The U.S. District Court for the Eastern District of Pennsylvania recently granted in part and denied in part a motion to dismiss allegations that a servicer did not comply with its RESPA obligations, because it allegedly failed to conduct a “reasonable investigation” in response to a Notice of Error, and “reasonable search for information” in response to a Request for Information, as required by 12 C.F.R. §§ 1024.35 and 1024.36
A copy of the opinion is available at: https://www.paed.uscourts.gov/documents/opinions/14D0785P.pdf
The plaintiff (“Plaintiff”) inherited the mortgaged property from the mortgagor, and became the formal legal representative of the mortgagor’s estate. Plaintiff applied for a HAMP modification with the mortgage servicer (“Servicer”), and executed a deed to the property from herself as administratrix to herself as the sole heir. She entered into a three-month HAMP Modification Trial Period Plan (“TPP Agreement”) in her capacity as administratrix.
The borrower allegedly made nine timely TPP payments, but the Servicer supposedly claimed that Plaintiff was ineligible for HAMP because she failed to make all the required TPP payments by the end of the trial period. Plaintiff’s tenth payment was allegedly rejected because the funds had not been certified, but the Servicer supposedly never required certified funds before and allegedly accepted her nine previous personal checks.
According to the Plaintiff, the Servicer subsequently sent Plaintiff a letter entitled “Partial Payment Agreement,” which Plaintiff allegedly signed and returned with the required payment. That letter allegedly did not refer to the HAMP program or explain what happened to either her pre-existing TPP Agreement or the funds she paid pursuant to that agreement. Instead, the Servicer allegedly represented that it would decide at its sole discretion whether to offer a loan modification.
Plaintiff alleged she made eight payments under the Partial Payment Agreement until her tenth payment was supposedly returned with a note stating only, “[t]he amount remitted does not represent the total due.” Plaintiff was supposedly later told that she would no longer be considered for a loan modification.
Notwithstanding Plaintiff’s alleged performance under the payment plans, Servicer obtained a default judgment in foreclosure. Plaintiff allegedly sent the Servicer a number of written requests pursuant to the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605(e), requesting information regarding the HAMP agreement and other loss mitigation alternatives. In response, the Servicer allegedly sent a reinstatement calculation supposedly containing figures for fees and charges that were different from the ones listed in the judgment. According to the Plaintiff, the Servicer supposedly provided inaccurate or incomplete responses to Plaintiff’s other written requests for information.
Plaintiff filed an action against Servicer asserting: (1) violation of RESPA for failure to conduct a “reasonable investigation” in response to the Notice of Error; (2) violation of RESPA for failing to properly respond to Request for Information; (3) violation of the Pennsylvania Unfair and Deceptive Practices and Consumer Protection Law (“UTPCPL”); (4) breach of the TPP contract; and (5) promissory estoppel/detrimental reliance.
First, the Court addressed whether Plaintiff had standing to bring any of her claims – either under RESPA or under state law – in her individual capacity.
As you may recall, the Pennsylvania’s Survival Act provides that “[a]ll cause of action, real or personal, shall survive the death of the plaintiff or of the defendant, or the death of one or more joint plaintiffs or defendants.” 42 Pa. Cons. Stat. § 8302. In turn, “all actions that survive a decedent, must be brought by or against the personal representative of the decedent’s estate.” Prevish v. Nw. Med. Ctr. Oil City Campus, 692 A.2d 192, 200 (Pa. Super. Ct. 1997).
The Court held that Plaintiff did not have standing because she never assumed the loan in her individual capacity, and because the Servicer’s foreclosure action was brought against the mortgagor’s estate and against Plaintiff as the administratrix and heir. Moreover, the initial HAMP TPP Agreement was sent to the mortgagor’s estate and signed by Plaintiff in her capacity as administratrix. Therefore, the Court concluded that Plaintiff lacked standing to bring suit on state law claims as the heir to the property, but she may pursue them as the personal representative of the estate.
Similarly, the Court also held that Plaintiff lacked standing to bring her federal claims. RESPA does not explicitly define the term “borrower,” but its provisions apply only to “federally related mortgage loan[s].” 12 U.S.C. § 2602(l). According to the Court, this suggested that a “borrower” must be the named borrower on that loan. Because the Complaint did not allege that Plaintiff assumed the loan on the property, the court held that the RESPA cause of action belongs only to Plaintiff as administratrix of the estate and not to her as an individual heir to the estate.
Next, the Court turned to Plaintiff’s RESPA claims. Count I of Plaintiff’s complaint alleged that Servicer violated RESPA by failing to conduct a “reasonable investigation” and provide a written notice in response to Plaintiff’s Notice of Error, as required under Reg. X, 12 C.F.R. § 1024.35. Count II alleged that Servicer failed to conduct a reasonable search for information requested in Plaintiff’s Requests for Information, as required by RESPA, Reg. X, 12 C.F.R. § 1024.36.
As you may recall, the new mortgage servicing rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Pub. L. No. 111-203, 124 Stat. 1376 (July 21, 2010) (“Dodd-Frank Act”), were made effective on January 10, 2014. The new regulations codified at 12 CFR §§ 1024.35 and 1024.36 delineate separate requirements and procedures for responding to a borrower’s Notice of Error and Request for Information.
The Court rejected the Servicer’s argument that it complied with its RESPA obligations, because it responded to Plaintiff’s Notice of Error and explained the reasons why her loan modification requests were declined.
In so doing, the Court noted that Regulation X altered the landscape of RESPA obligations. A servicer must now conduct a “reasonable investigation,” and provide the borrower “with written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower’s right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can reach such documents, and contact information, including a telephone number, for further assistance.” 12 C.F.R. § 1024.35(e)(1)(i)(A).
The Court determined that Servicer did not comply with 12 C.F.R. § 1024.35(e) because it provided inaccurate information regarding Plaintiff’s loss mitigation options and foreclosure. Taking the allegations as true at this stage of the proceeding, the Court concluded that no “reasonable investigation” had occurred with respect to Plaintiff’s Notice of Error.
Similarly, the Court also rejected Servicer’s argument that its failure to provide all the information sought in Plaintiff’s Request for Information was excused, because it had properly asserted delineated exceptions to its obligations – i.e., that the request for materials was overbroad, unduly burdensome, and sought duplicative, confidential, proprietary, privileged, or irrelevant information – pursuant to 12 C.F.R. § 1024.36(f).
The Court again pointed to the changes imposed by Regulation X. A servicer must now conduct “a reasonable search for the requested information.” 12 C.F.R. § 1024.36(d)(1)(ii). Moreover, the servicer’s duty to comply with its response obligations are obviated only “if the servicer reasonably determines that” the documents meet any of the enumerated exceptions. 12 C.F.R. § 1024.36(f)(1).
According to the Court, Plaintiff plausibly alleged that Servicer did not reasonably determine that the documents were in the excluded categories, and in a fact, many of the requested documents were available and within the categories of documents that a servicer should provide. For these reasons, the Court denied Servicer’s motion to dismiss the RESPA claims.
It is unfortunately unclear whether the court deemed all of the materials listed in the request for information -- even including “audio files of telephone calls with Plaintiff” and “invoices from Defendant’s foreclosure firm” -- to be proper, or whether some might be proper and some not.
The Court then turned to Plaintiff’s claim for violation of the UTPCPL, which prohibits “[u]nfair or deceptive acts or practices in the conduct of any trade or commerce.” 73 Pa. Stat. § 201-3.
Plaintiff alleged that Servicer violated the UTPCPL by representing to the U.S. Treasury and the American public that it would comply with HAMP guidelines and offer loan modifications to eligible borrowers. However, Servicer engaged in deceptive conduct in its dealings with Plaintiff about the property and created the likelihood of confusion or misunderstanding regarding her right to a loan modification.
In its defense, Servicer argued that a UTPCPL claim based upon alleged HAMP violations fails because HAMP violations do not give rise to a private cause of action. The Court rejected the argument because the Seventh Circuit has held that the absence of a private right of action from a federal statute does not provide a reason to dismiss a claim under a state law merely because it refers to or incorporates some elements of the federal law. See, e.g., Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 581 (7th Cir. 2012).
Thus, the Court declined to dismiss Plaintiff’s UTPCPL claim as an effort to enforce compliance with HAMP, and allowed the claim to the extent it relied on allegations that Servicer induced Plaintiff to make TPP payments under the promise of loan modification, and other misleading actions separate and apart from Servicer’s obligations under the TPPs and HAMP.
In addressing Plaintiff’s breach of contract claim, the Court relied on Cave v. Saxon Mortg. Services, Inc., No. Civ.A. 12-5366, 2013 WL 1915660 (E.D. Pa. May 9, 2013), which declined to dismiss a breach of contract claim based on allegations that the defendant failed to offer a permanent modification after the borrowers complied with their obligations under the trial payment plan. Like the plaintiff in cave, Plaintiff here alleged that Servicer promised to offer a permanent loan modification upon satisfaction of her obligations under the TPP Agreement. Therefore, the Court held that Plaintiff may assert a viable breach of contract claim.
Finally, because the Court found that a valid and enforceable contract existed between the parties, Plaintiff’s claim for promissory estoppel or detrimental reliance was precluded by law.
Accordingly, the district court dismissed Plaintiff’s Complaint to the extent it alleges any claims in her individual capacity and to the extent it seeks relief under a theory of promissory estoppel/detrimental reliance. However, Servicer’s Motion to Dismiss was denied as to the claims for violation of RESPA, UTPCPL, and breach of contract.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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