QUESTION
We are a servicer in thirty-five states. As the company’s Chief Compliance Officer, I was notified about a concern found during a regulatory audit. The examiners took the position that we must respond to QWRs for a year after a loan has been discharged. This is contrary to my understanding. Our legal counsel sides with the regulators. So I want a second opinion.
It makes no sense to me that a QWR should outlast the discharge of the loan. And I certainly do not think the QWR should survive past a foreclosure sale! I hope you can help provide some understanding.
Must a servicer respond to a QWR after a foreclosure?
ANSWER
I’ve lost track of the cases litigated over issues involving the Qualified Written Request (“QWR”). There are multivolume treatises that could be written on this subject! But QWR is not as complicated as it seems – unless, of course, you are a litigator.
Let’s start with a working definition of a QWR, using RESPA as our guide:
“[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.”
The QWR provisions of Regulation X implement RESPA § 6 requirements by addressing Requests for Information (RFIs) and Notices of Error (NOE).
You are claiming that a servicer’s duties under RESPA cease after foreclosure. That is not so.
In fact, speaking of litigation, a servicer made your argument not long ago and lost in court.[i] Let me explain.
The servicer, Clear Recon Corp, took the position that its obligation to respond to a QWR ended with a foreclosure sale. In 2001, the Kellys obtained a home loan. Between 2016 and 2018, they fell behind on their loan payments, and the lender accelerated the loan. On August 22, 2018, the beneficiary of their deed of trust appointed Clear Recon as the successor trustee. On that same day, Clear Recon recorded a Notice of Default, which stated that a foreclosure sale by public auction would occur on November 28, 2018.
About November 19, 2018, one of the Kellys filed for bankruptcy, which stayed the foreclosure proceedings. After the bankruptcy proceedings were dismissed, Clear Recon conducted a foreclosure auction without notifying the Kellys of the time and place for the rescheduled sale. The Kellys remained unaware of the sale until Alaska Legal Services Corporation informed them of the sale.
Following the sale, Clear Recon assigned the property to Fannie Mae, which scheduled a second sale of the property for April 8-10, 2019. On March 15, 2019, the Kellys requested information from the lender pursuant to RESPA. The lender did not respond.
The Kellys sued, including a QWR claim. The servicer filed a motion to dismiss the QWR claim, arguing that it had no obligation to respond to the QWR because that obligation had ended with the foreclosure sale and no servicing relationship remained after the sale.
According to the court, the foreclosure sale did not absolve the servicer from its duty to respond to the QWR. Once a loan is extinguished through a foreclosure sale, the lender is not freed of its obligations under RESPA. Regulation X contemplates borrowers requesting information from loan servicers up to one year after a loan is discharged, a position inconsistent with the servicer’s contention that its duties ceased after the foreclosure sale.
Let me provide some background. When the CFPB adopted the current version of Requests for Information[ii], it stated:
“The Bureau believes it would be impractical to require a servicer to resolve errors and provide information at a time when [RESPA] no longer requires the servicer to retain the relevant records.
Conversely, the Bureau believes the servicer should be responsible to correct those records during the period when [RESPA] does require a servicer to retain records, if necessary, and provide borrowers information from the records.
Further, the Bureau believes the use of the term ‘discharged’ is appropriate, especially given that the term is already used in the timing of the record-retention requirement.
For purposes of the Bureau’s mortgage servicing rules, as opposed to bankruptcy purposes, a mortgage loan is discharged when both the debt and all corresponding liens have been extinguished or released, as applicable.”[iii]
So, what is an untimely RFI? The statute is explicit:
Untimely information request. The information request is delivered to a servicer more than one year after:
(A) Servicing for the mortgage loan that is the subject of the information request was transferred from the servicer receiving the request for information to a transferee servicer; or
(B) The mortgage loan is discharged.[iv] [Emphasized]
Thus, according to the court, the Bureau clearly holds that servicers are obligated to respond to QWRs up to one year after a loan is discharged. The CFPB’s interpretation of the term “discharged” is distinguishable from the term’s use in the bankruptcy context. The court found that while the CFPB’s interpretation of its own regulation is not dispositive, the Bureau’s position was persuasive and consistent with the plain text of the statute, the statute’s implementing regulations, and Congress’s intent.
In conclusion, the court rejected the servicer’s contention that the complaint should be dismissed because the Kellys did not sufficiently allege actual damages. The court found that the Kellys adequately pleaded damages in expenses such as “the costs of copying documents, travel expenses to and from their attorney’s office, [and] postage fees” that would arise from the servicer’s failure to respond to the QWR.
The court did not find plausible the Kellys’ claim for “emotional and psychological damages,” without further elaboration. Although the Kellys mentioned circumstances in the years preceding their submission of the QWR, including family health challenges, falling behind on their payments, being victims of a scam organization, filing for bankruptcy, and having their home foreclosed upon, they did not explain how the servicer’s failure to respond to the QWR had caused discrete damages in the form of emotional and psychological distress after the alleged RESPA violation.
Chairman & Managing Director
[i] Kelly v.
Clear Recon Corp., 2021 U.S. Dist. (D. Alaska Aug. 13, 2021).
[ii] 12 CFR § 1024.36(f)(1)(v)(B), Requests for Information
[iii] See 78 Fed.
Reg. 60382, 60392 (Oct. 1, 2013)
[iv] Op. cit. ii
