Select Portfolio Servicing Violations and Enforcement Actions

Select Portfolio Servicing’s violations and enforcement actions span more than two decades and include a $40 million Federal Trade Commission redress order against its predecessor Fairbanks Capital, a 2024 Consumer Financial Protection Bureau consent order finding repeat servicing failures, a 2026 California Attorney General settlement over pandemic-era conduct, a New York licensing fine, and a string of court rulings sanctioning the company for dual tracking, inaccurate bankruptcy filings, and improper debt collection after foreclosure.

The 2003 FTC and HUD Case Against Fairbanks Capital

In November 2003, the FTC and the U.S. Department of Housing and Urban Development sued Fairbanks Capital Corp. in the U.S. District Court for the District of Massachusetts, alleging unfair, deceptive, and illegal practices in servicing subprime mortgages.¹ Regulators said Fairbanks charged late fees on payments that had arrived on time, referred accounts to collections in ways that pushed borrowers into foreclosure, and forced borrowers to pay for duplicate home insurance.²

Fairbanks was servicing roughly 550,000 loans at the time. It agreed to pay $40 million in consumer redress. In early 2004, Fairbanks Capital Corp. and its holding company renamed themselves Select Portfolio Servicing, Inc. and SPS Holding Corp.¹

The 2007 Modified Order

In August 2007, the FTC (voting 5–0) and SPS agreed to a modified stipulated final judgment that tightened and extended the original restrictions. Key requirements included:

A five-year ban on marketing optional products, such as home warranties, that were not required under the loan terms.
Applying payments to interest and principal before fees, with written notice within five business days if a payment was not credited.
An outright ban on charging fees for collection or demand letters, and limits on the frequency of property inspection fees, which could only be charged once a borrower was at least 45 days delinquent.
A prohibition on charging for force-placed insurance without first sending two written notices, and a 15-day deadline to refund charges when the borrower proved existing coverage.
A ban on late fee pyramiding, meaning fees assessed on payments that would have been full and timely but for a prior late fee.
A permanent requirement to send monthly mortgage statements in formats tested for consumer clarity.
A rule that SPS could not initiate foreclosure until it had verified three missed full payments, confirmed compliance with the order, and resolved any pending consumer disputes.
Ten years of annual compliance audits by an independent third party, subject to FTC review.³

SPS did not admit wrongdoing under either the original or modified settlement.³

The 2024 CFPB Consent Order

In August 2024, the CFPB issued a consent order against SPS for violations of the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Homeowners Protection Act, and the Consumer Financial Protection Act. The Bureau found that SPS had started prohibited foreclosure actions against borrowers who had applied for loss mitigation and had given borrowers inaccurate information about loss mitigation options and mortgage insurance. The CFPB stressed that this conduct continued despite a 2017 consent order aimed at similar problems.⁴

The order carried a $7 million total price tag: $3 million in redress to affected borrowers, a $2 million civil penalty deposited in the CFPB’s victims’ relief fund, and $2 million in required investment to upgrade servicing technology and compliance systems. It also allowed the CEO’s compensation to be limited if the company failed to complete required compliance steps. SPS neither admitted nor denied the findings.⁴

The 2026 California Attorney General Settlement

On June 5, 2026, California Attorney General Rob Bonta announced a proposed $4.6 million settlement with SPS over pandemic-era conduct.⁵ The California Department of Justice found that SPS:

Failed to give homeowners adequate information about COVID-19 forbearance exit options and alternative loss mitigation.
Sent mortgage statements to borrowers in forbearance that wrongly indicated late fees would apply to missed payments.
Failed to conduct tailored loss mitigation discussions with homeowners nearing the end of forbearance.
Provided inadequate support through the “single point of contact” required by California’s Homeowner Bill of Rights.
Failed to ensure borrowers could submit loan modification applications within the timelines and circumstances the Homeowner Bill of Rights allows.⁵

The settlement, subject to court approval, sets aside $3 million for automatic restitution to identified homeowners and $1.6 million for civil penalties, and requires SPS to overhaul servicing practices and communication protocols for borrowers seeking loan modifications or other foreclosure alternatives.⁶

The New York DFS Settlement

Between March and December 2013, SPS serviced New York mortgage loans from four Salt Lake City branch locations that had not been registered with the New York State Department of Financial Services. SPS paid a $20,000 fine and agreed to compliance measures covering approval of operating locations, employee training on branch registration, and submission of draft procedures to the Department. The agreement warned that noncompliance could cost SPS its New York mortgage servicer registration.⁷

Dual Tracking and Foreclosure Cases

Dual tracking is the practice of advancing foreclosure while a loan modification application is under review. California’s Homeowner Bill of Rights generally forbids it until the borrower’s application and any appeal have been resolved. SPS has faced repeated litigation on this issue.

Reese v. Select Portfolio Servicing

Jeanie Reese, acting as conservator for her incapacitated aunt, alleged that SPS recorded a Notice of Trustee’s Sale in November 2016 while a loan modification application was pending. In 2020, the California First Appellate District reversed a trial court ruling in SPS’s favor, finding triable issues about whether the application was complete when the notice was filed.⁸

On remand, the same appellate division ruled against Reese in 2024. It held that even if the 2016 notice was recorded prematurely, the violation was cured because SPS waited 18 months before recording a new notice, by which time the original had expired under California law. A procedural Homeowner Bill of Rights violation, the court said, can become immaterial if the servicer lets the defective notice lapse and proceeds under a compliant new one. The California Supreme Court denied review on April 16, 2025, and the U.S. Supreme Court denied certiorari on January 26, 2026, and rehearing on April 20, 2026, leaving the state appellate ruling in place.⁹

Olivero v. Select Portfolio Servicing

William and Glorianna Olivero, facing foreclosure on their Hamilton Township, New Jersey property, sued SPS in 2025, alleging it failed to establish required live contact, failed to provide written loss mitigation information, and caused them anxiety, lost sleep, and elevated blood pressure. They sought $100,000. In July 2025, the New Jersey Superior Court issued a mixed ruling. Claims under 12 C.F.R. § 1024.38 and the Home Affordable Modification Program were dismissed with prejudice because no private right of action exists. Claims under § 1024.41(g) and (j) were dismissed without prejudice, with leave to amend if the Oliveros could allege a complete loss mitigation application. The § 1024.39 claim was allowed to proceed, based on allegations that SPS failed to make required live contact and directed correspondence to people who were not the property owners.¹⁰

A Limit on Loss Mitigation Claims Under RESPA

Not every dispute about a loss mitigation decision produces a RESPA claim. In Fustolo v. Select Portfolio Servicing, the borrower argued SPS used a property value of $500,000 to $510,000 when he believed the property was worth $350,000. SPS denied additional loss mitigation in June 2021 and said a different value would not change its decision. In December 2024, the First Circuit affirmed dismissal of the RESPA claim, holding that “challenges to the merits of a servicer’s evaluation of a loss mitigation application do not relate to the ‘servicing’ of the loan and so are not covered errors under RESPA.” The court distinguished Naimoli v. Ocwen Loan Servicing, where the Second Circuit had found a RESPA violation involving lost loan documents.¹¹

Bankruptcy Court Sanctions

SPS has drawn sanctions in bankruptcy court under Federal Rule of Bankruptcy Procedure 3002.1, which requires accurate notices of payment changes to borrowers in Chapter 13.

In In re Heard, decided in the U.S. Bankruptcy Court for the District of Oregon in 2021, SPS (servicing for U.S. Bank) filed a Notice of Mortgage Payment Change claiming an escrow shortage and raising the debtor’s escrow payment from $523.55 to $761.30. A later amended notice corrected the figure to $519.82. The court held that an inaccurate notice is “equivalent to a failure to provide information” under Rule 3002.1 and awarded the debtor $17,119.59 in attorney fees plus $24.39 in costs as a compensatory sanction. It also called SPS’s delay in producing a requested five-year payment ledger “inexcusable.”¹²

In Napper v. Select Portfolio Servicing, a Middle District of North Carolina bankruptcy court denied SPS’s motion to dismiss claims tied to an inaccurate Response to Notice of Final Cure. The court rejected SPS’s argument that Rule 3002.1(i) sanctions are available only when no response is filed, reading the rule to include an implicit accuracy and transparency requirement. It also allowed claims that SPS willfully violated the automatic stay by misapplying plan payments and pressuring the debtor to sign a reaffirmation agreement to strip a bankruptcy designation from her mortgage account.¹³

Gaffney Class Action Over Post-Foreclosure Collection

In Gaffney v. Select Portfolio Servicing, a New Jersey class action, the plaintiff alleged that after foreclosing on homes, SPS tried to collect mortgage-related debt containing interest amounts higher than New Jersey law allowed, in violation of the Fair Debt Collection Practices Act. The class covered about 1,500 people whose loans SPS serviced for a separate lender. The settlement received final approval in 2022 and totaled more than $200,000.¹⁴

1
FTC. FTC, Subprime Mortgage Servicer Agree to Modified Settlement
2
Plainview Herald. Fairbanks Capital, FTC, HUD Reach Tentative $40 Million Settlement
3
FTC. Modified Stipulated Final Judgment and Order, Civil No. 03-12219-DPW
4
Hudson Cook. CFPB Takes Action Against Mortgage Servicer for Alleged Order Violations and Servicing Errors
5
California Office of the Attorney General. Attorney General Bonta Secures $4.6 Million Settlement for Consumer Relief From Mortgage Servicer
6
HousingWire. California SPS Settlement
7
New York Department of Financial Services. Settlement Agreement With Select Portfolio Servicing
8
Supreme Court of the United States. Petition for Writ of Certiorari, Reese v. Select Portfolio Servicing, No. 25-5704
9
Supreme Court of the United States. Docket, Reese v. Select Portfolio Servicing, No. 25-5704
10
New Jersey Courts. Olivero v. Select Portfolio Servicing, Docket No. MER-L-2283-24
11
FindLaw. Fustolo v. Select Portfolio Servicing, No. 24-1221
12
GovInfo. In re Heard, Case No. 15-35564-pcm13
13
American Bankruptcy Institute. Napper v. Select Portfolio Servicing, Denial of 12(b)(6) Motion
14
National Mortgage Professional. Plaintiffs Overcharged on Mortgage Debt Win Settlement vs. Select Portfolio Servicing