Couple Files Lawsuit Against Rocket Mortgage and Flagstar Over HELOC Servicing Errors

A North Carolina couple, Stephanie and Michael Princip, are taking legal action against Rocket Mortgage and Flagstar Bank, claiming the mishandling of their home equity line of credit (HELOC) turned into a protracted ordeal. The couple filed a federal lawsuit on October 6, 2026, asserting that a simple servicing transfer devolved into a series of issues that severely impacted their credit standing.

The lawsuit details how the couple's $64,000 HELOC was plagued by miscommunication and operational mistakes once it was transferred to Rocket Mortgage from Flagstar. Allegations arose that the transfer was executed poorly, leading to three separate suspensions of their credit line. During this turmoil, their credit scores plummeted by over 130 points, accompanied by a pre-foreclosure notice issued by the lenders.

Initial Confusion and Miscommunication

The complications began in April 2025 when Flagstar transferred servicing of the Princips' HELOC to Nationstar Mortgage LLC, operating as Mr. Cooper—or now known as Rocket Mortgage. According to the filing, the couple received two letters: a farewell from Flagstar followed by a welcome letter dated April 10, 2025. However, the welcome letter was printed on Flagstar's letterhead, signed by Flagstar officials, and included no details about Rocket Mortgage as the new servicer. The legal documentation claims Rocket Mortgage failed to provide any transfer notice within the legally mandated fifteen-day period.

This miscommunication escalated confusion over where to send payments. The couple found conflicting instructions: Flagstar's welcome letter indicated they should continue payments to Flagstar, while Rocket’s website directed customers to send payments to Mr. Cooper. Attempts to access payment options through Rocket's system were met with further issues, including rejected logins based on their Social Security numbers. Even searches utilizing their loan details yielded “no account found” results.

Pattern of Suspensions

The filing reveals a troubling pattern of suspensions starting on June 14, 2025—approximately 74 days post-transfer—when the HELOC was suspended due to a claimed "past due" balance. The Princips assert there had been no delinquency attributable to them as the failure stemmed from the servicer's lack of adequate transfer procedures and their unresponsive payment system.

The second suspension occurred on October 31, 2025, linked to a "payoff request" initiated by the couple’s attorney. The lawsuit highlights that a request for a payoff statement does not justify the suspension of credit privileges as per the HELOC agreement. On June 9, 2026, the third and final suspension—this one permanent—was enacted, purportedly for a “legal status review.” The timing of this suspension coincided suspiciously with the Princips' filing of a third formal error notice under the Real Estate Settlement Procedures Act (RESPA).

Failures in Communication

The couple sent three formal error notices, termed "qualified written requests" under RESPA, over a span of about ten months, seeking clarification and resolution. Federal regulations stipulate that servicers have thirty business days to respond appropriately, but the servicer's initial response was delayed. Their claim stated that a response was sent but returned due to an “insufficient address,” which the Princips contest as erroneous.

The second notice met with a generic reply that claimed compliance with all applicable laws, yet conveniently overlooked the inquiries regarding payment processing lapses and suspension reasons. The third reply did acknowledge that previous responses did not fully address the questions raised by the couple, but still fell short of providing satisfactory answers about the failures associated with account management.

Credit Reporting Issues

To complicate matters further, the aftermath of the servicing transfer resulted in significant confusion on the credit reporting front. The original HELOC account was inaccurately marked as closed, with the notation indicating it was “Transferred to another lender.” A new account appeared with incorrect classifications, reporting the credit limit ambiguously as “High Balance” instead of an actual limit, leading to misrepresented payment activity.

When Stephanie Princip attempted to dispute the reporting with TransUnion, the servicer reportedly verified the inaccurate information while simultaneously amending the account type, further substantiating the claim of improper handling of their credit data. The couple asserts their credit scores plummeted by upwards of 130 points, materially affecting their ability to secure a new purchase loan at a critical financial moment.

Seeking Remedies

The Princips are pursuing various forms of damages, including actual damages, statutory damages under RESPA amounting to $2,000 for each violation, estimated at $12,000 per defendant due to the wrongful service errors, and additional punitive damages linked to the Fair Credit Reporting Act. They are also requesting a jury trial to address these grievances comprehensively.

This case illustrates the cascading effects of administrative failures during mortgage servicing transfers. Basic procedural mistakes—like transfer notifications, payment processing, and responding to borrower inquiries—fed into a disaster for the Princips, highlighting a fundamental breakdown in service obligations.

As the situation stands, the validity of these claims remains untested in court, leaving the potential implications and precedents for mortgage servicing practices an open question.