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Laura Jordan came home from work one day to find herself locked out. She had missed two mortgage payments, and the company servicing her loan had changed the locks without warning.
In a ruling this month, the Washington Supreme Court found that action illegal — a decision that clears the way for a federal class-action case that Jordan brought on behalf of at least 3,600 borrowers in the state, and one that could have broad ramifications on how lenders respond when homeowners miss payments.
“This is criminal trespass and theft, and it should be treated as such,” said Sheila O’Sullivan, executive director of the Northwest Consumer Law Center. “There’s no basis for them to walk in and change the locks on a person’s home until they have foreclosed. It’s an important ruling.”
The mortgage industry is wrestling with the significance of the 6-3 ruling, which found that provisions standard in mortgage documents around the country conflict with state law. The provisions allow for lenders to change locks, winterize homes or take other steps to preserve the value of properties that are in default or abandoned.
In a friend-of-the-court-brief, the Federal Home Loan Mortgage Corporation highlighted the importance of such provisions in maintaining its collateral. But the court held that they violate state law, which prohibits lenders from taking possession of property before foreclosure. The court addressed the question at the request of a federal judge in Spokane, who is overseeing the class action.
Washington appears to be the first state in the nation that has invalidated the provisions, the plaintiffs’ lawyers say, and consumer advocates say other states could follow suit or that the ruling could inspire additional class-action lawsuits.
In Jordan’s case, Dallas-based Nationstar Mortgage hired a vendor to inspect her Wenatchee property in 2011 after she missed a couple mortgage payments in 2011. The vendor posted a notice on the door saying the property was “unsecure or vacant,” prompting the company to have the locks changed. Jordan, a dental hygienist, argues that she was still living there, and that when she got home from work, she found herself locked out. The new key to the house was in a lock-box, and she had to call Nationstar to get the combination to retrieve it.