Most people think foreclosure happens only when a borrower stops making their mortgage payments. However, in some cases, homeowners who pay on time still fall into default due to something unexpected: errors in their escrow account.

Escrow accounts are designed to protect both the borrower and the lender. They set aside funds to pay property taxes, insurance premiums, and sometimes other costs. When managed properly, escrow accounts help keep a mortgage in good standing. But when mistakes are made, by the loan servicer or due to system errors, borrowers can face unexpected charges, payment increases, and even foreclosure notices.
This issue can go unnoticed until it causes real harm. Borrowers, attorneys, and mortgage experts should all understand how these accounts work and how they can cause problems.

What Is an Escrow Account?
An escrow account is a separate fund maintained by the mortgage servicer. Each month, the borrower typically sends one combined payment that includes:

•  Principal and interest on the loan
•  Estimated property taxes.
•  Homeowners insurance premiums (and sometimes mortgage insurance)

The servicer is responsible for using these escrow funds to pay taxes and insurance bills on time.

To manage this process, servicers are required to perform an annual escrow analysis, estimating future costs and adjusting the borrower’s monthly payment if needed.

Common Escrow Errors
Servicers handle thousands of escrow accounts, and while many are managed properly, errors can occur and create issues for the borrower. Some of the most common issues include:

•  Undercollection: The servicer collects too little, creating a shortfall. To cover it, they may raise the monthly payment suddenly or treat the shortage as unpaid debt.
•  Overcollection: The borrower is charged too much, tying up money unnecessarily and causing financial stress.
•  Missed payments: The servicer fails to pay a tax bill or insurance premium, risking tax liens or canceled insurance coverage.
•  Force-placed insurance: If the servicer believes the borrower’s insurance has lapsed, even if it has not, —they may buy their own policy and charge the borrower. These policies are often expensive and can sharply increase the mortgage payment.
• Incorrect adjustments: After loan modifications, refinances, or property tax changes the escrow account should be re-evaluated. If not, outdated estimates can lead to future problems.

The Legal and Financial Impact
Even if a borrower never misses a mortgage payment, a misapplication of the payment can cause errors then causing the loan to appear delinquent. This may lead to late fees, credit reporting issues, or even foreclosure. In some cases, homeowners do not realize there is a problem until they receive a notice of default—, or a much higher monthly bill.

Federal regulations such as the Real Estate Settlement Procedures Act (RESPA) require servicers to follow specific rules when managing escrow accounts. These include providing annual statements, disclosing shortages or surpluses, and responding to written borrower inquiries within set timelines.
When these rules are not followed, borrowers may have grounds to dispute charges, correct errors, or take legal action.

The Role of Expert Witnesses
In legal disputes involving escrow errors, expert witnesses can play a vital role. Mortgage servicing experts can help explain:

•  Whether the servicer followed accepted industry standards.
•  How payments were applied.
•  Whether force-placed insurance or tax penalties were avoidable.
•  How escrow problems contributed to borrower harm or foreclosure.

Experts are also useful in explaining complex financial records to judges, juries, or arbitrators, especially when a case involves technical errors, regulatory violations, or actions that were or were not consistent with standard industry practices.

What Borrowers Can Do
Escrow problems are often difficult to identify until they become serious. Borrowers can protect themselves by taking the following steps:

•  Review your annual escrow disclosure each year.
•  Confirm that taxes and insurance are paid on time (you can contact the tax office or insurer directly). This can also be found online in most areas.
•  Keep a file of all mortgage and escrow-related documents.
•  Contact your servicer in writing if you notice errors or unclear changes.
•  Ask for a written explanation of any significant payment increases.

Borrowers also have the right to request an escrow account breakdown or submit a written notice of error (NOE). These tools can help get answers and fix mistakes before they lead to default.

Final Thoughts
Escrow accounts are often treated as automatic or “set-and-forget” systems, but they require close attention. Errors in these accounts can lead to missed payments, increased bills, and even foreclosure.

For borrowers, staying alert to unexpected changes or unexplained charges is the first line of defense. Reviewing escrow history and documentation may reveal the source of a servicing dispute. If the issue escalates to litigation, a mortgage loan servicing expert may be engaged to bring clarity to the matter.
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In the world of mortgage lending, the numbers matter— and so does how they are handled. Contact Jason D. Koontz today to schedule your consultation. 

This blog post was developed with significant assistance from Julie K. Miller, Research Assistant at JD Koontz, LLC.

Buying a home in California is an exciting yet challenging endeavor. The state’s competitive housing market, combined with complex regulations, makes it essential to approach the process with careful planning and informed decision-making. This guide breaks down the steps in purchasing a home in California and provides critical insights to help you navigate this process smoothly.

1. Understand the Market
California’s housing market is diverse, with distinct differences depending on the region. Prices and inventory vary widely from the competitive markets in Silicon Valley and Los Angeles to more affordable areas in the Central Valley. Homebuyers should start by researching the specific market in which they are interested. For instance, in 2024, California’s median home price hovered around $800,000, making it one of the most expensive states for housing. Buyers in high-demand cities may face bidding wars, while those in less competitive areas may have more negotiating power.

2. Get Pre-approved for a Mortgage
Before you start house hunting, it is crucial to secure financing. In California, many sellers will only entertain offers if the buyer is pre-approved for a mortgage. Pre-approval gives you a clear understanding of your budget and shows sellers you are a serious buyer. To get pre-approved, lenders will evaluate your income, credit score, and debt-to-income ratio. Remember that mortgage rates and terms can vary, so shopping around for the best deal is advisable.

3. Find the Right Real Estate Agent
Navigating California’s real estate market can be overwhelming, especially for first-time buyers. A knowledgeable real estate agent can help guide you through the process. They can provide market insights, help with negotiations, and ensure that the entire transaction runs smoothly. Agents in California are well-versed in local regulations and can assist in understanding critical aspects such as property disclosures, zoning laws, and home inspections.

4. Search for Your Ideal Home
Once you have a real estate agent and pre-approval, the next step is finding a home that fits your needs and budget. In California, many buyers consider factors like proximity to employment centers, school districts, and neighborhood safety. Online platforms and real estate apps are excellent tools for browsing listings, but your agent will likely have additional resources to find homes that have yet to be widely advertised. Being ready to act quickly on new listings is essential in competitive markets.

5. Make an Offer
Making an offer on a home in California involves more than just submitting a price. Your offer will typically include contingencies, such as home inspections and financing. These protect you by allowing you to withdraw from the deal under certain conditions. In a competitive market, you may need to be flexible with contingencies or offer more than the asking price. However, buyers should be cautious about waiving contingencies, as it could expose them to risks like hidden defects or financing complications.

6. Home Inspection and Appraisal
Once your offer is accepted, the home inspection and appraisal process begins. The inspection is critical for identifying potential issues, such as structural problems or outdated systems. California has stringent disclosure requirements, meaning sellers must reveal issues known, but an inspection offers additional peace of mind. Similarly, the lender will require an appraisal to ensure the home is worth the loan amount. If the appraisal comes in lower than expected, it could impact your loan terms or require renegotiation.

7. Closing the Deal
The last step in buying a home is the closing process. This involves signing numerous documents, finalizing the loan, and transferring the title in California. Closing costs typically range from 2% to 5% of the home’s purchase price and include fees such as title insurance, escrow fees, and recording fees. It is important to carefully review all closing documents and understand the financial obligations before signing. After closing, the property officially becomes yours.

Key Considerations for California Buyers

Property Taxes: California’s property tax rate is relatively low, averaging around 0.76%. However, Proposition 13 limits annual increases in property taxes, which can benefit long-term homeowners.

Earthquake Insurance: California is prone to earthquakes, and standard homeowners’ insurance does not cover earthquake damage. Buyers should consider purchasing additional earthquake insurance.

HOA Fees: Many homes, especially condominiums and homes in planned communities, come with Homeowners Association (HOA) fees. These fees cover community maintenance and amenities but can add significantly to your monthly costs.

Conclusion
Buying a home in California requires patience, preparation, and a good understanding of the local market. With the right team and knowledge, you can successfully navigate the challenges and find a home that meets your needs. Remember to stay flexible, consider all costs involved, and take your time to ensure you make the right decision.

Sam Alderman, Research Assistant at JD Koontz, LLC, provided significant assistance to this blog post.

​In the intricate and often daunting realm of mortgage servicing, borrowers frequently find themselves confronted with an array of challenges, ranging from deciphering the complexities of loan agreements to addressing discrepancies in their accounts. These challenges, compounded by the potential for errors or misunderstandings during the servicing process, can impact borrowers' financial well-being and peace of mind. Fortunately, to mitigate such issues and uphold standards of transparency and fairness, borrowers have access to two invaluable tools: Qualified Written Requests (QWRs) and Notices of Error (NOEs).
 
QWRs and NOEs stand as formal methods of communication between borrowers and mortgage servicers, offering avenues for borrowers to articulate concerns, seek resolution, and obtain critical information regarding the management of their mortgage loans. At the core of this framework is the Qualified Written Request, a mechanism governed by the Real Estate Settlement Procedures Act (RESPA). Through a QWR, borrowers can detail what they believe are errors or discrepancies related to their loan servicing. Whether it entails disputing inaccuracies in loan balances, questioning the legitimacy of imposed fees, or seeking clarification on the handling of escrow accounts, a QWR empowers borrowers with the means to address a broad spectrum of issues affecting their mortgage arrangements. The QWR can also be used as a request for information.
 
Complementing the QWR is the Notice of Error, a counterpart regulated under the Consumer Financial Protection Bureau's (CFPB) Mortgage Servicing Rules. NOEs are specifically tailored to target errors in the servicing of the loan, affording borrowers an avenue to rectify issues such as misapplied payments, erroneous assessment of charges, or mishandling of escrow funds. Through the NOE mechanism, borrowers can assert their rights and compel servicers to remedy inaccuracies or deficiencies in the management of their mortgage accounts.
 
The process of initiating a QWR or NOE begins with the borrower submitting a formal written communication to their mortgage servicer. The best practice would be to send the letter via certified mail, thereby ensuring the verifiable delivery of their request. Upon receiving the communication, the servicer is required to acknowledge its receipt within five business days. This acknowledgment marks the commencement of an investigative process, during which the servicer is obligated to scrutinize the concerns raised by the borrower and provide a substantive response within a prescribed timeframe.
 
RESPA stipulates that servicers must furnish a comprehensive response to a QWR within 30 business days of receipt. Similarly, NOEs, governed by Regulation X, necessitate a timely response within the same timeframe. However, in instances where the complexity of the issue warrants additional scrutiny, servicers are allowed an extension of up to 15 additional business days, provided they furnish the borrower with a detailed explanation for the delay.

Understanding the intricacies of the response timeline is paramount for borrowers seeking redress. Any lapses or delays in adhering to the prescribed timeframe may be considered violations of regulatory requirements, potentially exposing servicers to repercussions.
 
Effective use of QWRs and NOEs empowers borrowers to advocate for their rights, rectify errors, and foster transparency and accountability within the mortgage servicing landscape. By stating their concerns clearly and adhering to established procedures, borrowers can navigate the complexities of mortgage servicing with confidence.
 
In summation, Qualified Written Requests and Notices of Error serve as indispensable instruments for borrowers to engage with their mortgage servicers and address issues pertinent to loan servicing. Through these channels of communication, borrowers can safeguard their financial interests, rectify inaccuracies, and uphold standards of fairness and integrity in the management of their mortgage accounts.
 
Matthew Mrozek, Research Assistant at JD Koontz, LLC, contributed to this blog post.

In times of economic downturns, recessions cast a long shadow on borrowers and their ability to manage their loans. As job losses, reduced incomes, and financial uncertainty become prevalent, borrowers often face mounting challenges in meeting their financial obligations. This blog post explores the impact of recessions on borrowers, delving into past-due loans, loan modifications, foreclosures, and proactive steps borrowers can take to navigate these tumultuous times, preserve their homes, and regain financial stability.

During a recession, many borrowers may face financial difficulties, such as job loss, pay cuts, or reduced work hours. As a result, they may struggle to make their loan payments, leading to past-due loans. A past-due loan is a loan that is overdue by at least one payment. When a borrower misses a payment, the lender will typically send them a late payment notice, reminding them to make the payment as soon as possible. If the borrower continues to miss payments, the lender may report the past-due loan to credit bureaus, which can negatively affect the borrower's credit score.

How Loan Modifications Can Help Mortgage Loan Borrowers
There are many ways that borrowers can work with their lenders to help them keep their financial stability. One of the most common tools used by lenders and borrowers is loan modifications. Recognizing the hardships faced by borrowers, lenders often offer loan modifications to alleviate some of the financial strain. These modifications can take various forms, including interest rate reductions, extended loan terms to reduce the payment, or temporary payment suspensions. By working closely with their lenders, borrowers can explore options to renegotiate loan terms and arrive at a more manageable repayment plan.
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Another common problem that borrowers face during recessions is the risk of foreclosures. Recessions can trigger an increase in foreclosures as borrowers struggle to keep up with mortgage payments. Foreclosure is the legal process through which lenders seize and sell a property to recover their investment. It is essential for borrowers to be aware of the foreclosure timeline and regulations governing the process in their state. Timely action and communication with lenders can provide opportunities to explore alternatives to foreclosure and potentially save their homes.
 
Seek Help from Professionals
There are also many tools available to borrowers that do not require the help of lenders. One tool available to help struggling borrowers is a personal financial assessment. Assessing personal finances comprehensively can help borrowers identify areas where they can cut expenses, increase income, or seek financial assistance. Developing a realistic budget and prioritizing essential expenses can provide a clear overview of available resources. 

Another tool available to borrowers is contacting a consumer credit counseling service. Engaging with counselors or financial advisors experienced in foreclosure prevention can be immensely beneficial. These professionals can provide guidance, negotiate with creditors on the borrower's behalf, and ensure borrowers are aware of their rights and options.
 
Refinancing Your Residential Mortgage Loan
Although it may be difficult if you are experiencing difficulties, refinancing is also another tool that borrowers can use to keep control of their financial life. For borrowers, who may have just hit a bump in the road, with a steady income and sufficient equity in their homes, refinancing their mortgage at a lower interest rate may be a viable option. Refinancing can reduce monthly payments, making them more manageable during recessionary periods.

The most important thing for borrowers who are struggling in a recession is to be open with their lenders about any struggles and to keep in contact with them. Maintaining open lines of communication with lenders is crucial. Proactively informing them about financial difficulties allows for potential solutions to be explored, such as loan modifications or forbearance agreements. Often, as is common with life, people don’t like dealing with the hard stuff and put off calling their lender or servicer. Many lenders and servicers are willing to work toward solutions with struggling borrowers as long as borrowers are willing to explore options. 

Recessions can place immense pressure on borrowers, making it challenging to meet loan obligations and preserve their homes. By understanding the impact of recessions, exploring loan modifications, being proactive, and seeking professional assistance, borrowers can navigate these difficult times, protect their homes, and pave the way toward financial stability.

If you feel that you are a victim of a creditor who is treating you in a way that is not consistent with the terms of your loan or violating regulation put in place to protect you, you may seek redress through the courts. These cases often utilize an expert witness in abusive, unfair, and deceptive loan practices. A banking expert witness can be retained to investigate and offer opinions as to whether the alleged conduct was improper.

Matthew Mrozek, Research Analyst with JD Koontz, LLC provided significant assistance in writing this blog post.

Fannie Mae and Freddie Mac, the two largest government-sponsored mortgage companies, have made significant changes to their underwriting standards that allow more Americans to qualify for home loans. These changes were implemented in response to the new credit score models adopted by the major credit reporting agencies, FICO, and VantageScore, in 2020.

The adoption of trended data is the most significant change made by Fannie Mae and Freddie Mac. Trended data is a comprehensive view of a borrower's credit history, which analyzes their credit behavior over time. It includes information such as the amount of debt carried month-to-month, the amount of available credit used, and the consistency of payments. By including trended data, Fannie Mae and Freddie Mac can more accurately assess a borrower's creditworthiness and ability to repay a loan. This change opens opportunities for millions of Americans who may have previously been denied a mortgage due to their credit scores or other factors.

In addition to the changes made by FICO and VantageScore, Fannie Mae and Freddie Mac have also implemented their own guidelines to further expand access to mortgage loans. For example, they are now accepting borrowers with higher debt-to-income ratios and offering more flexible income documentation requirements.

Another significant change made by Fannie Mae and Freddie Mac is the reduction of penalties for medical debt. Medical debt will no longer have as much of a negative impact on a borrower's credit score as it did previously. This is significant because medical debt is often incurred unexpectedly and is not always within the control of the borrower. The reduction in penalties for medical debt opens up more opportunities for low and moderate-income borrowers, first-time homebuyers, and borrowers with limited credit histories or past credit issues.

In addition to the above changes, Fannie Mae and Freddie Mac have also implemented a new credit report system called the "bi-merge" credit report. This system combines a traditional credit report with a second credit report that includes non-traditional credit information, such as rental payments, utility bills, and cell phone payments. This allows borrowers who may not have a traditional credit history to still demonstrate their creditworthiness.

The bi-merge credit report system is designed to provide a more accurate reflection of a borrower's creditworthiness, particularly for those who have limited credit histories or who have traditionally been underserved by the mortgage industry. It is an innovative approach that reflects the changing nature of credit and the increasing importance of non-traditional credit information in assessing a borrower's ability to repay a loan.
These changes made by Fannie Mae and Freddie Mac are significant because they open up homeownership opportunities for millions of Americans who may have previously been denied a mortgage due to their credit scores or other factors. They also demonstrate the mortgage industry's commitment to addressing issues of credit access and equity in lending.

However, it is important to note that while these changes are designed to expand access to mortgage loans, they do not eliminate all risks associated with lending. Fannie Mae and Freddie Mac still have guidelines that borrowers must meet, and lenders still have the ability to set their own credit standards and criteria.

In conclusion, Fannie Mae and Freddie Mac have made significant changes to their underwriting standards in response to the new credit score models implemented by FICO and VantageScore. The adoption of trended data, the reduction of penalties for medical debt, and the implementation of the bi-merge credit report system provide more opportunities for Americans to achieve homeownership. These changes are significant because they open up opportunities for low and moderate-income borrowers, first-time homebuyers, and borrowers with limited credit histories or past credit issues. However, lenders still have the final say in lending decisions, and borrowers must meet certain guidelines to qualify for a mortgage loan. 
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Matthew Mrozek, Research Analyst with JD Koontz, LLC provided significant assistance in writing this blog post.

Residential mortgage lending in California is an important aspect of the real estate market in the state. The process of obtaining a mortgage loan involves a number of steps, including pre-approval, property appraisal, and underwriting. In this article, we will provide a high-level overview of the residential mortgage lending process in California, as well as some key regulations and laws that apply to this process.

• Pre-approval: The first step in obtaining a residential mortgage loan in California is to get pre-approved for the loan. This involves submitting an application to a lender, which includes information about your income, assets, and credit history. The lender will use this information to determine your ability to repay the loan and to provide you with a preliminary estimate of the loan amount that you may be eligible for.

• Property Appraisal: An appraisal is an estimate of the value of the property and is used by the lender to determine the loan-to-value (LTV) ratio. The LTV ratio is a key factor in determining the amount of the loan that the lender is willing to provide. In California, appraisers must be licensed by the state and must follow the standards set forth by the Uniform Standards of Professional Appraisal Practice (USPAP).

• Underwriting: Underwriting is the process by which the lender reviews the loan application and determines whether to approve the loan. During this process, the lender will consider a variety of factors, including the borrower's credit history, income, and employment history, as well as the appraised value of the property. Lenders in California follow national lending standards for underwriting residential mortgage loans, and these standards are set by entities such as Fannie Mae and Freddie Mac. These standards are designed to ensure that borrowers are able to repay their loans, and they help to ensure the stability and safety of the overall mortgage market. The underwriting process can be complex, and it is important that borrowers work closely with their lender to ensure that all required documentation is provided and that the underwriting process goes smoothly.

• Loan Closing: The loan closing is the final step in the residential mortgage lending process in California. During the closing, the borrower will sign all of the necessary loan documents, including the promissory note, the mortgage or deed of trust, and the closing disclosure. The closing disclosure will provide the borrower with a detailed breakdown of all of the closing costs associated with the loan, including any origination fees, points, and title insurance. It is important for the borrower to thoroughly review the closing disclosure and to ask questions about any charges or fees that they do not understand. The loan closing is typically conducted in person or through a remote closing process, depending on the lender and the borrower's preferences. After the closing, the loan funds are disbursed and the property title is transferred to the borrower. The loan closing marks the completion of the residential mortgage lending process in California and the start of the borrower's obligation to repay the loan.

Laws and Regulations: There are several key regulations and laws that apply to residential mortgage lending in California. These include:

• The Truth in Lending Act (TILA): TILA is a federal law that requires lenders to disclose important information about the terms and conditions of a mortgage loan to the borrower. This information includes the annual percentage rate (APR), the finance charge, and the total amount of the loan.

• The Homeowners Bill of Rights (HBOR): HBOR is a set of state laws that were enacted in California in 2012. These laws provide important protections for homeowners, including restrictions on dual tracking (the practice of proceeding with a foreclosure while a loan modification is being considered), and the requirement that lenders provide a single point of contact for borrowers who are facing foreclosure.
• The Real Estate Settlement Procedures Act (RESPA): RESPA is a federal law that requires lenders to provide borrowers with certain disclosures about the closing costs associated with a mortgage loan. This includes a Good Faith Estimate (GFE), which is a detailed estimate of the closing costs that the borrower can expect to pay.

• The Fair Housing Act (FHA) is a federal law that was enacted in 1968 as Title VIII of the Civil Rights Act. It is a landmark piece of legislation that prohibits discrimination in the sale, rental, and financing of housing based on certain protected classes, including race, color, national origin, religion, sex, familial status (including children under the age of 18 and pregnant women), and disability.

The FHA applies to all types of housing, including single-family homes, townhouses, apartments, and condominiums. It applies to all aspects of the housing process, including advertising, financing, sales, and rentals. Under the FHA, it is illegal to discriminate against any person in these processes based on their membership in a protected class. This includes denying a loan or rental application, providing different terms or conditions to different people, or making housing unavailable based on membership in a protected class.
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In conclusion, residential mortgage lending in California is a complex process that involves a number of steps, including pre-approval, property appraisal, and underwriting. In addition to these steps, there are several key regulations and laws that apply to residential mortgage lending in California, including TILA, HBOR, RESPA, and the FHA. Understanding these regulations and laws is important for anyone who is looking to obtain a residential mortgage loan in California.

Lenders in Florida, like most states, typically follow national lending standards when underwriting residential mortgage loans. These standards are set by entities such as Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs) that purchase mortgages from lenders and package them into securities that are sold to investors. The GSEs have specific guidelines that lenders must follow when underwriting mortgages, including guidelines related to income, credit history, and debt-to-income ratios. These guidelines are designed to ensure that borrowers are able to repay their loans and that the mortgages purchased by the GSEs are of high quality. Lenders that plan to keep loans in their portfolio often develop their underwriting and loan policies using the national standards as a guide map. 

However, there are also state-specific regulations that lenders must follow when underwriting mortgages in Florida. For example, the Florida Office of Financial Regulation (OFR) has specific licensing requirements for mortgage lenders and servicers operating in the state. In addition, the OFR has the authority to enforce state and federal laws related to mortgage lending, including laws related to predatory lending practices.

In addition to state-specific regulations, lenders operating in Florida must also comply with federal laws and regulations related to mortgage lending. These include laws and regulations related to the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Fair Housing Act (FHA). These laws and regulations are designed to protect borrowers from deceptive or discriminatory lending practices and to ensure that they are provided with accurate and complete information about the terms and costs of their loans.

There are also additional guidelines to follow, such as the Basel III agreement which is an international regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Basel III agreement is the most recent set of guidelines, and it was developed to strengthen the regulation, supervision and risk management of the banking sector.

Despite the fact that lenders in Florida follow national lending standards, there may be some differences in the way loans are underwritten in the state due to the unique characteristics of the Florida housing market. For example, Florida has a large number of properties that are used as second homes or vacation homes. As a result, lenders may place greater emphasis on the rental income potential of these properties when underwriting loans.

Another unique aspect of the Florida housing market is the large number of properties that are located in flood-prone areas. Lenders are required to obtain flood insurance for properties located in these areas, and they may also take into account the potential for flood damage when underwriting loans.

In addition, Florida has a large number of condos and HOA's. Lenders should review the condos/HOA's financial condition, budget, reserves and insurance coverage before approving a loan.
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In conclusion, lenders in Florida underwrite residential mortgage loans to both Florida standards and national lending standards. The national standards are set by entities such as Fannie Mae and Freddie Mac, while the state-specific regulations are set by the Florida Office of Financial Regulation. Lenders must also comply with federal laws and regulations related to mortgage lending, including the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Fair Housing Act. Despite these requirements, there may be some differences in the way loans are underwritten in Florida because of the unique characteristics of the Florida housing market.
 

Introduction
The California Homeowner Bill of Rights (HBOR) is a set of protections originated by the former California Attorney General Kamala Harris. These rules and procedural requirements regulate the foreclosure process for lending institutions as they seek to manage mortgages near or in default. The intention of the legislation is to ensure standardized processes are followed before foreclosure so that borrowers in default are aware of the options available. The legislation is applied to cases where the homeowner is a tenant, and the property has fewer than four living units. Protections are instated if the mortgage loan servicer has foreclosed on more than 175 homes in the previous year. The legislation is broadly intended to ensure that unnecessary or premature foreclosures do not destabilize the housing market or unfairly impact the situation of borrowers capable of maintaining a mortgage. This article will serve as a refresher covering some of the more prominent and notable provisions of the legislation as well as recommend action for attorneys seeking expert opinions and testimony on matters relevant to this legal doctrine.

Dual Track Foreclosure Ban
HBOR requires a lender/mortgage servicer to decide on a loan modification application before advancing the foreclosure process. During the time a lender/mortgage loan servicer is considering a loan modification request, the foreclosure process is paused. No longer can a servicer work on a loan modification and a foreclosure, simultaneously.
 
Notification of Alternatives
This aspect of the legislation stipulates that servicers must contact the homeowner in default to review their financial situation thirty days prior to initiating the foreclosure process. They must also notify homeowners of available foreclosure alternatives within five days of recording a notice of default.

Guaranteed Contact
If a homeowner applies for a loan modification, the servicer must assign them a representative who is knowledgeable about their financial condition and can answer questions about the status of a modification application or other alternatives to foreclosure. In the industry, this is known as a single point of contact (SPOC). After receiving an application, the servicer must notify the homeowner of any mistakes in the information within five days.

Denial Rights
If a servicer denies an application for a foreclosure prevention alternative, it must state its reasons for doing so. If a borrower experiences a material change to their financial condition after a denial, they can reapply for a modification.

Restriction of Fees
This provision essentially means that the lender cannot charge the homeowner a fee during the application process for a loan modification or foreclosure prevention alternative. The servicer is also prohibited from assessing a late fee when the homeowner is making regular payments under a modification or undergoing the appeal process for a denial of a modification request.

Transfer and Tenant Rights
If a modification or forbearance is approved by a servicer and subsequently transferred to a new servicer, the new servicer must honor the foreclosure prevention measures established by the former holder. Additionally, if a third party purchases a home in foreclosure, they must wait 90 days before starting the eviction process. If the resident of the property has a valid lease in place, the new property owner must honor the lease until expiration in the absence of certain exempting conditions.

Conclusion
It is important to note that while the overview above can be a helpful resource to individuals, there is no substitute for expert-level knowledge of the mortgage lending industry. This overview is just that: an overview. When making decisions about individual situations regarding a residential mortgage loan, it can be crucial to contact an attorney who may rely upon an expert witness. Jason Koontz can provide expert opinions and testimony for attorneys seeking to determine if a residential mortgage loan was managed in a way that conforms to the industry standards.
 
Will Skidmore, Research Analyst with JD Koontz, LLC, provided significant assistance in writing this blog post.
 

Works Cited
 
            California homeowner Bill of Rights. State of California - Department of Justice - Office of the Attorney General. (2020, August 4). Retrieved June 7, 2022, from https://oag.ca.gov/hbor 

A mortgage loan servicer manages mortgage loans on behalf of the owner (investor) of the loan. The loan servicer’s primary responsibility is to collect payments on the mortgage. Still, these institutions can be involved in other matters such as managing an escrow account (insurance and real estate taxes), handling payoff requests, loan modifications, and debt collection. A mortgage loan servicer can be a bank, a credit union, or a company specializing in loan servicing. The most common functions of a mortgage loan servicer include:
 
●       Collecting monthly payments on a mortgage
●       Ensuring compliance with federal and local mortgage regulation
●       Generating and distributing loan statements
●       Managing escrow accounts (homeowners’ insurance and real estate taxes)
●       Offering general customer service to borrowers
●       Working with borrowers to minimize past dues and loan losses.
 
It is important to distinguish between a mortgage loan servicer and a mortgage lender. A mortgage servicer manages loans after they have been originated, while a mortgage lender is a financial institution that originates the loans. The servicer is effectively an intermediary that operates in the space between the debtor and creditor to manage the loan relationship.

Management of Mortgage Loans 
I often see borrower confusion in two areas: force-placed insurance and transfer of servicing. 

Forced Placed Insurance
Although mortgage loan servicers are heavily involved in managing a mortgage, the property owner still has many responsibilities. One of these obligations is to carry good homeowner’s insurance coverage. If a servicer learns that a homeowner is not carrying insurance in an amount satisfactory to the loan requirements, they will promptly notify the homeowner. If a homeowner does not take action in a timely manner to comply with the insurance requirement, a loan servicer has the authority to impose forced place insurance on a property and pass the premium on to the borrower. This typically will happen after they've provided notification and at least forty-five days have passed. These policies are generally much more expensive than those typically offered by insurance companies directly to homeowners. If forced-placed insurance is instated, it is generally in the property owner’s interest to seek alternative coverage as soon as possible and communicate the change with the loan servicer.
 
Servicers also play a role in different types of mortgage loans. For example, in an adjustable-rate mortgage, the loan servicer will provide notification of any changes to the interest rate.

Transferring Servicers
There are several regulatory requirements for investors when transferring servicing privileges. In many cases, the rights to the mortgage services are transferred after a loan is funded, which can confuse borrowers. When a mortgage is moved from a lender to a servicer (or another servicer), they must notify the borrower. This notice must be given within 15 days of the loan being transferred and must indicate when the new service will begin accepting monthly payments. The previous servicer must also tell the day that they will no longer receive payments. This requirement protects the borrower by providing the transfer documentation and indicating where to submit payments.
 
A loan’s terms and conditions will not change when it is transferred. Nonetheless, it's important for borrowers to thoroughly examine statements following a transfer to ensure that there are no errors. Despite receiving these required documents, many individuals miss crucial details regarding their loan transfers. In addition to reviewing these documents, mortgage borrowers should check the following:
 
●       Any escrow account payments that were due have been made, and the remaining           balance is accurate
●       The balance of your principal is accurate and correct
●       The most recent payments were accurately applied

To Conclude
Regardless of one’s experience, the mortgage loan industry regulations can be challenging to understand at times. Mortgage loan servicers are vital intermediaries between a property owner and the investor who owns the mortgage. In addition to managing the standard day-to-day calls for payment information and loan payoffs, they have many other essential duties. This includes managing escrow accounts, implementing forced-placed insurance, notifying property owners of changes in an adjustable interest rate, and debt collection.
 
Victims of mortgage loan servicing abuses may seek redress through the courts. These cases often utilize an expert witness with knowledge of mortgage loan servicing standards. A mortgage loan servicing expert witness can be retained to conduct an investigation and offer opinions on whether the alleged conduct was consistent with industry guidelines.
 
Will Skidmore, Research Analyst with JD Koontz, LLC, provided significant assistance in writing this blog post.

Although the seeming speed with which new developments spring up around the country makes construction look straightforward, it is not if done correctly. The average construction project usually involves many risks, both to the lender and borrower, and having a successful project often depends on how well the risks are managed.
 
It is no surprise that lending on construction projects carries substantial risks. Many things can go wrong, and any one of them can cause a significant loss to either the lender or borrower, leading to disputes between parties. Other parties not related to the transaction can also be negatively affected. This could include condominium owners in an unfinished project. Contributors to loan failure may consist of:

• Project delays
• Project going over budget
• The collapse of product demand before the end of construction
• Fundamental design, compliance, or oversight errors
• Character, expertise, and financial standing of all related parties
• Misdirection of funds and resources
• Borrower’s discretionary changes that alter the project scope without the lender's knowledge
• Environmental or site conditions

 
When these problems occur, disputes between parties are not usually far behind. In most cases, these disputes require a construction lending expert witness in the arbitration, mediation, or litigation proceedings that would usually follow. The expert helps clarify the issues, including the burdens on either party or how well these were discharged.
 
However, a more critical consideration for parties is limiting their exposure to construction risks in the first place, usually with the help of a construction risk management expert. With lower exposure, parties can more easily manage risks and attend to issues as they arise.
Drivers of Construction Risk Management
The market experienced a downturn after the Great Recession of 2008 but picked up the pace until the Covid-19 virus impacted the economy and the lending environment. Due to the experiences of the recession, more lenders are actively implementing lending risk management strategies. Other drivers for lenders’ construction risk management include:

• Greater regulatory scrutiny: Bank lenders are required to impose stricter controls on their construction lending process. For instance, regulators now require banks to maintain capital for a new designation of commercial real estate loans referred to as High Volatility Commercial Real Estate (HVCRE) at 150%.
• Need to avoid loss: This is a primary motive for all lenders. There is an understanding that leaving holes in their risk management process will eventually result in a significant loss. As a result, lenders must be diligent in their risk management.
• Changes in policy: Policy changes result from several driving factors, including “proactive policy management” and the need for better internal controls after an expansion.

Regardless of the motivation, the endgame is the same for all lenders: to limit risk exposure and have proper controls in place to limit exposure should problems arise.
 
Managing Construction Lending Risk
 
One of the common means through which lenders manage risk is by establishing and maintaining a Real Estate Construction Administration (RECAD). Whether the lender's appetite covers just owner-occupied real estate, real estate developer-investor opportunities, or commercial real estate as well, having a RECAD function is a prudent risk management practice.
A RECAD unit conducts oversight and monitoring of construction projects financed by the lender. A million and one things can go wrong with a construction project. A RECAD unit’s task will be to keep an eye on every risk factor relevant to the project to ensure the project stays on track. The unit’s responsibilities will include:

• Pre-closing activities could include:
  • Verifying leasing and pre-sale information
  • Obtaining and vetting copies of crucial documents related to the project such as permits, plans, specifications, and written building contract
  • Investigating the character, expertise, and financial standing of all related parties
  • Obtaining an appraisal or valuation depending on the project size
• Post-closing activities, including:
  • Reviewing funding draw requirements under the construction loan agreement (Standard Payment Plan: pre-established schedule for fixed payments or Progress Payment Plan: monthly disbursements with a portion held back until the end of the project)
  • Arranging progress monitoring through a qualified professional
  • Reviewing the construction risk assessment report
• Construction administration and monitoring activities, including:
  • Reviewing change orders and ensuring appropriate use of funds
  • Coordinating periodic progress monitoring, obtaining picture documentation, and escalating any issues as appropriate
  • Receiving waivers of lien as payments are made on the project
• Post-construction tasks, including:
  • Coordinating conversion of insurance from builder’s risk to hazard insurance
  • Coordinating loan status change from a construction loan to a permanent loan on the lender’s balance sheet
  • Managing final waivers of lien
  • Obtaining a Certificate of Occupancy

 
Conclusion
 
Lenders commonly utilize the services of a construction risk management expert to consult on and, in some cases, oversee the setup of a RECAD department. Regardless, a fundamental recommendation is that the department is given as much independence from the real estate lending function as possible. This separation allows clarity of purpose and a coherent function on the part of the unit.
 
Construction loan risk programs are critical for profitable lending.  Properly structured Real Estate Construction Administration Departments reduce risks for lenders. Should disputes occur, much would depend on how fault can be apportioned between parties or whether both parties sufficiently fulfilled their obligations; a construction loan expert witness can help educate the parties involved, and if necessary, the court to clarify these issues.