The suit claims both servicers said the loan was current at transfer. Foreclosure followed anyway
A new federal lawsuit alleges two servicers pushed a Florida loan into foreclosure — despite their own records showing it was current.
Michael and Kimberly Smith filed suit on March 25, 2026, in the United States District Court for the Middle District of Florida, naming BSI Financial Services and NewRez LLC, doing business as Shellpoint Mortgage Servicing. At the heart of the case is what the Smiths call a manufactured mortgage default — one driven not by missed payments, but by how their servicers handled escrow accounting and a servicing transfer.
The Smiths assumed their mortgage on a home in Land O Lakes, Florida, on or about January 29, 2019, under an agreement that did not require escrow for taxes or insurance. They handled both on their own. But after a prior servicing transfer, BSI imposed escrow charges on the account — a dispute that led to litigation resolved in July 2023. After that, the loan was treated as non-escrowed.
In January 2024, according to the filing, BSI posted a corporate advance of $8,388 to the account, tied to a negative escrow balance. The Smiths say they never asked for escrow administration, were current on principal and interest, and received no documentation explaining the charge.
Servicing transferred to Shellpoint on May 10, 2024, with the loan due for the June 2024 payment. But the suit alleges Shellpoint treated the account as delinquent because of the inherited escrow deficit. The Smiths kept making payments through November 2024, consistent with their principal and interest obligations. Those payments, the filing states, were placed in suspense or left unapplied. The account was coded as more than 90 days past due and referred to foreclosure, with the alleged default tied to the August 1, 2024 installment.
In October 2025, the Smiths formally disputed the servicing errors through a Notice of Error and Qualified Written Request. BSI responded that the loan was current and due for June 2024 at the time of transfer. NewRez stated the loan was due for June 1, 2024, and reflected a negative escrow balance of $8,388.45. Yet according to the suit, neither servicer conducted a reasonable investigation or corrected the account. NewRez had already referred the loan to foreclosure in November 2024 and filed a foreclosure action in September 2025.
The Smiths are pursuing claims under RESPA, the Fair Debt Collection Practices Act, and the Florida Consumer Collection Practices Act. They allege improper escrow administration, failure to apply payments, inaccurate delinquency coding, and unauthorized collection activity, and are seeking actual and statutory damages, attorney's fees, and a jury trial.
No determination has been made on the merits, and the case is in its earliest stage.
For mortgage professionals, though, the allegations alone raise familiar operational questions — particularly around what happens when escrow data and corporate advances travel poorly across a servicing transfer. When both the outgoing and incoming servicers state a loan was current at handoff, yet the borrower ends up facing foreclosure, the gap between those two facts is where the compliance risk lives.
