The U.S. Court of Appeals for the Ninth Circuit recently held that written borrower demands seeking only information regarding loan origination issues, or modification of an existing loan, were not "qualified written requests" that triggered a servicer's duties under the federal Real Estate Settlement Procedures Act.
A copy of the opinion is available at: http://www.ca9.uscourts.gov/datastore/opinions/2012/12/11/11-55412.pdf.
Plaintiffs borrowers ("Borrowers") obtained a home mortgage loan that was serviced by a bank ("Servicer'). The loan documents provided for, among other things, an escrow account into which Borrowers would make monthly payment to cover taxes, insurance, interest, and principal. About a year after the loan agreement, Servicer notified Borrowers that the escrow account lacked sufficient funds to cover the upcoming 12-month period and that Borrowers would need to replenish the escrow account.
Borrowers' attorney then sent a number of letters to Servicer disputing any obligation to make the increased payments. One letter asserted that the loan documents did not accurately reflect the payment schedule that the loan broker had represented and demanded that Servicer revise the documentation to reflect the alleged original terms of the loan agreement. A second letter made similar claims, but also stated that Borrowers would continue making the same payments as allegedly agreed in the original loan agreement.
The final letter again asserted that the demand for increased payments was improper, even though the demand was consistent with the loan and documentation. Servicer made no changes to Borrowers' account, and may allegedly not have responded to Borrowers' letters.
Borrowers first filed suit in California state court, alleging that Servicer violated state law, and later added claims under the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 ("RESPA"). Servicer removed the action to federal court. The lower court dismissed the federal claims, ruling that the letters were not "qualified written requests" and remanded the action to state court.
Borrowers appealed. The Ninth Circuit affirmed, ruling that because Borrowers' letters were not related to the servicing of the loan, they were not "qualified written requests" that triggered a duty to respond under RESPA.
As you may recall, RESPA requires servicers of federally-related mortgage loans to provide timely responses to "qualified written requests" seeking information relating to the servicing of the loan. 12 U.S.C. § 2605(e)(1)(A),(e)(2). RESPA in turn defines a "qualified written request" as "a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that – (i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower." 12 U.S.C. § 2605(e)(1)(B).
In addition, RESPA specifically defines "servicing" as "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . , and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan." 12 U.S.C. § 2605(e)(1)(A), (e)(2) (i)(3). Failure to respond to such inquiries entitles the borrower to recover actual damages and, in some circumstances, statutory damages of up to $1,000. 12 U.S.C. § 2605(f).
Citing a Seventh Circuit opinion for its general approach to defining a "qualified written request," the Court of Appeals concluded that a qualified written request requires a response only if it relates to the servicing of a loan. See Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011)(defining what types of requests constitute "qualified written requests" and thus trigger a servicer's duty to respond). In so ruling, the Ninth Circuit noted that the duty to respond does not derive from the definition of "qualified written request," but from Section 2605(e)(1)(A), "which requires, as conditions for triggering the duty to respond, both (1) that the letter is a qualified written request and (2) that it requests information relating to servicing."
The Ninth Circuit further reasoned that since servicing "does not include the transactions and circumstances surrounding a loan's origination – facts that would be relevant to a challenge to the validity of an underlying debt or the terms of a loan agreement," letters related only to a loan's validity or terms are not qualified written requests that require a servicer to respond.
Turning specifically to Borrowers' letters in this case, the Ninth Circuit concluded that their content merely challenged the terms of the loan and mortgage documents. As such, the Court ruled, the letters did not relate to the servicing of the loan. As the Court explained, although RESPA does not require "magic words," because the letters alleged fraud or mistake associated with the original loan agreement, and requested a loan modification to reflect the "original terms" of the agreement, they were not qualified written requests that related to the servicing of the loan.
Accordingly, because Borrowers' letters did not relate to servicing, the Ninth Circuit ruled that the letters, while written requests generally, were not the sort of "qualified written requests" that triggered Servicer's duty to respond under Section 2605(e).
Ralph T. Wutscher
McGinnis Wutscher LLP
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