California Mortgage Servicer Settles For $4.6M Over Pandemic Foreclosure Violations

California Attorney General Rob Bonta has secured a 4.6 million dollar settlement with Select Portfolio Servicing (SPS) over alleged violations of state and federal mortgage servicing and foreclosure protection laws during the COVID-19 pandemic. The deal delivers civil penalties and direct consumer relief to thousands of California homeowners, while imposing forward‑looking servicing reforms on one of the country’s largest subprime mortgage servicers.

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California Mortgage Servicer Settles For 4.6 Million Dollars Over Pandemic Foreclosure Violations

California Attorney General Rob Bonta announced a 4.6 million dollar settlement with Select Portfolio Servicing, Inc. (SPS), resolving allegations that the Utah‑based mortgage servicer violated California’s Homeowner Bill of Rights (HBOR) and other state and federal mortgage servicing and debt collection laws in handling borrowers during the COVID‑19 pandemic. Under the proposed judgment, SPS will pay 1.6 million dollars in civil penalties and provide 3 million dollars in direct consumer relief, while agreeing to operational changes designed to improve communications, loss‑mitigation practices, and foreclosure‑prevention efforts for California homeowners.

Who Is Involved

SPS is a large mortgage servicer that focuses heavily on subprime and non‑prime mortgage loans and services loans for investors nationwide, including a substantial California portfolio. The enforcement action was brought by the California Department of Justice (DOJ) through the Attorney General’s Office, with investigative support from nonprofit consumer advocates Housing and Economic Rights Advocates (HERA) and California Rural Legal Assistance, Inc. (CRLA).

According to the Attorney General, the settlement reflects California’s continuing posture that servicers must honor both state‑level foreclosure protections and federal COVID‑19 relief frameworks, particularly for borrowers who sought forbearance or loan modifications during the crisis.

Alleged Violations

The investigation concluded that SPS engaged in multiple servicing failures tied to borrowers in COVID‑19 forbearance plans and those seeking foreclosure‑prevention alternatives. Among other things, the Attorney General alleged that SPS:

• Failed to provide adequate and accurate information about COVID‑19 forbearance options, including how borrowers could exit forbearance and their ability to apply for other loss‑mitigation options while still in forbearance.

• Sent mortgage statements to borrowers in forbearance that incorrectly indicated late fees would be charged for missed payments, contrary to the protections borrowers reasonably expected from COVID‑19 relief programs.

• Did not conduct “tailored” loss‑mitigation discussions with homeowners approaching the end of their COVID‑19 forbearance periods, missing a critical point to assess affordable post‑forbearance solutions.

• Failed to ensure that borrowers received meaningful assistance from the assigned single points of contact required under California’s Homeowner Bill of Rights, undermining HBOR’s core anti‑runaround protections.

• Failed to ensure borrowers could submit and complete loan modification applications within the timelines and circumstances that HBOR mandates, implicating California’s dual‑tracking and loss‑mitigation rules.

Collectively, these failures allegedly left homeowners confused about their options, exposed them to inaccurate billing, and increased the risk that struggling borrowers would fall into avoidable default or foreclosure during a period of heightened economic stress.

Settlement Terms and Monetary Relief

Under the settlement, which is subject to court approval, SPS will pay a total of 4.6 million dollars, split between consumer restitution and state penalties. Key financial terms include:

• 3 million dollars in consumer relief to be distributed to thousands of impacted California borrowers who were identified during the investigation.

• 1.6 million dollars in civil penalties payable to the state to resolve alleged violations of California’s HBOR and related state and federal servicing and debt‑collection statutes.

The Attorney General’s Office indicated that eligible homeowners have already been identified and will receive restitution automatically, without the need to file claims. This structure is notable for servicers and collectors because it underscores regulators’ increasing reliance on data‑driven exams and file reviews, rather than consumer‑initiated claims processes, to calculate and distribute relief.

Required Servicing Reforms

Beyond the monetary components, SPS agreed to operational changes aimed at closing servicing gaps revealed during the pandemic. While the full injunctive terms are contained in the proposed judgment, the Attorney General emphasized several compliance expectations:

• Ensuring homeowners receive clear, accurate information on available loss‑mitigation options, including loan modifications and other foreclosure‑prevention alternatives, both during and after forbearance periods.

• Strengthening single‑point‑of‑contact (SPOC) programs so that assigned representatives are knowledgeable, responsive, and capable of guiding borrowers through applications and documentation requirements.

• Implementing policies and controls to prevent inaccurate statements about late fees or other charges for borrowers in authorized forbearance plans.

• Enhancing processes to ensure borrowers can timely submit complete loan modification applications and that such applications are evaluated consistent with HBOR’s anti‑dual‑tracking and notice provisions.

For the credit and collections industry, these injunctive terms function as a roadmap for California‑specific servicing expectations in the wake of the pandemic and foreshadow the types of deficiencies regulators are likely to scrutinize in future mortgage and loss‑mitigation exams.

Legal Framework: HBOR and Pandemic Protections

The settlement rests heavily on California’s Homeowner Bill of Rights, a suite of state statutes that impose heightened obligations on mortgage servicers, including restrictions on dual tracking, requirements for SPOCs, and detailed notice and loss‑mitigation standards. Under HBOR, repeated and uncorrected violations in foreclosure‑related filings can trigger civil penalties of up to 7,500 dollars per mortgage in actions brought by government entities, creating significant financial exposure in systemic, multi‑borrower cases.

The action also builds on a broader enforcement narrative that regulators—including the CFPB and state AGs—have pursued since 2020: that servicers must align their practices with federal COVID‑19 forbearance programs and refrain from misrepresenting relief options or charging fees inconsistent with pandemic‑era protections. For entities operating in mortgage, HELOC, and related servicing lines, this case underscores that pandemic conduct remains very much within the enforcement window.

Implications for Mortgage Servicers

For servicers with California portfolios, the SPS settlement highlights several risk themes likely to recur in examinations, investigations, and private litigation:

• End‑of‑forbearance risk: Regulators are laser‑focused on what happens as borrowers exit COVID‑19 or other hardship forbearance—whether they are offered clear paths to modification, deferral, or repayment, and whether communications accurately describe consequences and options.

• Accuracy of periodic statements: Even where payment obligations are formally paused, inaccurate statements about due amounts, late fees, or delinquency status can be treated as deceptive practices or violations of servicing laws.

• SPOC program effectiveness: Simply assigning a single point of contact is no longer enough; regulators will assess whether SPOCs actually solve borrower problems, provide consistent information, and coordinate internally across loss‑mitigation, collections, and foreclosure teams.

• Data and documentation controls: The case illustrates that regulators will rely on detailed loan‑file reviews to support restitution calculations and systemic findings, reinforcing the need for robust documentation of every forbearance, hardship request, and modification evaluation.

Servicers operating in other high‑regulation states may see this settlement cited as a benchmark for what constitutes adequate—and inadequate—pandemic‑era servicing conduct, especially where state laws mirror California’s approach to dual tracking and borrower communications.

Takeaways for Credit and Collection Stakeholders

For collection agencies, debt buyers, and fintech lenders that touch mortgage or secured consumer debt, the SPS settlement offers several compliance lessons:

• Pandemic‑era servicing issues remain a priority, and regulators continue to investigate historical COVID‑19 forbearance, loss‑mitigation, and communication practices.

• State attorneys general are increasingly willing to pair traditional mortgage‑servicing statutes (like HBOR) with broader debt‑collection and consumer‑protection theories, creating overlapping liability for misstatements and operational failures.

• Partnerships with nonprofit legal services and housing advocates—such as HERA and CRLA in this case—are an important pipeline for enforcement leads and loan‑level data, which can expand investigations from individual complaints to systemic cases.

For industry compliance teams, this settlement is another signal that California will continue to push aggressive mortgage‑servicing oversight, often in coordination with federal agencies, and that the state’s expectations will inform examinations across other credit products where hardship relief and loss‑mitigation programs are offered.