Three suspensions. Three different reasons. One credit line nobody could figure out how to pay
A North Carolina couple says Rocket Mortgage and Flagstar Bank turned their home equity line of credit into a year-long nightmare.
Stephanie and Michael Princip filed a federal lawsuit on October 6, 2026, alleging the two mortgage giants bungled a routine servicing transfer on their $64,000 HELOC - then suspended their credit line three separate times, tanked their credit scores by more than 130 points, and sent them a pre-foreclosure notice, all while insisting "no error occurred."
The suit, filed in the US District Court for the Middle District of North Carolina, brings claims under two federal consumer protection laws - RESPA, which governs how mortgage servicers handle borrower inquiries and servicing transfers, and the Fair Credit Reporting Act, which requires lenders to investigate and correct inaccurate credit data - plus a state-law breach of contract claim.
Where things went sideways
The trouble started in April 2025, according to the filing, when Flagstar transferred the day-to-day servicing of the Princips' HELOC to Nationstar Mortgage LLC d/b/a Mr. Cooper - now Rocket Mortgage. Flagstar sent the couple a goodbye letter, followed by a welcome letter on April 10, 2025. But the lawsuit says that welcome letter came on Flagstar letterhead, was signed by Flagstar, and never identified Rocket's own name, address, or phone number as the new servicer. Rocket itself, the filing says, never sent a transfer notice - not within the fifteen-day window federal law requires, and not at any point afterward.
The confusion compounded from there. According to the suit, Rocket's public website told transferred Flagstar customers to send payments to Mr. Cooper, while the welcome letter directed payments to Flagstar. When the Princips tried to pay through Rocket's system, the filing alleges the system would not recognize their Social Security numbers to verify the loan. And when they searched Rocket's website using either their old or new loan number, it returned "no account found."
Stephanie Princip messaged the servicer through Flagstar's online portal in May 2025, the lawsuit says, asking a straightforward question: "Am I supposed to make a payment to Mr. Cooper or Flagstar?"
Three suspensions, three different reasons
What followed, according to the filing, was a cascade of suspensions.
The first came on June 14, 2025 - roughly 74 days after the transfer. The suit says the servicer suspended the HELOC because the account was "past due." At that point, the filing alleges, any delinquency was the servicer's own doing: no proper transfer notice, no billing statements, a payment system that wouldn't accept the borrowers' credentials, and a May payment that the portal showed as accepted but that never registered on the account.
The second suspension hit on October 31, 2025. The reason this time, according to the lawsuit: a "payoff request." The Princips' attorney had requested a payoff statement in July. The filing points out that a request for a payoff quote is not a ground the HELOC agreement allows for suspending draw privileges - and that the servicer's own correspondence from the same day confirmed the account was current.
The third came on June 9, 2026. This one was permanent. The stated reason, according to the filing: "legal status review." That suspension landed just six days after the servicer responded to the Princips' third formal error notice under RESPA. The suit alleges this timing was no coincidence - that the permanent suspension came because the borrowers were exercising their rights under federal law. At the time, the filing says, the loan was current.
Ten months, three letters, boilerplate answers
The Princips, through their attorneys, sent three formal error notices - known under RESPA as qualified written requests - over approximately ten months, the lawsuit says. Federal law gives servicers thirty business days to respond with a real answer.
The first, sent in July 2025, went unanswered within that window. The servicer later claimed it had mailed a response, but that it was "returned to us due to an insufficient address," according to the filing. The address was correct, the suit says.
The second, sent in October 2025, drew a response the filing describes as generic: the loan was "reviewed and found to comply with all state and federal guidelines" and "no error occurred." The suit says the response did not address the payment-processing failures, the reasons for the HELOC suspension, the missing billing statements, or the interest rate breakdown the borrowers had requested.
The servicer's June 3, 2026 response to the third notice did concede one thing, according to the filing: "our responses dated July 29, 2025, and October 31, 2025, did not fully address the concerns raised in your correspondence." But the suit alleges this response still fell short, speculating that the payment-system failures were consistent with "standard new-account setup requirements" without reviewing the borrowers' actual payment attempts, and concluding "no system error occurred."
The credit reporting mess
The credit reporting problems ran on a parallel track, according to the lawsuit. After the transfer, the original HELOC tradeline was reported as closed and "Transferred to another lender," with the credit limit listed as "N/A." A new tradeline appeared, but the suit says it classified the open-end revolving credit line as a "Mortgage Account" and "Home Equity Loan," reported the $64,000 credit limit only as a "High Balance" rather than an actual credit limit, and showed stale balance information and "$0" payments received despite payments having been made.
When Stephanie Princip disputed the tradeline with TransUnion, the filing says, the servicer "verified as accurate" the disputed information while simultaneously changing the account type, credit limit, and rating - which the suit characterizes as proof the original reporting was inaccurate and that the investigation was a rubber stamp.
The Princips allege their credit scores dropped by more than 130 points. They say the damage blocked them from getting pre-approved for a new purchase loan at a time when their primary adjustable-rate mortgage on the property was set to reset. The filing also says Defendants sent them a "North Carolina Forty-Five (45) Day Pre-Foreclosure Notice" around July 10, 2025, and registered their home with the State Home Foreclosure Prevention Project.
What they're asking for
The Princips are seeking actual damages, statutory damages of $2,000 per RESPA violation per plaintiff - which they calculate at $12,000 against each defendant on the error-notice claims, plus $4,000 against Rocket for the missing transfer notice - punitive damages under the Fair Credit Reporting Act, and attorneys' fees. They have demanded a jury trial.
For servicers and compliance teams, the case reads like a checklist of how a transfer can spiral when the basics break down: transfer notices, payment systems, billing statements, and borrower-inquiry responses each failed in sequence, according to the filing, and each failure fed the next.
None of the allegations in the lawsuit have been tested, and no court has ruled on any of the claims.
