Filing claims pattern of RESPA violations. Premiums jumped from $5,700 to $11,000
Freedom Mortgage faces federal allegations that missed escrow payments caused a homeowner's insurance to lapse and her premiums to skyrocket from roughly $5,700 to over $11,000.
A retired widow from Dauphin Island, Alabama has taken Freedom Mortgage Corporation to federal court over what she describes as a cascade of servicing failures that doubled her insurance costs and left her scrambling to protect her home.
Cheryl Petrey filed her case December 3 in the U.S. District Court for the Southern District of Alabama, alleging the mortgage giant dropped the ball on basic escrow duties after taking over her loan servicing earlier this year. The filing paints a picture of missed deadlines, failed communications, and a servicer that allegedly refused to fix its own mistakes.
The trouble started in March when Freedom took over servicing Petrey's mortgage. Her homeowner's insurance with Frontline Insurance was set to renew the following month with an annual premium of $5,731. Despite having all the necessary information from the previous servicer and adequate funds sitting in escrow, Freedom allegedly never submitted the renewal payment.
The policy cancelled on April 15. Petrey says she spotted the problem early and contacted both her insurance agency and Freedom before the deadline, receiving assurances that everything was handled. It wasn't.
What makes the situation worse, according to the filing, is that Freedom had a second chance. The servicer could have reinstated the policy by paying the premium by May 15, giving them a full month to correct the error. That deadline also passed without action, making the lapse permanent.
The cost to replace the coverage now exceeds $11,000 annually, the filing states, nearly double what Petrey was paying before the lapse.
The case raises broader questions about servicer transitions and escrow management. When a servicer takes over a loan, it inherits specific obligations under the Real Estate Settlement Procedures Act, including the duty to make insurance and tax payments from escrow on time. The law doesn't provide much wiggle room on these requirements.
Petrey's attorney argues that Freedom violated multiple sections of RESPA, particularly the provision requiring timely escrow disbursements and the rules governing how servicers must respond to borrower error notices. After the insurance lapsed, Petrey sent Freedom a formal dispute letter in August. The servicer responded in September but allegedly never acknowledged making an error or explained why the payments weren't made.
Perhaps most concerning for the industry, the filing alleges this isn't an isolated incident. It claims Freedom has engaged in a pattern of similar violations, pointing to other federal cases nationwide and complaints filed with the Consumer Financial Protection Bureau. If proven, such a pattern could expose the company to statutory damages beyond what any individual borrower suffered.
Freedom also allegedly fumbled Petrey's flood insurance payment in August, though that policy was eventually reinstated during the grace period.
The case hasn't been decided, and Freedom hasn't yet filed its response. But the allegations highlight the risks servicers face when systems break down during portfolio transitions, and the steep price borrowers may pay when escrow accounts aren't properly managed.
