Flagstar Lawsuit Claims Mortgage Payment Processing Fees are Illegal

A recent lawsuit filed against Flagstar Bank by two California residents claims that the mortgage servicer may be violating California laws by charging additional fees for customers who pay their monthly mortgage payments over the phone.

Plaintiffs Arthur and Catherine M. filed their lawsuit against Flagstar Bank on Oct. 22.  According to their complaint, Arthur and Catherine live in California, and purchased their home in Riverside County on Jan. 28, 2017. Their home mortgage is serviced by Flagstar, and the couple has made monthly mortgage payments to the company.

Beginning in 2018, Arthur and Catherine say they began to make their monthly mortgage payments over the phone. They allege that each time that they paid their mortgage over the phone, Flagstar applied an additional $15 mortgage payment processing fee. However, they claim this fee is not authorized by their mortgage deed of trust, and may have been applied by Flagstar illegally.

Are Mortgage Payment Processing Fees Illegal?

Mortgage payment processing fees for payments made over the phone are often called “pay-to-pay” fees, and are not included in standard deeds of trust. These fees for paying debts over the phone may be applied by mortgage servicers, credit card companies, and other financial businesses.

Flagstar uses Western Union in order to process its online and over the phone mortgage payments. According to Arthur and Catherine’s lawsuit, although Flagstar charges customers $15 for each payment, the company only pays between $0.20 to $0.40 to Western Union for each transaction.

Additionally, Arthur and Catherine claim that while any pay-to-pay fees are prohibited by Fannie Mae servicing guidelines, even in cases when fees are allowed, mortgage servicers are only allowed to pass on the actual costs of processing to consumers, rather than upcharging them. In addition to claiming that Flagstar violated the terms of their deed of trust by charging pay-to-pay fees, Arthur and Catherine also claim that the company violated California’s Rosenthal Act.

About the Rosenthal Act

According to Arthur and Catherine, these mortgage payment processing fees were applied in violation of the Rosenthal Fair Debt Collection Practices Act, a law that governs debt collection practices in California. California debt collection laws prohibit additional charges for mortgage payments made over the phone, unless these fees are included in their contract.

Under the Rosenthal Act, debt collectors are prohibited from attempting to collect fees, charges, or expenses related to the collection of the debt. It also makes it illegal for debt collectors to use false or misleading language to represent the status or amount of the debt.

Arthur and Catherine’s class action lawsuit against Flagstar may include a Class of up to thousands of other customers who may have been charged illegal mortgage payment processing fees by the mortgage servicer. They are seeking actual and statutory damages, forgiveness for all amounts that are inappropriately owed, and attorney’s fees and costs. They are also seeking to have Flagstar immediately restrained from changing, deleting, or destroying any records that may indicate which customers have been charged these inappropriate fees.

California homeowners who believe they have been charged illegal mortgage payment processing fees by Flagstar or another mortgage servicer may be eligible to hire a qualified attorney and file a class action lawsuit in order to recoup these costs.

Arthur and Catherine’s Flagstar Mortgage Class Action Lawsuit is Case No. 5:19-cv-02023, filed in the United States District Court for the Central District of California, Eastern Division.

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This article is not legal advice. It is presented
for informational purposes only.