Homeowners could face illegal fees and modified loans under court settlement, states say

Nearly a million homeowners, including thousands in Florida, would be subjected to possibly illegal service fees and mortgage modifications under a proposed court settlement, 33 state attorneys general contend.

Florida Attorney General Ashley Moody joined her counterparts in 32 states opposing the proposed settlement with PHH Mortgage Corp. of West Palm Beach, formerly called Ocwen Loan Servicing. The settlement would resolve a class action lawsuit that challenged the legality of “convenience charges” for mortgage payments made through the company’s website or its telephone payment system.

But attorneys who negotiated the proposed settlement pointed out that most of the same attorneys general did not object to the 2018 settlement of a different class action suit against the same company that allowed the fees to continue.

The current suit claimed that the company has violated the Fair Debt Collection Practices Act since March 2016 by charging fees for online and telephone payments by consumers whose mortgage contracts did not expressly permit the charges.

The ability to make payments by telephone or through a website can prevent consumers from incurring late charges or having their accounts fall into delinquency. Many companies have long charged for this ability, knowing that consumers will opt to pay the fee instead of incurring a larger late charge. But critics see such fees, especially if they exceed a company’s cost of providing the service, as exploiting financially disadvantaged consumers.

In a brief filed in the case on Jan. 29, the 33 attorneys general said that a proposed settlement negotiated between PHH and attorneys representing the plaintiffs would allow the company to continue charging the “likely illegal” fees. The settlement also would allow the company to amend the mortgage contracts of all of its borrowers — without the borrowers’ consent and without recording the amended contracts in official records.

Even borrowers who are not part of the suit would be bound by the unrecorded loan modifications, the brief charged.

Allowing PHH Mortgage Corp. to create an “unwritten mass amendment” to its customers’ loan terms so it may continue charging “exorbitant fees” for online and telephone payments would be a windfall to the company, the brief said.

“PHH’s sole purpose is to collect and process homeowners’ payments, which it already makes millions of dollars from each year,” New York State Attorney Letitia James said in a prepared statement. “In the 21st century, when most Americans pay their bills online or by phone, to charge fees on top of what they are already being paid is not only unethical, but unlawful.”

The settlement would actually allow PHH to increase fees to $19.50 per payment for the remaining life of the loan, according to a news release from James’ office.

PHH, a subsidiary of Ocwen Financial Corp., has been charging fees ranging from $7.50 to $17.50 a month for years for customers who pay by phone or online, while not charging fees to customers who mail a check or agree to have their bank accounts debited automatically each month, the release said.

As part of the settlement, PHH has agreed to refund customers 18% to 28% of convenience fees paid since March 2016. Existing customers would get their refunds as a credit toward the balance of their loans, minus any late fees they owe.

Attorneys with three law firms that negotiated the proposed settlement filed a joint statement on Feb. 16 calling much of the attorney generals’ argument “meritless.”

The joint statement was signed by Adam Moskowitz of the Moskowitz Law Firm LLC in Coral Gables, Josh Migdal of Mark Migdal & Hayden in Miami, and Timothy Andreu and Michael Pennington of Bradley Arant Boult Cummings LLP in Tampa.

It notes that 32 of the 33 objecting attorneys general signed a consent agreement settling a separate suit with PHH in 2018 that allows the disputed fees.

The consent agreement required the company to pay $45 million and established “servicing standards” that allowed PHH to charge, unless barred by state law, “disclosed and agreed-to convenience fees” as long as borrowers have other payment options that do not require a fee, the attorneys said.

In asserting that continued collection of convenience fees would be “likely illegal,” the attorneys general ignore dismissals of at least eight other recent cases challenging the legality of convenience fees charged by other loan servicers, the statement said.

Trial courts are split over the question of whether mortgage loan documents must expressly authorize “borrowers to be able to purchase additional expedited payment services in exchange for a fully disclosed fee” while appellate courts have not weighed in at all, the attorneys said.

Regarding the legality of unrecorded loan modifications, the attorneys pointed out that courts in other class action settlements have issued orders that amend loan documents — even for consumers who are not plaintiffs in the suits — “by operation of law.”

The proposed settlement is “fair, reasonable and adequate,” the attorneys wrote, especially in light of the risk that their plaintiffs could lose their case.

Ocwen/PHH has for years been a frequent target of accusations, litigation and enforcement actions.

In 2020, Moody’s office announced that the state had settled a lawsuit by the federal Consumer Financial Protection Bureau accusing Ocwen of widespread misconduct, including failing to properly credit borrowers with on-time payments, resulting in inaccurately reported delinquencies, late fees and negative credit reporting. Ocwen agreed to pay $11 million but did not admit wrongdoing. That suit did not involve convenience fees.

In 2013, Ocwen agreed to spend $2 billion to settle allegations by Florida and 47 other states that the company used false and deceptive documents and affidavits, including signing foreclosure documents without reviewing them, known as robo-signing, following the 2008 economic crash.