Non-legal legal advice aka "should I pursue this..."
October 17, 2014 11:07 AM   Subscribe

None of this is legal advice. Got it. I'm trying to determine whether legal advice is even worth pursuing. Our house was damaged by a water leakage incident which the homeowner's insurance agreed to fully cover to the tune of about 60K. We were not living in the house at the time, which was actually up for sale. More excitement below the fold!

The mortgage lender required a "monitored repair process" which meant that the insurance company's check(s) would go into escrow held by the lender, and disbursed to us in portions, with periodic inspections to be sure the work was coming along per their satisfaction.

Partway through, the contractor leading the repairs encountered higher costs, and could not continue until payment could catch up to the extra costs he incurred. A supplemental claim was made to the insurance company, which they swiftly accepted and cut an additional check for 7K.

This is where it gets complicated. The check, like all, had to be endorsed by the lender. It was supposed to be returned to us, so we could turn it over to the contractor and he could continue the monitored repair process.

But that did not happen. The lender stuffed the supplemental check into the escrow, and continued to wait for us to reach the next milestone without any more money. Which we could not do.

Calls and letters went back and forth, but due to what seems like incompetence on their end, we could not get them to release the supplemental 7K back to us. Their phone reps would agree that releasing the check was the right course of action, but it did not actually happen.

After almost 2 months of frustration, we gave up and took a loan from a family member to pay up with the contractor. He was then able to proceed to reach the next milestone to satisfy the lender.

When we reached the final milestone, the lender released the remaining escrow, which included that 7K they "held" onto all that time.

The delays which came as a result of this apparent misbehavior or mistake around the 7K materially affected our ability to sell the house because it remained uninhabitable until the process was complete. Ultimately we accepted a lowball offer on the house to stop bleeding money on it. The delays lost us several months of prime summer selling season, with the lowball offer coming just before winter in a location with a harsh climate where house sales are basically dormant until spring. Thus, we felt somewhat cornered.

My question is whether we have any prospect of recourse against the lender for the delay they contributed to. I'm not talking a million bucks, just...anything? I am not even sure where to start if consulting a lawyer makes sense. Or if anyone else has been in this situation, maybe you already know from experience that this isn't worth pursuing? Any thoughts/advice welcome.
posted by thebordella to Law & Government (6 answers total)
(I am a lawyer, but not this kind of lawyer.)

Personally, I wouldn't pursue it. To get anywhere with the insurance company, you would probably need to have a measurable amount of damages. That would be hard to prove since you'd be speculating on how much more you would have gotten for your house had it been fixed in a timely manner.

However, if this is a significant amount of money you're talking about, and it makes a difference to you, it couldn't hurt to have an initial consultation with a lawyer. You would pay a few hundred dollars at most, or the initial consultation could be free.

If you do consult a lawyer, be prepared to hand over copies of all the paperwork with the lender. It would be a much easier case if you had something in writing that clearly said that the lender should not have put the money into escrow in this situation. If not, it could turn out that even though what they did was poor business practice that had a negative effect on you financially, it's not something you could hold against them legally.
posted by chickenmagazine at 11:26 AM on October 17, 2014 [1 favorite]

Morally, I see the case, and your two areas where you incurred costs are (at least) -- potentially the loss in value on what you took for the house vs. what you might have gotten for the house in summer, AND any costs incurred in taking the loan.

THEIR case is going to be:
a) there isn't a way to quantify what you could have gotten that summer, so they're going to say THAT loss is more or less speculative.
b) they will question whether you did all you could to get them to fork the money over.
c) if you had $7K available to you, why didn't you mitigate your potential losses by doing that sooner, getting the house on the market, etc.?

Maddening, I know, and one of the travails of being a home owner is the assumption that you have liquid cash to cope with every emergency or wrench thrown in the gears. Mortgage lenders are pretty notorious for taking in funds and mis-applying them or not returning them under various scenarios.

I think it would take an experienced real estate lawyer or perhaps some plaintiff's lawyer with experience in taking on lenders to tell you if there is any recourse here worth the hassle it would take to pursue it. It would probably hinge on whether there was a clear contractual misconduct involved in their hanging on to the money, and I have no idea. At the very minimum it would seem that the lender should pay back some nominal amount of interest, since they had the money for some period of time. But at today's rates a few months of hanging on to $7 K isn't that much.

One approach that has worked for me in similar hassles (at least once) is to write the company, lay out the problem and state my case in layman's language as to why I am considering legal action against them, estimate my own costs/losses in a creative way that exaggerates them about 10X, and then see if they would offer a settlement. They might come back with an offer that's about 20% of what you asked for, and it might be worth it to take it.
posted by randomkeystrike at 11:27 AM on October 17, 2014

the lender fucked with you, but your recovery prospects are unlikely. the insurance checks were apparently intended to go into the escrow to begin with, no matter what, subject to subsequent inspections and disbursals, but...

weren't the insurance checks two-party checks, requiring the endorsements of both you and the lender? if a lender forged my endorsement on a check for deposit into its escrow, i'd be a might displeased with that. the inspection-approval-disbursement schedule is supposed to go lickety-split for the benefit of the homeowner, WHO IS PAYING FOR ALL OF THIS SHIT, and when it doesn't, it's incumbent on the homeowner to initiate hostilities immediately, because if he/she is perceived as weak, they will be trampled.

you could talk to a real estate lawyer in your jurisdiction, couldn't hurt, but your damages on account of different sale times may be too speculative to recover. this is not legal advice, i'm not your retired lawyer or (for four years) retired california real estate broker.
posted by bruce at 11:31 AM on October 17, 2014

I am not a lawyer, but I've been in enough morally-clear-cut but nearly-impossible-to-legally-quantify situations like this at my work to last me a lifetime. I wouldn't pursue it, and I can't imagine a lawyer you'd actually want to work with suggesting that you DO pursue it. It just seems too hard to prove your case, and if you do proceed any way, expect to spend a LOT more on legal fees that could ultimately get you nowhere.

That said, it may be worth doing a consultation with a good real estate lawyer just to get a clear answer. The best lawyers I've dealt with will definitely point out all the pitfalls of any potential legal pursuit and recommend against it if they feel it's not going to be successful. In this case, I'd be wary of anyone who seems supremely confident that you'd have no problem having a successful claim.

I'm sorry to hear what happened especially since it sounds like you really tried to do everything right. These legal things, though...sometimes the cure can be worse than the disease you want to treat, especially when the damages are hard to pinpoint.
posted by KinoAndHermes at 3:42 PM on October 17, 2014

Talk with a lawyer, of course. A lot demands on how much of a difference it is. Ironically, the smaller the amount involved, the more likely it is that the bank will agree to a compromise settlement rather than opt for litigation. You will want someone who will take it on a contingency.
posted by megatherium at 4:14 PM on October 17, 2014

Thanks for all your excellent replies.

It sounds like a difficult case to quantify the damages, even though their actions quite clearly caused an extended delay in the repair process. Since we haven't yet reached closing on the sale, I will think about this and ask around further. If I were to pursue anything against the lender -- it would be after the loan is paid off and closed and our relationship with them is over, lest they have the opportunity to screw around with us further.
posted by thebordella at 4:40 PM on October 17, 2014

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