Many people who hold mortgages are required by the mortgage companies to pay monthly amounts into an escrow or impound account. California law requires that the interest on these accounts be paid to the homeowner. However, the complaint for this class action alleges that Flagstar Bank, FSB or its parent Flagstar Bancorp, Inc., did not do this.
The class for this action is all owners of one- to four-family residences in California secured by a mortgage loan serviced by Flagstar Bank, FSB and/or Flagstar Bancorp, Inc. who had an impound account through Flagstar for any time between June 21, 2014 and the date of the class notice, who did not receive 2% simply interest on the balances of their impound accounts during that same period.
The payments made into impound or escrow accounts are usually for property taxes or insurance. The lender has an interest to ensure that these items are paid so that no lien is placed on the property. In both cases, a substantial amount of money must be paid at least once a year, so the mortgage company collects and holds monthly amounts, then pays them when they’re due.
However, because the money simply sits in the account for most of the year, it earns interest—and laws specify that the interest belongs to the homeowner.
The Dodd-Frank Act says that “[i]f prescribed by applicable State or Federal Law,” the creditor must pay the consumer interest on the account. Regulations of the Department of Housing and Urban Development (HUD) say that “[w]here escrow funds are invested, the net income derived from this investment must be passed on to the mortgagor in the form of interest … in compliance with any state or regulatory agency requirements…” California law also specifically requires payment of this interest once a year.
Plaintiff Robert Wilde claims to have paid about $1020 per month into his mortgage impound account for property taxes and insurance. The complaint claims that the account balance averaged $5,600 during 2017. However, when preparing his tax return for 2017, Wilde noticed that he had not received a 1099-INT form stating the amount of the payment. When he asked Flagstar why they had not sent him the form, the company said that his account had not earned any interest.
The complaint alleges violations of the California Unfair Competition Law, breach of contract, and negligence, among other things, in Flagstar’s refusal to pay the interest.