Class Action Challenges Alleged Fee-Generating Bank of America Property Inspection Practices

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A proposed class action alleges Bank of America has used an automated default mortgage servicing platform to “illegally, unfairly, and fraudulently” charge defaulted or at-risk-of-default borrowers for multiple and repetitive “property inspections.” 

These property inspections, the 72-page lawsuit says, are not required by lenders, not permitted under lender guidelines and, in many cases, not allowed under state and federal regulations and guidelines. According to the suit, Bank of America’s inspection practices, which the case claims were handled in part by co-defendant Safeguard Properties Management, a mortgage field services company, are designed to maximize the fees assessed on borrowers’ accounts when they fall behind on payments. 

The defendants’ alleged conduct is described in the complaint as an unlawful enterprise by which Bank of America and Safeguard have profited illegally. 

Further, the complaint alleges Bank of America has improperly charged homeowners with mortgages serviced by the bank for “unnecessary expenses and/or unprovided services,” which the suit says are, in some cases, “outright fraudulent” and in all cases “excessive, deceptive, and otherwise unfair.” The fees charged by Bank of America, such as those for forced placed flood insurance, are added onto the payoff amount a homeowner must pay to the defendant to satisfy a lien on their property or otherwise avoid foreclosure, according to the case. 

Per the lawsuit, the fees charged by Bank of America are “intentionally disguised” as necessary and otherwise reasonable expenses in order to deceive homeowners. The suit additionally alleges Bank of America force places insurance at “unconscionably high rates, well above market rates, with no added benefit to the insured.” 

In instances in which Bank of America is acting as both a mortgage lender and loan servicer, the bank is required to comply with all servicing guidelines, the case relays. In its role as a servicer, Bank of America has, according to the suit, an economic incentive to push borrowers into default, an interest the plaintiff alleges is “misaligned” with that of borrowers and the bank’s obligations as a lender. From the complaint:

“BOA earns revenue from mortgage loan servicing in three principal ways. First, BOA receives a fixed fee for each loan which is determined by the servicing agreements between BOA and the investors or note holders.

Second, BOA earns ‘float’ income from accrued interest between when consumers pay and when those funds are remitted to Lenders, taxing authorities, insurers and other relevant parties.  

Third, BOA receives ancillary fee income that includes, without limitation, late charges paid by borrowers, workout and modification incentive fees, and other delinquency-related fee income including, for example, the property inspection or ‘home preservation’ fees at issue here.” 

Two key sources of ancillary income for Bank of America and Safeguard are property inspection fees and, for BoA in particular, late fees, the case continues. The lawsuit alleges that each time Bank of America and Safeguard inspect a property and assess a property inspection fee on a borrower, the borrower must pay an additional $17.50 to become current on their loan or risk being hit with a late fee.

This practice is problematic for mortgage borrowers who defaulted or face the risk of default, according to the case, yet poses potential profit for Bank of America:

“This practice makes it more difficult for distressed borrowers to become current and leads many borrowers into foreclosure proceedings and/or to modify their loan. As explained above, this serves BOA’s interests. Because Loan Servicers like BOA can generate more revenue from loan servicing activities and fees, then [sic] from principal and interest payments made by borrowers, Loan Servicers have a vested interest in generating revenue through so-called default servicing activities and corresponding ancillary fees.” 

Some of these fees, such as late fees, are “pure profit” for the loan servicer, i.e. Bank of America, the lawsuit says. Other fees, per the case, allow the servicer to generate additional income by delegating the task to an affiliated entity or entity that returns a profit to the servicer. 

Moreover, because Bank of America is able to generate more loan servicing income through default servicing activities in comparison to ensuring that borrowers make timely payments, the defendant “is incentivized to keep borrowers in default,” the lawsuit says. The case urges that Bank of America’s tasks and charges assessed as a loan servicer “must be critically evaluated” in light of the conflict of interest present with its role as a lender. 

Overall, the lawsuit alleges Bank of America’s “scheme” ignores mortgage lender guidelines and imposes, without limitation, unfair and excessive property inspections not permitted by mortgage documents; more property inspections than are required; more property inspections than are permitted by federal regulations and state laws; more property inspections than are warranted by the circumstances of any actual loan, i.e. without regard for whether a property is occupied or any other factor that would warrant an inspection; and charges for property inspections that are inflated by amounts that defendant Safeguard “retains for its role in the scheme.”

“BOA engages in this scheme with minimal risk because Fannie Mae/Freddie Mac agrees to reimburse BOA for the property inspection charges in the event that the borrower does not pay them,” according to the complaint. “Fannie Mae also agrees to reimburse BOA for any escrow account advances made to cover taxes, insurance, and other default related and foreclosure proceedings, which is the subject of the forced placed flood insurance and property tax fees claims below.” 

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