The U.S. Court of Appeals for the Second Circuit recently held that a borrower’s improperly addressed requests for information failed to trigger a mortgage servicer’s duties under the federal Real Estate Settlement Procedures Act (“RESPA”) and N.Y. General Business Law § 349.
The Court also held that the servicer’s direct communication to the borrower who was represented by an attorney did not violate the federal Fair Debt Collection Practices Act (“FDCPA”), as the borrower failed to plausibly allege that the servicer started servicing the loan after it was already in default.
A copy of the opinion is available at: http://www.ca2.uscourts.gov/decisions/isysquery/911abdbf-149e-4ae4-bc7a-7c192cbd4c8b/1/doc/13-3839_opn.pdf
Since September 2008, the plaintiff borrower (“Borrower”) has been in default and made no payments on her second residential mortgage serviced by Defendant Loan Servicer (“Servicer”). In April 2011, Borrower’s lawyer sent two letters to Servicer requesting information under the federal Real Estate Settlement Procedures Act (“RESPA”). Servicer acknowledged the “numerous questions about the origination and/or servicing of [the] mortgage loan,” but noted that “it appears [Borrower’s] immediate concern is obtaining financial assistance.”
An identical follow-up request was sent from Borrower’s counsel to Servicer, which also alleged that the Servicer had not complied with RESPA. The three letters to Servicer were sent to addresses in O'Fallon, Missouri, and Des Moines, Iowa, rather than Servicer’s designated address for borrowers’ “qualified written requests” (“QWR”) in Gaithersburg, MD.
Servicer subsequently sent three letters directly to Borrower providing: (1) a financial information form to determine her eligibility for loan modification programs; (2) a response to a complaint Borrower filed with the N.Y. Department of Financial Services, stating that her allegations of improper servicing of her loan were “unsubstantiated” but Servicer would research and respond to any specific servicing questions; and, (3) a notice that Borrower’s loan was 1322 days in default and that Servicer might commence legal action if the matter was not resolved within ninety days.
Borrower filed suit against Servicer alleging that Servicer violated RESPA, FDCPA, and N.Y. GBL § 349. The district court dismissed Roth's complaint for failure to state a claim. The borrower appealed.
As you may recall, RESPA's implementing regulations allow (but do not require) servicers to establish a designated address for QWRs, such that if a servicer establishes a designated address for QWRs, “then the borrower must deliver its request to that office in order for the inquiry to be a ‘qualified written request.’”
Borrower did not dispute that each of her mortgage statements from Servicer designated a QWR address, or that her lawyer failed to use these addresses. Borrower instead argued that Servicer’s QWR address failed to comply with the obligations of Regulation X in three ways: (1) Borrower argued that Servicer may not have had just one “separate and exclusive office and address for the receipt and handling” of QWRs as required by 24 C.F.R. § 3500.21(e)(1); (2) Borrower argued that the notice on the back of her mortgage statements was not “separately delivered,” and; (3) Borrower argued that notice of Servicer’s QWR address was insufficient because it was “buried in fine print.”
The Second Circuit rejected the Borrower’s arguments, affirming the lower court’s ruling that the improperly addressed letters were not valid QWR’s under RESPA, and therefore did not trigger Servicer’s RESPA obligations.
Borrower also alleged that Servicer’s direct correspondence to Borrower violated FDCPA provisions that prohibit a “debt collector” from “communicat[ing] with a consumer in connection with the collection of any debt if the debt collector knows the consumer is represented by an attorney.”
However, the amended complaint did not allege that Servicer acquired Borrower’s debt after it was in default, and therefore failed to plausibly allege that Servicer qualifies as a debt collector under FDCPA. Thus, the Second Circuit affirmed the dismissal of Borrower’s FDCPA allegations.
The final count of Borrower’s complaint alleged inadequate notice to Borrower of Servicer’s QWR address in supposed violation of N.Y. GBL § 349, which prohibits “[d]eceptive acts or practices in the conduct of any business.” The Second Circuit concluded that, for the same reasons that Borrower’s RESPA allegations fail, her allegations under New York law also fail.
The Court also held that the lower court properly rejected the Borrowers request for leave to amend, thus affirming the judgment of the lower court in all respects.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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