Lesson. Careful compliance by mortgage servicers should lead to a favorable summary judgment rulings in RESPA cases brought by borrowers.
Legal issue. Whether the lender violated the Real Estate Settlement Procedures Act (RESPA), specifically the statutory duty to respond to a “qualified written request” from the borrower.
Vital facts. The lender erroneously paid the wrong insurer for homeowner’s coverage using funds from the borrowers’ escrow account. However, the borrowers switched insurers without informing the lender. Upon learning of the error, the lender paid the new insurer and informed the borrowers that the prior insurer would be sending a refund. The lender requested that the borrowers remit the refund to the lender so the depleted escrow account could be replenished, but the borrowers failed to do so. As a result, the lender adjusted the monthly mortgage payment to make up for the shortfall, but the borrowers failed to pay the higher amount and went into default. Instead of curing, the borrowers sent a RESPA “qualified written request” to the lender and demanded reimbursement of their escrow. The lender responded to the requests but still got sued.
Procedural history. The borrowers filed an action in federal court alleging that the RESPA responses were inadequate and that they had suffered 300k in damages. The district court granted summary judgment to the lender, and the borrowers appealed to the Seventh Circuit.
Key rules. The Perron opinion provides a great summary of the QWR duties in RESPA, 12 U.S.C. 2601-2617. Here are some of the key legal principles outlined by the Court:
- Generally, the statute “requires mortgage servicers to correct errors and disclose account information when a borrower sends a written request for information” known as a “qualified written request” or QWR.
- RESPA gives borrowers a cause of action for actual damages incurred “as a result of” a failure to comply with the duties imposed on servicers of mortgage loans.
- If borrowers prove the servicer engaged in a “pattern or practice of noncompliance,” then statutory damages of up to 2k are available. Also, successful plaintiffs may recover attorney fees.
- RESPA does not impose a duty to respond to all borrower inquiries or complaints. The statute “covers only written requests alleging an account error or seeking information relating to loan servicing.”
- “Servicing” means “receiving … payments from a borrower pursuant to the terms of the loan … and making the payments … with respect to the amounts received from the borrower as may be required by the terms of the loan.” 12 U.S.C. 2605(i)(3). A QWR “can’t be used to collect information about, or allege an error in, the underlying mortgage loan.”
- Upon receipt of a valid QWR, RESPA requires the servicer to take the following action “if applicable”: (A) make appropriate corrections in the account, (B) after investigation, provide a written explanation or clarification explaining why the account is correct, (C) provide the information requested by the borrower or explain why it is unavailable and (D) provide the contact information of a servicer employee who can provide further assistance. 12 U.S.C. Sec 2605(e)(2).
Holding. The Seventh Circuit affirmed the district court’s summary judgment for the lender.
Policy/rationale. In Perron, the lender “almost perfectly” complied with its RESPA duties by providing a complete account and payment history, as well as a complete accounting of the escrow payments. The only area where the lender fell short was its failure to identify one of the insurers at issue, but the Court noted that the borrowers already had that information. The Court concluded that the borrowers were not harmed by an uncorrected account error or lack of information. “Simply put, [the borrowers] weren’t harmed by being in the dark because the lights were on the whole time.”
Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed
I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.