Identifying a Qualified Written Request

QUESTION 

We are a medium-sized servicer with a servicing portfolio in almost all jurisdictions in the United States. I am an attorney who heads the team evaluating Qualified Written Requests (QWR). We recognize there are specific elements to a QWR. However, sometimes, it feels like a judgment call to determine what is or is not a QWR. 

I often find myself taking deep dives into RESPA’s Regulation X and case law to interpret whether a letter from a borrower constitutes a QWR or a complaint, each with obviously different – though sometimes overlapping – resolution criteria and statutory obligations. There are many instances where the letter is both a QWR and a complaint. 

My focus is on determining whether we have received a bona fide QWR. I was wondering if you could provide some guidance in navigating this legal jungle and provide a case that shows how a court has offered a way to identify a QWR. 

What constitutes the requirements for a Qualified Written Request? 

Is there a case with some guidelines for identifying a Qualified Written Request? 

COMPLIANCE SOLUTION 

Policies and Procedures 

ANSWER 

You have asked a question that involves one of the more litigious areas of servicing compliance. The Qualified Written Request (QWR) provisions of RESPA continue to produce an abundance of litigation. 

Generally, the court decisions typically use the more general statutory term QWR as they consider borrower claims regarding Notices of Error (NOEs) and Requests for Information (RFIs), the specific types of QWRs described in Regulation X[i].

Before proceeding with a possible case for you to consider, allow me to put down some foundation. 

RESPA[ii] specifies that 

“[d]uring the 60-day period beginning on the date of the servicer’s receipt from any borrower of a qualified written request relating to a dispute regarding the borrower’s payments, a servicer may not provide information regarding any overdue payment, owed by such borrower and relating to such period or qualified written request, to any credit reporting agency.” 

Similarly, Regulation X[iii] provides that, after receiving an NOE, a servicer may not, for 60 days, furnish adverse information to any consumer reporting agency regarding any payment that is the subject of the notice of error. 

This does not limit or restrict a servicer or lender from pursuing any remedy under applicable law, including initiating foreclosure or proceeding with a foreclosure sale, except for the Regulation X restrictions regarding assertions of errors relating to: 

(a) a first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process in violation of Regulation X[iv]; or 

(b) a motion for foreclosure judgment or order of sale or conducting a foreclosure in violation of Regulation X[v]. 

Now, let's move on to a case that may be responsive to your inquiry. 

On remand from a decision of the U.S. Court of Appeals for the 4th Circuit, a federal district court in Maryland recently considered whether a borrower inquiry was a QWR and, if it were, then whether the servicer had violated the restriction on furnishing adverse information to a consumer credit reporting agency. The case is Morgan v. Caliber Home Loans, Inc.[vi] 

Here’s my outline. 

·       In 1998, Morgan borrowed from Nations Bank to refinance his home mortgage loan. Morgan modified the mortgage loan once to change the date of his monthly payment. 

·       In November 2014, after the loan matured, servicing was transferred from Bank of America to Caliber. At the time of the transfer, the loan documents showed an outstanding balance due on the loan. Morgan repeatedly contacted Caliber about the purported outstanding loan balance. 

·       Morgan learned through an employer-generated credit check that his credit report reflected a $16,806 arrearage on the loan. The employer told Morgan he needed to correct the adverse credit reports or he would lose opportunities for job promotions. 

·       Over the next year, Morgan continued receiving notices regarding the outstanding balance. 

·       On September 20, 2016, Morgan called Caliber to inquire about the notices because he believed the loan had been paid off. He learned during that call that the balance had increased to $30,656.89. 

·       On September 25, 2016, he sent Caliber a letter stating: 

o   “I called Caliber and talked to [an employee]…he stated I owe $36,656.89…Can you please correct your records. Your office’s reporting this wrong amount to this credit agency is effecting [sic] my employment. Please correct your records.” 

·       Caliber received the letter and responded in writing the next day. 

·       In its October 4, 2016 letter, Caliber acknowledged receipt and stated it would “perform the necessary research and respond within the time period required by law.” 

·       Two days later, Caliber determined that the previously reported loan balance was incorrect. It recalculated the balance as $8,823. 

o   That same day, Caliber reported the new balance information to the credit reporting agencies using an Automated Universal Data form (AUD). 

·       Caliber also suspended its monthly report to the credit reporting agencies regarding the loan from October 6, 2016 through March 2017.

·       On October 11, 2016, Caliber informed Morgan that the credit report was “inaccurately reporting the amount past due.” 

o   The letter vaguely referred to Caliber having corrected the inaccuracy. Still, it did not explain what was inaccurate and how that error was corrected, and it did not share with Morgan that, in Caliber’s view, he still owed $8,823 on the loan.

o   The letter added that it might take up to four weeks before the “correct information” would appear in his credit report. 

·       Morgan continued to dispute that he owed anything and sent letters to the credit reporting agencies. According to Morgan, the notice from his employer regarding his poor credit and the dispute regarding the outstanding balance caused him emotional distress. 

·       On September 23, 2019, he sued Caliber for violating RESPA and Regulation X. 

The district court dismissed Morgan’s claim, holding that his September 25, 2016 letter did not meet RESPA’s requirements for a QWR. However, the U.S. Court of Appeals for the 4th Circuit reversed, finding that the letter was a QWR. 

On remand, Morgan moved for partial summary judgment as to liability only, and Caliber filed a cross motion for summary judgment as to liability and damages. 

The district court granted Morgan’s motion as to two of the three elements of the RESPA claim (QWR, and failure to refrain from credit reporting, but not as to damages). It granted Caliber’s motion as to the unavailability of statutory damages. 

Now, I want to break the foregoing decision into its three elements: QWR, Failure to Refrain, and Actual Damages. Thereafter, I will provide a few words about statutory damages. 

QWR 

First, the court concluded, as required by the 4th Circuit, that the letter was a QWR because it was “a written correspondence” that articulated a “statement of reasons” in “sufficient detail” to indicate to Caliber why Morgan believed the credit reporting was in error. The court granted summary judgment to Morgan on this element. 

Failure to Refrain 

Second, the parties did not dispute that within 3 days of receiving the QWR, Caliber submitted an AUD informing the credit reporting agencies that Morgan had $8,823 outstanding, and that this qualified as reporting an “overdue payment.” Accordingly, Caliber indisputably failed to refrain from reporting “any overdue payment” for 60 days after having received the QWR. The court also granted summary judgment to Morgan on this element. 

Actual Damages 

Third, the court determined that Morgan had produced sufficient evidence from which a reasonable juror could conclude that he suffered emotional distress as a result of the AUD Caliber sent to the credit reporting agencies. 

The mother of Morgan’s children had observed that Morgan was “worried and anxious,” which was “unlike Morgan.” When she asked what was troubling him, he would “almost always turn to Caliber.” His daughter recalled that while living with Morgan during this time, he was “anxious about Caliber hurting his financial status,” Morgan “regularly paced around,” he was “short tempered,” and could not eat. Morgan also sought medical assistance for his anxiety and depression. 

From this testimony, a juror could reasonably conclude that he suffered emotional distress due to Caliber’s failure to refrain from reporting adverse information in the AUD. This left a facial issue as to whether Caliber’s RESPA violation proximately caused Morgan’s emotional distress. Accordingly, the court denied summary judgment for Caliber as to actual damages. 

Statutory Damages 

Morgan also sought statutory damages, which RESPA allows when a servicer engages in a “pattern or practice of noncompliance” with RESPA. 

Morgan argued that Caliber’s single AUD constituted a pattern or practice because Caliber had forwarded it to three credit reporting agencies and violated multiple RESPA provisions. 

Not so, said the court, because Caliber submitted only one AUD on one occasion. If this alone were sufficient to establish a pattern or practice, then the pattern or practice requirement sufficient to trigger statutory damages would apply in almost every case. The court granted summary judgment to Caliber regarding statutory damages. 

I will conclude with an observation. 

The court noted that Morgan might wish to pursue an alternative argument that Caliber violated Regulation X[vii], which requires a servicer to respond to an NOE by either correcting the error and providing written notification of the correction, or conducting a reasonable investigation and providing a written notice that no error occurred. Thus, a legitimate argument could be made that Caliber did not satisfy the notification requirement, that is, it did not describe the error, how it was corrected, or the effective date of the correction. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] Regulation X §§ 1024.35 (NOEs) and 1024.36 (RFIs), as amended by the 2013 Mortgage Lending Rules.

[ii] See RESPA § 6

[iii] § 1024.35

[iv] § 1024.41(f) or (g)

[v] §1024.41(g) or (j)

[vi] Morgan v. Caliber Home Loans, Inc., 2024 U.S. Dist. (D. Md. Feb. 22, 2024)

[vii] § 1024.35(e)(1)(i)(B)

Customer Satisfaction and RESPA

QUESTION

We originate and service our loans. When we get a QWR, our team determines how to handle the response. 

Recently, we received a QWR from a borrower’s attorney that is causing concern. He claimed that we had confused the borrower in the way we responded. He said our service was “lousy” and felt we had no commitment to “customer satisfaction.” 

This attorney letter is being treated as a complaint, and we sent it to our legal department. When we looked at the notes on the loan file, it appears we were courteous, timely, and reasonable. Sometimes, it seems you just can’t win! 

However, we want to know how something done right can be construed as done wrong. 

How important is customer satisfaction in response to a QWR? 

ANSWER

If you monitor servicing processes regularly for appropriate compliance and update them as needed, there will still be such wayward claims from time to time. Customer satisfaction is subjective, but it presents certain evaluative metrics. Perhaps a way to view it is how happy a consumer is with products and services. Determining this likely requires surveys and encouraging customer feedback. 

But when you get a complaint, treat it with considerable care. It can fester into all manner of annoying legal and regulatory issues if left unattended. That said, no provision in RESPA requires you to guarantee customer satisfaction! 

RESPA and Regulation X require mortgage loan servicers to respond to a mortgage borrower's Request for Information (RFI) and Notice of Error (NOE). This rule results from the Dodd-Frank Act’s expansion of the scope of RESPA’s complaint handling requirements beyond the previously existing Qualified Written Request (QWR) requirements. 

RESPA defines a QWR to mean 

“… 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 produces sufficient detail to the servicer regarding other information sought by the borrower.” 

In my estimation, the QWR requirements have probably become the most litigated topic in mortgage lending cases filed in the federal courts, with at least 50 reported court decisions in the first 8 months of 2022 and more than 3,600 decisions since 1994. In many cases, the servicer failed to respond in a timely or responsive manner; however, sometimes, the servicer appears to have done almost everything correctly – or, to paraphrase you, they did right but were construed to do wrong. 

But claiming lousy customer satisfaction is not a great winning argument. Take the case of Rakestraw v. Nationstar Mortgage, a U.S. Court of Appeals decision for the 11^th Circuit.[i] Rakestraw sent Nationstar Mortgage an RFI requesting a complete payment history, a certified copy of the original note, and a signed affidavit from someone in the company stating that the note was an original, not a scanned copy. 

Two days later, Nationstar responded with a copy of transaction histories and a copy of the note and security instrument. The response also included a statement that Nationstar could not provide a certified copy of the note and signed affidavit until the loan was paid in full. But it informed Rakestraw of the location of the originals, and gave a name and contact information for more assistance. 

Five months passed, and Rakestraw sent another RFI asking for a complete payment history. Four days later, Nationstar responded with a copy of an updated transaction history for the period during which it serviced the loan, along with the transaction history from the previous servicer. The response indicated that some of the transaction history from a previous servicer, which had been provided in response to the first RFI, was difficult to read and suggested Rakestraw directly contact that servicer if she wanted a different version. Nationstar also explained that it could not attest to how funds had been disbursed from escrow by prior servicers. 

Rakestraw then sent a third RFI, again seeking a complete transaction history, a certified copy of the original note, and an affidavit attesting to the note’s authenticity. Nationstar responded six days later. 

In that same month, Rakestraw sent yet another RFI seeking a complete breakdown and stating that Nationstar had not yet provided detailed accounting information for the loan. Nationstar responded two days later, providing account histories for the entire life of the loan, a code sheet for the servicer’s own transaction history, contact information, and its response to the previous RFI. 

Rakestraw sued Nationstar, alleging that it had violated RESPA by “refus[ing] to provide [a] complete and comprehensible account history … and the explanation … of charges and credits” that she had requested in four separate RFIs. 

The district court granted summary judgment for Nationstar, finding that its responses had complied with RESPA and that it had “performed a ‘reasonable search’ as required by RESPA” in connection with the borrower’s RFIs relating to a previous servicer. 

The court also found that Rakestraw had failed to show: 

(1) a material issue as to whether the responses complied with RESPA; 

(2) whether Nationstar had conducted a reasonable search regarding records of a prior servicer; 

(3) whether Rakestraw had incurred actual damages; and 

(4) whether Nationstar’s conduct entitled Rakestraw to statutory damages. 

The 11th Circuit affirmed. 

The undisputed evidence showed that the responses to the RFIs were not “incomprehensible” for two reasons: 

(1) To the extent Rakestraw was struggling to understand the account histories, she kept it to herself until submitting the fourth RFI, at which point Nationstar provided a code sheet, which included the information she requested; and 

(2) Rakestraw pointed to nothing in the record showing that the transaction histories actually were “incomprehensible.” According to the court, “[b]orrower satisfaction is not the standard by which we measure a servicer’s response to a request for information, and [the borrower’s] confusion does not equate to a RESPA violation.” 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] Rakestraw v. Nationstar Mortgage, LLC, 2022 U.S. App., 11th Cir. Mar. 4, 2022

Duration of a Qualified Written Request

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.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[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

"Catch-All" Provision in RESPA

QUESTION

We are a servicer licensed in all states. As the company’s Associate General Counsel, I am tasked with monitoring the legal implementation of federal and state laws pertaining to mortgage servicing. 

One of my concerns is the “catch-all” provision in Regulation X because it appears to offer borrowers a means to allege that we may implement proper error resolution procedures but still be held liable for violations of RESPA. 

Recently, a borrower has retained counsel, and the “catch-all” provision was cited in the counsel’s letter to us. I don’t want to get into litigation with the borrower. 

Is there some guidance you can provide about the “catch-all” provision that will help me decide how to resolve this matter quickly? 

ANSWER

Your question did not contain specific information about the loan or the particular procedures you follow for error resolution. So, I will provide generalized guidance and use actual litigation to demonstrate the legal effect of the “catch-all” provision in RESPA. 

The Real Estate Settlement Procedures Act (RESPA) includes error resolution procedures for mortgage loans. RESPA establishes “qualified written requests” or QWRs as part of its error resolution standards. Regulation X, RESPA’s implementing regulation, breaks QWRs into two categories: Notices of Error (NOEs) and Requests for Information (RFIs).[i] 

Let’s list what an error is and what it is not. 

Regulation X defines the term “error” by including a list of qualifying instances: 

•          Failure to accept a payment that conforms to the servicer’s written requirements for the borrower to follow in making payments. 

•          Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law. 

•          Failure to credit a payment to a borrower’s mortgage loan account as of the date of receipt. 

•          Failure to pay taxes, insurance premiums, or other charges, including charges the borrower and servicer have voluntarily agreed that the servicer should collect and pay in a timely manner, or to timely refund an escrow account balance. 

•          Imposition of a fee or charge that the servicer lacks a reasonable basis to impose, such as a late fee for a payment that is not late, a default property management fee for borrowers not in a delinquency status, or a charge for force-placed insurance in a circumstance not permitted by Regulation X. 

•          Failure to provide an accurate payoff balance amount upon a borrower’s request. 

•          Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure. 

•          Failure to transfer accurate and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer. 

•          Making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process in violation of Regulation X. 

•          Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of Regulation X. 

•          Any other error relating to the servicing of a borrower’s mortgage loan (sometimes referred to as the “catch-all” provision). (Note my emphases in bold and italics.) 

Regulation X offers several examples that are not “errors” subject to the NOE procedures: 

•          An error relating to the origination of a mortgage loan. 

•          An error relating to the underwriting of a mortgage loan. 

•          An error relating to a subsequent sale or securitization of a mortgage loan. 

•          An error relating to a determination to sell, assign, or transfer the servicing of a mortgage loan, not including an error relating to the failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer. 

To illustrate how the catch-all qualifying instance of an error is applied in litigation, consider the case of Naimoli v. Ocwen Loan Servicing, LLC.[ii] It is a recent decision by the U.S. Court of Appeals for the 2nd Circuit. 

Here’s what happened. 

1.       Naimoli obtained a mortgage loan from IndyMac Bank to finance the purchase of her home. She then defaulted on her mortgage payments. To avoid foreclosure, she requested a Home Affordable Modification Program (HAMP) loan modification from her servicer, Ocwen Loan Servicing. 

2.       Ocwen approved her for a trial period mortgage loan modification plan, stating 

“if you successfully complete the TPP [trial period plan] by making the required payments, you will receive a modification with an interest rate of 3.50000%, which will be fixed for 40 years from the date the modification is effective.” 

The plan indicated that if Naimoli timely submitted her three payments, Ocwen would issue a permanent modification agreement for her to sign. 

3.       During the trial period, Ocwen told Naimoli that it could not implement the permanent modification agreement until she re-executed the mortgage and note that IndyMac (her lender) had failed to record and apparently lost.

Mortgage Contract Ambiguity

QUESTION

I am the General Counsel of a mortgage lender with a large regional presence. We rely primarily on Fannie’s and Freddie’s uniform documentation, whether we hold loans or sell them to the GSEs. I am hearing that some lenders are actually questioning the reliability of that documentation. I have not been able to find out much as to what is going on. But I would like to know more. Can we still depend on the reliability of GSE documentation?

ANSWER

In my estimation, you may be picking up some vibes from a recent case that claimed there is ambiguity in the GSEs’ mortgage contract with respect to the payment of taxes. Many, if not most, mortgage lenders often use uniform documentation drafted by the Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corporation (Freddie). They use such documentation even if they do not currently plan to sell their loans to Fannie or Freddie. The predicate is that it’s fair to assume the uniform agreements have borne the test of time and many critical eyes - as well as survived many a litigation challenge.

Yet questions do arise, from time to time, and I think a case in the U.S. Court of Appeals for the 5^th Circuit may be at the core of your concern, since the Court recently found ambiguities in the language of a uniform deed of trust. Although the document was a Texas document, the paragraphs at issue appear in uniform documents for other states. The case I cite is Wease v. Ocwen Loan Servicing. [Wease v. Ocwen Loan Servicing, 2019 U.S. App. 5th Cir. Feb. 13, 2019]

Here’s a brief overview. I’ll the end with my observation.

Wease executed a home equity note secured by a deed of trust. An addendum to the deed of trust, the Escrow Waiver Agreement, provided that the lender would “elect[] not to collect monthly escrow deposits to pay real estate taxes subject to the condition that “[a]ll real estate taxes are paid when due, and evidence is furnished to Lender at that time.”

The agreement warned the following:

“In the event Borrower fails to comply with [the] above condition[], Lender has the right and Borrower agrees to pay sufficient funds to establish a fully funded escrow account and to have the monthly payment adjusted to include a monthly escrow deposit. This action is an election not to collect escrows at this time and should not be deemed a waiver of Lender’s right to do so at some future date.”

Section 9 of the deed of trust provided that Wease’s “fail[ure] to perform the covenants and agreements contained in” the deed of trust permitted the lender to “do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument.” 

Section 3 of the deed of trust provided: “If Borrower is obligated to pay Escrow Items directly, pursuant to a waiver, and Borrower fails to pay the amount due for an Escrow Item, Lender may exercise its rights under Section 9 and pay such amount….”

Keep the foregoing sections in mind, as we proceed.

In April 2010, Ocwen, the loan servicer, sent Wease a letter advising him that an examination of past due property taxes had revealed that Wease was delinquent on his taxes for 2009. The letter asked Wease to pay the taxes within 30 days of the letter or to forward proof of payment.

Wease did not pay the 2009 taxes until June 30, 2010.

On December 16, 2010, without prior notice, Ocwen paid Wease’s 2010 property taxes.

Notice of Errors

QUESTION

We dealt with a complaint by a borrower who had sent a notice of error to the wrong address at our company. Our disclosures are clear about which address to send these letters to; however, this borrower was miffed that he could not be sure, so he sent it to a general mailbox. When we didn’t respond, he escalated the complaint to our regulator. Why should we be responsible if a borrower can’t read plain English and mistakenly sends his letter to the wrong company address?

ANSWER

The Real Estate Settlement Procedures Act, like the Truth-in-Lending Act, offers mortgage loan servicers the opportunity to designate an address to which requests for information (RFIs) or notices of error (NOEs) (some of which are considered “qualified written requests” or QWRs under the RESPA statute) must be sent.

The idea that a financial institution should treat borrower NOEs according to a borrower’s level of sophistication has not fared well in the courts. For example, the U.S. Court of Appeals for the 2nd Circuit rejected the idea. It found that the borrower in a similar situation had adequate notice of the loan servicer’s designated address for the receipt of QWRs and that the servicer’s statutory duty to respond to the borrower’s letter was never triggered.

Crucially, the 2nd Circuit refused to consider another argument raised by the borrower because he hadn’t pursued it until his appeal – that a mortgage servicer must establish a separate physical office for responding to QWRs. [Regulation X § 1024.35(c) and Comments 35(c)-2 and -3. Mack v. ResCap Borrower Claims Trust, 678 Fed. Appx. 10 (2nd Cir. 2017)]

In another case, the 11th Circuit dismissed the same argument and held that the servicer’s use of the same address for additional purposes was irrelevant to RESPA liability. The 11th Circuit noted that the servicer had subjected itself to the administrative burden of evaluating and prioritizing a larger quantity of mail to identify QWRs (or NOEs or RFIs), perhaps to minimize customer confusion, and that to penalize it for doing so would be perverse. [Bivens v. Bank of America, 868 F.3d 915 (11th Cir. Aug. 17, 2017)]

Jonathan Foxx

Managing Director

Lenders Compliance Group