
In January 2008, the Ohio Attorney General's Office and the Ohio Department of Commerce entered into an agreement with Carrington to resolve a dispute arising from the state's New Century litigation. The agreement required that Carrington engage in "good faith" loan workout negotiations with eligible New Century borrowers in order to avoid foreclosure. The agreement entitled borrowers to reasonable loan workouts, forbearance restructuring agreements or other resolutions acceptable to both the borrower and Carrington.
According to the lawsuit, Carrington breached the agreement by failing to provide borrowers with workout terms reasonably designed to avoid foreclosure, did not provide a written copy of the terms to the state and failed to provide proposed terms to borrowers within the 21-day timeframe allocated in the agreement.
"Carrington Mortgage Services owes Ohio borrowers a fighting chance at avoiding foreclosure," said Kimberly A. Zurz, director of the Ohio Department of Commerce. "Mortgage lenders and servicers need to know that this type of negligence will not be tolerated in Ohio. We will hold them accountable for their actions."
In the lawsuit, Cordray also charges that Carrington violated Ohio's Consumer Sales Practices Act by failing to investigate and resolve consumer complaints in a timely manner, by failing to offer loss mitigation options to borrowers, and by pressuring Ohioans into signing unfair, unreasonable and one-sided loan modification documents.
The lawsuit seeks consumer restitution, civil penalties and damages as a result of the breach of the agreement. It also requests that the court order Carrington to implement processes designed to provide efficient, competent and adequate customer service to all of its Ohio mortgage customers.