Can You Sue a Mortgage Company for an FCRA Violation?

By The Kim Law Firm, LLC

The short answer

Yes — but “sue my mortgage company” covers two different problems, and they run under two different laws. If the servicer misapplied your payments, mishandled your escrow, ignored a modification, or is moving toward foreclosure on a loan you have paid, that is a servicing problem governed by the Real Estate Settlement Procedures Act and state law. If the servicer told Equifax, Experian or TransUnion that you were late when you were not, that is a credit reporting problem governed by the Fair Credit Reporting Act. Most homeowners who call me have both, because a servicing mistake almost always ends up on the credit report. This page is about the second problem — the one that follows you to every application you make for the next seven years — and about the one servicing tool that protects your credit while the first problem is sorted out.

What the FCRA makes a mortgage company do

Every company that reports your mortgage to the bureaus — the bank that made the loan, the investor that bought it, and the servicer that takes your payments — is a “furnisher” under the Act. A furnisher must report accurately, must correct what it learns is wrong, and, when a dispute reaches it through a credit bureau, must conduct a reasonable investigation, review everything the bureau forwarded, and correct or delete what it cannot verify. That last duty is the one you can sue on, and it has a condition attached: it is triggered by the bureau’s notice. A dispute sent only to the servicer does not create an FCRA lawsuit; the Act reserves enforcement of its direct-dispute rules to regulators. So the credit-report dispute always goes to the bureau, in writing, with the proof, and a copy goes to the servicer.

The mortgage errors I see most

A payment made during a servicing transfer that the new servicer never credited, so the month shows as late. A forbearance or modification that was agreed in writing and then reported as delinquency anyway — the law specifically required accounts under a COVID-era accommodation to be reported as current if they were current before it. A modification that was completed but never carried into the new servicer’s system. A loan paid off at closing or refinance that is still reported open with a balance. A mortgage discharged in bankruptcy showing as owed. A short sale or deed-in-lieu coded as a foreclosure. A “late” that is really a dispute over an escrow shortage the servicer created. None of these is a matter of opinion; each is a fact the servicer’s own records can settle, which is why “verified” answers to these disputes so often turn out to be no investigation at all.

Forbearances, and the error that follows them

A forbearance is an agreement that no payment, or a reduced payment, is due for a set period. The credit problem usually arrives when it ends. What I see, repeatedly, is this: the servicer grants a forbearance for, say, October through December, then makes all three payments due in January along with January’s own payment. Many homeowners cannot pay four months at once. When they fall short, the servicer does not report one missed payment — it reports the loan as 90 or 120 days late, counting the forbearance months as if they had been missed. I also see loans reported late during the forbearance period itself. Neither is accurate. A forbearance changes the terms of the account for those months, and a furnisher must report information that reflects the terms of the account; a month reported as delinquent when the servicer itself agreed no payment was due does not. During the pandemic Congress wrote this into the FCRA: an account that was current before an accommodation had to be reported as current during it. The CFPB told furnishers that a “forbearance” comment code did not substitute for reporting the account as current, and that a consumer reported current during the accommodation could not later be reported delinquent for that period once it ended. That statutory rule was tied to the COVID-19 period; the accuracy duty behind it was not, and the CFPB’s own review of forbearance complaints listed correcting inaccurate credit information furnished about a loan in forbearance among the problems homeowners raised. One more point: for most government-backed loans — Fannie Mae, Freddie Mac, FHA, VA and USDA — the servicer cannot require the missed payments as a lump sum; deferral to the end of the loan and repayment plans exist for exactly this. If a lump sum was demanded on a loan like that and the “late” followed, both halves of the problem belong in the dispute.

There is usually a warning sign before the credit report moves: monthly statements that keep showing the forbearance months as past due, even after the servicer has confirmed the forbearance in writing. The CFPB’s review of forbearance complaints recorded the same pattern — homeowners confused by statements that showed the loan delinquent during the forbearance, and servicers answering that their systems flagged the loan delinquent even though payments were paused. The statement and the credit report are fed by the same servicing record, so a statement like that is the moment to send the RESPA notice of error described below, not something to file away.

The tool that protects your credit while you fight the servicer

Under RESPA, a written “notice of error” to your servicer about a payment starts a clock: the servicer has to acknowledge it within five business days and respond within thirty business days, and for sixty days from receiving it the servicer may not report the disputed payment to a credit bureau as overdue. Send that notice to the servicer’s designated address (it is on your statement) at the same time as the bureau dispute. It does two things at once: it stops fresh damage to your credit while the money question is worked out, and it creates a dated record of what the servicer said when asked — which is the evidence an FCRA case is built on if the servicer verifies the error anyway.

What you can recover

For a negligent violation, your actual damages and attorney’s fees. On a mortgage those damages are larger than on almost any other tradeline: a rate tier lost on a refinance is paid every month for decades, a denied purchase can cost a deposit and a contract, and a false “120 days late” on a mortgage is the single most damaging entry a file can carry short of a foreclosure. Courts also recognize the distress of being treated as a defaulter on a loan you paid. For a willful violation the Act adds statutory damages of $100 to $1,000 per violation, whether or not you can prove a loss, and allows punitive damages. Because the servicer pays the fees when you win, I take these cases on contingency: you pay nothing unless we win.

The clock

Two years from the day you discovered the violation — usually the day you saw the post-dispute report with the entry still on it — and never more than five years from the violation itself. If the error surfaced when a lender pulled your credit for a new loan, that pull is your discovery date.

What to keep

Your payment records for the months on either side of any transfer, modification or forbearance; the goodbye and welcome letters from the old and new servicer; the bureau dispute and its proof of delivery; the bureau’s result and the report afterward; the RESPA notice of error and the servicer’s reply; and every denial or rate-lock letter that mentions your credit. The complaint figures below are the reason the paper matters.

What the federal complaint data shows about mortgage reporting

Servicing transfers are where mortgage reporting breaks

Most homeowners never chose the company that services their loan, and many have been through several. A servicing transfer moves the payment history, the escrow balance and the account status from one system to another, and data does not always survive the move intact. Payments made during the transfer window get posted late or not at all, a loan modification is not carried over, a completed forbearance is reported as delinquency, and the new servicer then furnishes all of it to the bureaus as though it were the original record.

• Select Portfolio Servicing — a servicer that frequently receives transferred loans.
• Cenlar — performs subservicing for banks and credit unions.
• Dovenmuehle — services loans on behalf of lenders whose names borrowers know better.
• Fay Servicing — handles loans that have been through modification or default.
• Selene Finance — a servicer specializing in distressed and transferred portfolios.
• Planet Home Lending — services loans originated by other institutions.

Keep the goodbye letter from the old servicer and the welcome letter from the new one, since together they establish the transfer date and the balance each company claims. Compare your payment records against the history the new servicer reports for the months on either side of that date, which is where the discrepancy almost always sits. Dispute with the current furnisher in writing and include the canceled payments, because a mortgage delinquency is among the most damaging entries a credit file can carry and it will not correct itself as the loan moves again. The same pattern shows up on transferred loans serviced by Nationstar (Mr. Cooper), Shellpoint, Carrington, RoundPoint and Specialized Loan Servicing.

Sources: 15 U.S.C. §§ 1681i, 1681n, 1681o, 1681p and 1681s-2 (United States Code); 12 C.F.R. §§ 1022.41(a) and 1022.43 (Regulation V, accuracy and direct disputes); 12 U.S.C. § 2605(e) and 12 C.F.R. § 1024.35 (RESPA, notices of error and the 60-day reporting bar); 15 U.S.C. § 1681s-2(a)(1)(F) (accommodations during the COVID-19 period); Consumer Financial Protection Bureau, Consumer Reporting FAQs Related to the CARES Act and COVID-19 Pandemic (June 2020); CFPB, Complaint Bulletin: Mortgage Forbearance Issues Described in Consumer Complaints (May 2021); CFPB, Exit your forbearance carefully (consumerfinance.gov).