New York lawsuits claim improper interest charges drained homeowner equity after court-ordered sales
Major lenders and mortgage servicers are facing class-action lawsuits in New York over allegations that they inflated foreclosure-related charges on home equity loans, improperly costing homeowners thousands of dollars.
The lawsuits, filed Thursday in US federal court in Brooklyn, claim that lenders and their servicing partners wrongly applied compound interest instead of simple interest during a critical stage of the foreclosure process. Specifically, the alleged miscalculations occurred between the time lenders sought court authorization to sell a property and when that motion was officially granted.
According to the filings, the practice systematically increased the payoff amount owed by borrowers, diverting surplus funds that should have gone back to homeowners following foreclosure sales.
“Countless mortgage holders were deprived of surplus funds as a result of the collective failures by foreclosing banks, loan servicing agents and their attorneys,” said Mark Anderson, a partner at Anderson, Bowman, Wallshein, the firm leading the litigation.
The list of defendants includes major financial institutions and mortgage service providers, among them Fannie Mae, Deutsche Bank AG, Bank of New York Mellon Corp., Mr. Cooper Group Inc., and Shellpoint Mortgage Servicing.
The State of New York Mortgage Agency, known for providing low-interest loans to first-time buyers, was also named in the lawsuits, as were several law firms and MTGLQ Investors LP, an entity owned by Goldman Sachs that specializes in distressed loan acquisitions.
The lawsuits draw comparisons to misconduct exposed during the 2008 financial crisis, when lenders and servicers paid hundreds of millions of dollars to settle claims related to improper foreclosure handling.
In one case detailed in the filings, Sheila Bidar, the legal guardian of her 89-year-old mother Ruth Athill, is serving as a class representative. Bidar alleges that the loan servicer, Select Portfolio Servicing Inc., and other parties involved charged an extra $13,300 in interest due to improper calculations.
The case also claims that Athill’s home, foreclosed and auctioned in May 2023, was initially bid on for $785,000, but the bid was ultimately reassigned to Deutsche Bank, her lender. The property later sold for just $207,071, according to court documents. With an outstanding mortgage balance of $167,773, the drop in the sale price combined with the inflated interest amounted to a $591,000 shortfall, according to the complaint.
“She’s lost out on so much. It’s really heartbreaking,” Bidar told reporters.
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Defendants responded with mixed comments. A Deutsche Bank spokesperson said the bank acted solely as a trustee on the residential mortgage-backed security (RMBS) and was not involved in day-to-day servicing.
“Loan-level matters, including foreclosure actions and subsequent purchases or sales of properties, are handled exclusively by mortgage loan servicers,” the Deutsche spokesperson said.
A representative for Bank of New York Mellon made a similar statement, claiming it held no responsibility for the foreclosure process. Shellpoint Mortgage Servicing, Goldman Sachs, and the law firm Eckert Seamans declined to comment on the ongoing litigation. Several other defendants have yet to issue statements.
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