The U.S. Court of Appeals for the Fourth Circuit recently reversed a trial court's dismissal of one named plaintiff's claims against a loan servicer in a putative class action, but affirmed the dismissal of the other named plaintiff's claims.
In so ruling, the Fourth Circuit held that, where written correspondence to a loan servicer provides sufficient information to identify the account and an alleged servicing error, such correspondence is a qualified written request" (QWR) under the federal Real Estate Settlement Procedures Act (RESPA). However, if the letter merely challenges a contractual issue, it does not implicate a servicing issue and is not a QWR.
A copy of the opinion is available at: Link to Opinion
One consumer's credit reports reflected purported overdue home loan payments. The consumer sent a letter to his loan servicer stating that the wrong amount was being reported to credit agencies, but the servicer continued to report the adverse loan information.
When a second consumer fell behind on her mortgage payments, the same loan servicer reported this to credit agencies. While seeking a loan modification, the second consumer sent a letter to the loan servicer, challenging the existence of "title issues" and requesting "a reasonable investigation," correction of the "errors," and "an accounting of all sums you have imposed." The parties ultimately finalized a loan modification, but in the interim, the loan servicer continued reporting adverse information.
The first and second consumers filed claims against the loan servicer, both individually and on behalf of a putative class of "all residential loan borrowers" who submitted qualified written requests ("QWR") under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. 2601 and the Consumer Financial Protection Bureau's ("CFPB") Regulation X to the loan servicer in the preceding three years.
The loan servicer in turn filed a motion to dismiss the consumers' claims, arguing that the letters were not QWRs because the first letter did not dispute a specific payment, which the servicer claimed is required under RESPA, and the second letter only disputed a potential loan modification, which the servicer claimed is not protected under RESPA.
The trial court agreed with the loan servicer and granted the motion, dismissing the consumers' individual and class claims. The consumers appealed.
As you may recall, RESPA provides that loan servicers have a duty to respond to any QWR received from borrowers "for information relating to the servicing of the loan." 12 U.S.C. § 2605(e). Further, when a loan servicer receives a QWR, that servicer has a duty to refrain from "provid[ing] information regarding any overdue payment, owed by such borrower and relating to such period [of sixty days from the servicer's receipt of a QWR] or [QWR], to any consumer reporting agency." Id.
Moreover, the CFPB has enforcement authority for RESPA and issued Regulation X to interpret and implement RESPA. Regulation X provides guidance with regard to QWRs that assert an error, as well as guidance with regard to what constitutes "servicing."
On appeal, the Fourth Circuit first held that the trial court erred by concluding that the first letter was not a QWR, and did not trigger RESPA's prohibition on credit reporting, because it did not dispute specific payments. Instead, the Court noted that RESPA does not limit the reporting of overdue payments to disputes of specifically identified payments, but includes any "qualified written request relating to a dispute regarding the borrower's payments." 12 U.S.C. § 2605(e)(3).
Thus, the Fourth Circuit concluded that the first letter was a QWR subject to RESPA, as it was "a written correspondence" that articulated a "statement of reasons" in "sufficient detail" to indicate to the loan servicer why the first consumer believed the credit reporting was in error. Id. § 2605(e)(1)(B); see also Poindexter v. Mercedes-Benz Credit Corp., 792 F.3d 406, 413 (4th Cir. 2015).
Specifically, the first letter included the name, account number, and other information that would "enable the servicer to identify" the account, and it included "reasons for the belief of the borrower, to the extent applicable, that the account is in error." 12 U.S.C. § 2605(e)(1)(B).
For the same reason, the Fourth Circuit also held that the trial court erred in concluding that the first letter was not a QWR for a "lack of specificity."
However, the Fourth Circuit determined that the trial court properly dismissed the second consumer's claims because the second letter merely contested the loan servicer's denial of the second consumer's loan modification. The key question was whether "servicing" for the purpose of RESPA includes disputes about potential loan modifications.
The Fourth Circuit had not directly addressed this question before, and therefore the Court cited two Ninth Circuit decisions for guidance. In Medrano v. Flagstar Bank, FSB, 704 F.3d 661 (9th Cir. 2012), the Ninth Circuit concluded that RESPA "distinguishes between letters that relate to borrowers' disputes regarding servicing, on the one hand, and those regarding the borrower's contractual relationship with the lender, on the other." 704 F.3d at 667. Consequently, the Ninth Circuit held that "challenges to the terms of the loan and mortgage documents" are not disputes regarding servicing under RESPA. Id.
Similarly, in Poindexter v. Mercedes-Benz Credit Corp., the Ninth Circuit emphasized that "servicing" is limited to "the receiving or making of loan payments" and is not related to "the terms of the loan and mortgage documents." 792 F.3d at 413 (citing 12 U.S.C. § 2605(i)(3)). Thus, correspondence limited to the dispute of contractual issues that do not relate to the servicing of the loan, such as loan modification applications, do not qualify as QWRs. Id.
Therefore, the Fourth Circuit here held that a loan modification is a contractual issue, not a servicing matter. Because the second letter did not relate to any dispute of the second consumer's payments, or assert an error related to the servicing of the loan, it did not fall within the ambit of "servicing" so as to trigger RESPA's protections against providing adverse information to credit reporting agencies. Rather, the second letter merely challenged the denial of a loan modification.
Accordingly, the Fourth Circuit held that the trial court erred in granting the loan servicer's motion to dismiss the first consumer's claims, and it reversed and remanded for further proceedings. However, the Court affirmed the trial court's grant of the loan servicer's motion to dismiss the second consumer's claims.
Ralph T. Wutscher
Maurice Wutscher LLP
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