Monday, October 20, 2014

FYI: 11th Cir Holds Servicer's Response to QWR Sufficient, Allows Breach of Contract for Non-Compliance with HUD Regs on Federally-Insured Mortgage Loan

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a summary judgment in favor of a mortgagee on claims of wrongful attempted foreclosure, trespass, breach of contract and violation of the RESPA. 


In sum, while ultimately affirming the order on the grounds that no damages could have been sustained by the borrower, the Eleventh Circuit ruled that a breach of contract claim could exist where the purported breach arises from incorporated HUD regulations for which there is no private right of enforcement.  The Eleventh Circuit also held that the RESPA was not violated by the mortgagee’s timely QWR response, and that no causes of action lie on the mortgagor’s other claims.


A copy of the opinion is available at:


The borrower sought the recovery of damages on the basis that the mortgagee:  1) allegedly wrongfully attempted to foreclose, 2) supposedly trespassed on her property while carrying out illegal property inspections, 3) allegedly breached the terms of the mortgage deed, and 4) allegedly violated section 2605(e)(2) of the federal Real Estate Settlement Procedures Act (“RESPA”) by failing to provide a compliant response to the mortgagor’s “qualified written request.”


The borrower obtained a federally-insured loan in 2008.  In 2011, the borrower defaulted on the federally-insured loan, and the mortgagee notified the borrower of its intent to foreclose. The borrower attempted to bring her account current by repeatedly making partial payments of the amount in arrears via personal checks. The mortgagee, as per its policy, rejected these payments as they were partial, and not made with certified funds.


Ultimately, in late 2011, the mortgagee began the process of setting a non-judicial foreclosure sale. However, prior to any such sale being set, the borrower sent in a Qualified Written Request (“QWR”) regarding the rejection of the partial payments, in response to which the mortgagee timely advised her of the reasons behind its decision to reject the attempted partial payments. Following the QWR, the borrower made no further payments. Thereafter, the subject litigation ensued. The mortgagee refrained from scheduling a sale of the property.


Originally, the district court granted summary judgment in favor of the mortgagee, reasoning that the mortgagor “failed to offer sufficient proof to support her claims of wrongful attempted foreclosure, trespass, and violations of the [RESPA].” The district court also held that the mortgagor failed to plead and support a cognizable claim for breach of contract.


However, in its opinion affirming the district court's grant of summary judgment in favor of the mortgagee, the Eleventh Circuit affirmed the order on different grounds.


First, the Eleventh Circuit addressed the breach of contract claim. The mortgagor had claimed that the mortgagee breached the terms of the federally-insured mortgage deed when it allegedly failed to strictly comply with “certain regulations promulgated by the Department of Housing and Urban Development (“HUD”).


In rejecting this claim below, the district court had held that “it would be anomalous” to allow a breach of contract claim to stand that is based upon regulations that do not provide a private right of action for violations. The Eleventh Circuit disagreed, however, holding that as the federally-insured mortgage contemplated compliance with the HUD regulations as a condition precedent to the mortgagee’s right to non-judicially foreclose, a breach of contract action would otherwise lie for the violation of that condition.


In doing so, the Eleventh Circuit rejected the mortgagee’s arguments that no private right of action exists to enforce HUD regulations encapsulated in a contract, that the mortgagor’s claim is barred by the first-breach doctrine, and that the mortgagor’s claim is barred under the pre-existing duty rule.


The Court noted that this is an issue of first instance in Georgia, as well as within the Eleventh Circuit, and nationally it appears as if courts are split on this question. See, e.g., Wells Fargo Home Mortg. Inc. v. Neal 922 A.2d 538, 543-47 (Md. 2007)(“holding that mortgagor could not assert breach of contract claim in view of fact that deed was a form not drafted by lender and HUD regulations do not create a private right of action); but see, e.g., In re Silveira, No. 11-44812-MSH, 2013 Bankr. LEXIS 1904, at *45 (Bankr. Mass. May 3, 2013)(“While these HUD regulations do not provide a mortgagor with a private right of action … if they are incorporated into the various loan documents … they become enforceable by the parties to the loan documents.”).


Notwithstanding the fact that it had found a contractual duty, the Eleventh Circuit further determined that there was no evidence in the record of damages arising from the alleged breach.


Noting that the mortgagee never actually foreclosed or executed its power of sale, and given that the terms of the mortgage at issue allow for reinstatement should “all of the outstanding monthly payments and associated fees” be paid, the Eleventh Circuit held that the mortgagor failed to present any evidence of damages caused by the mortgagee’s breach of the mortgage, and concluded that, as a result, it must affirm the grant of summary judgment below despite having rejected the district court’s rulings of law on most material points.


Second, in addressing the mortgagor’s RESPA claim, the Eleventh Circuit held that the mortgagee’s timely response to the mortgagor’s QWR complied with the statute, despite the mortgagor’s assertion that, at a minimum, a factual dispute existed as to whether the response was sufficient.


As you may recall, section 2605(e)(2) of the RESPA requires a servicer to respond to a qualified written request “after conducting an investigation, provide the borrower with a written explanation or clarification that includes – (i) to the extent applicable, a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer, and (ii) the name and telephone number of an individual employed by, or the office or department of, the servicer who can provide assistance to the borrower.” Id.


In its timely written response to the mortgagor’s QWR, the mortgagee explained why it returned the multiple attempted partial payments. It also had explained that any payment needed to be made in full, and with certified funds. As such, the Eleventh Circuit held that the response was adequate as a matter of law. 


The Court further held that even if the response to the QWR had not been sufficient, no damages could have been caused under the present circumstances.


Finally, the Court briefly noted that ,as the mortgagee had not knowingly published untrue and derogatory information concerning the mortgagor’s financial condition, no claim for wrongful attempted foreclosure was available as a matter of law.


The Eleventh Circuit also quickly dispensed with the mortgagor’s claim that the mortgagee’s property inspections had constituted a trespass on her property, given that the subject mortgage deed provided the mortgagee the right to carry out such inspections.


Accordingly, the Eleventh Circuit affirmed the summary judgment in favor of the mortgagee.




Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
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