Bank Error in Your Favor: Free Houses Make the System Better

Why It's OK That Sometimes the Bank Loses

I ran into a banker friend at the grocery store the other day. He works at one of the small community banks still operating around here — the kind of bank that holds the mortgages it makes instead of selling them off. We got to talking about a customer of his who had gotten sick and fallen behind on her payments. The bank had noticed, reached out to her, and worked something out so she could keep her house. No application packet. No "loss mitigation portal." No 30-day evaluation window. They just figured out what she could pay and adjusted the loan.

He told me this matter-of-factly, the way you'd tell someone you helped a neighbor jump-start a car. Then he shrugged and said, "That's what banks are supposed to do."

We're not going back to the world of neighborhood banks. Most American mortgages get bundled, sold, and assigned to a servicer the borrower never picked and never agreed to do business with. That ship sailed thirty years ago. But the ethic my friend was describing — communicate honestly with your customer, keep accurate records, work with people when they fall on hard times — isn't just a small-town courtesy. It's the baseline that federal law requires of every mortgage servicer in the country, big or small. Congress wrote it down after the 2008 foreclosure crisis. The rules exist because servicers don't know their customers anymore. The law tries to substitute a baseline of decent behavior for the trust that used to come from actually knowing each other.

"What kind of operation are they running?"

Every time a homeowner wins a foreclosure case in a way that looks like a technicality — every time a court throws out a foreclosure because the bank's notice was wrong, or the math was wrong, or the records didn't add up — there's a chorus of complaints about windfalls and free houses. Judges sometimes join in.

But the bank wanted to take someone's house. To do that, it had to do a few basic things. Send the right notice. State the right amount owed. Show that the right entity has the right to collect. These are not exotic requirements. They are the most fundamental things a lender does.

Maine's pre-foreclosure notice statute, § 6111, is a good example. Before a lender can foreclose, it has to send the homeowner a letter that accurately states how much is owed to bring the loan current. That's it. Tell the homeowner what they owe. The Maine Supreme Judicial Court has repeatedly thrown out foreclosures where the bank couldn't get that one number right.

When that happens, the right question isn't whether the homeowner is getting a windfall. The right question is what kind of operation the bank is running if telling a borrower how much they owe turns into a trick question.

How Could a Bank Fail on Something So Basic?

Servicing a mortgage portfolio is a thin-margin, high-volume business. The companies that do it for a living make their money by processing as many loans as cheaply as possible. That means underinvesting in the things that prevent errors and underinvesting in the things that catch errors after they happen. Customer service gets cut to the bone — long hold times, high turnover, representatives reading from scripts because they don't have authority to do anything else. Compliance departments are run lean. Legal review is reserved for the cases that can't be avoided. The technology stays old because replacing it is expensive and the old systems are still collecting payments. One of the largest servicing platforms in the country was described in sworn federal court filings as relying on technology first developed more than fifty years ago, with limited functionality and burdensome support. That is the infrastructure being used to compute what your family owes on your home.

When you underinvest in customer service, payments get lost and questions go unanswered. When you underinvest in compliance, fees get charged that shouldn't be charged and notices go out with the wrong numbers. When you underinvest in legal work, foreclosure complaints get filed without anyone doing the work to confirm they're actually well-founded.

The Consumer Financial Protection Bureau examines mortgage servicers every year, and the findings keep showing up. Late fees charged in excess of what the loan contracts actually allow. Property inspection fees billed on loans where Fannie Mae's own rules prohibit inspections. Borrowers told they had been approved for repayment plans they had not actually been approved for. Hundreds of delinquent borrowers who never received the live contact federal regulations require. Failures to make timely escrow disbursements for property taxes and homeowners insurance. The same patterns turn up year after year, sometimes from the same servicers. In 2025 alone, consumers filed 24,616 mortgage complaints with the CFPB. The biggest single category was "trouble during the payment process."

When a servicer can't answer a simple question — how much is owed today, and how was it calculated — that isn't a borrower exploiting a loophole. That's a company that decided the savings were worth the risk.

The Purpose of the Rules

The Real Estate Settlement Procedures Act and its loss mitigation rules aren't just regulatory paperwork. They reflect a basic public judgment: we want people to stay in their homes, and we want lenders to work with borrowers who fall on hard times so that they can. Communities are better off when people stay put. Neighborhoods are better off. Schools are better off. The lender, frankly, is usually better off — foreclosure is expensive and almost always recovers less than a workable modification would have.

The rules require what my friend's bank does instinctively. Communicate honestly. Keep accurate records. Don't charge fees the contract doesn't authorize. Evaluate a loss mitigation application fairly and on a clear timeline. Don't pursue foreclosure while a modification application is pending. State the right amount owed in the default notice.

These are the absolute floor of running a competent lending operation. We have absolutely no problem with the idea that a bank failing on the basic requirements mean a free house or money in our clients’ pockets. It’s part of making the system work.

If a servicer can't clear that floor — if it can't tell you what you owe, if it can't apply your payments correctly, if it can't get the default notice right — then losing a foreclosure case here and there is not an injustice. It is the cost of running a business that decided not to invest in getting things right. And the prospect of occasionally losing one is, honestly, the only thing that gives these companies any reason to do better.

If that's the situation you're in, give us a call.