On June 5, the California attorney general (AG) announced a $4.6 million settlement resolving allegations that a mortgage servicer violated California and federal mortgage servicing and debt collection laws during the COVID-19 pandemic. The AG’s complaint alleged that the servicer violated the state’s Unfair Competition Law by making misleading statements to California borrowers about the loss mitigation process and COVID-related forbearance plans, including options available after forbearance. The complaint also alleged that the servicer violated the Homeowner Bill of Rights (HBOR) and other state and federal laws governing mortgage servicing and debt collection while servicing California mortgage loans.

The settlement is subject to court approval and would require the servicer to pay $1.6 million in civil penalties and $3 million in restitution, without requiring an admission of wrongdoing. The proposed judgment provides that restitution funds will be distributed, at the California AG’s discretion, to borrowers identified in the investigation who were in current status and initially denied home-retention options after exiting a COVID-related forbearance plan, experienced certain delays in completing a loss mitigation application during the pandemic, or received certain ineligibility notices after submitting a timely loss mitigation application. The California AG stated that eligible homeowners already have been identified and will receive restitution payments automatically.

The proposed judgment would permanently enjoin the servicer from making false or misleading representations to borrowers about the loss mitigation process, failing to comply with HBOR, and failing to comply with applicable loss mitigation and pre-foreclosure requirements under Regulation X. The proposed judgment would also require the servicer to provide borrowers with direct means of communication with assigned single points of contact, give certain written notices to borrowers about loan modification application rights, provide specific denial reasons for loan modification applications, and notify borrowers in forbearance about available loss mitigation options at least 30 days before the end of a forbearance plan.