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)

Reasonable Investigation Standard under the FCRA

QUESTION 

I am the General Counsel for a servicer. You have written many times about RESPA’s requirement that mortgage loan servicers conduct reasonable investigations of QWRs. I don’t think there is a reliable definition of a reasonable investigation in RESPA, and I question whether there is one in the FCRA. 

To me, it seems to come down to an arbitrary and somewhat subjective understanding rather than a concrete, time-tested definition. I would like to be able to rely on something more legally applicable. 

My current concern involves credit repair agencies, about which you have written extensively. In particular, I want to know how a reasonable investigation is described procedurally in the Fair Credit Reporting Act with respect to credit repair agencies involved in potential violations. I am being specific because I am currently handling litigation relating to the FCRA and a credit reporting agency. 

I want to know if there is a reasonable investigative standard or set of requirements to follow that comply with the FCRA. 

What is the reasonable investigative standard that complies with the FCRA? 

ANSWER 

You might be interested in Radford v. LoanCare, LLC,[i] litigation alleging a violation of the Real Estate Settlement Procedures Act (RESPA). The case also examined whether LoanCare had complied with the Fair Credit Reporting Act (FCRA) with respect to the reasonable investigation requirement. 

First, let me set forth the requirements, so you have this information up front. 

The FCRA requires furnishers of information to provide accurate information to Credit Reporting Agencies (CRAs). It also requires them to investigate the accuracy of the information they provided if they receive notice of a dispute from a CRA. 

They must 

(1) conduct an investigation; 

(2) review all relevant information provided by the CRA; 

(3) report the results of the investigation to the CRA; 

(4) if the investigation finds that information is incomplete or inaccurate, report those results to all CRAs to which they provided information; and 

(5) if an item disputed by the consumer is found to be inaccurate or incomplete or cannot be verified after investigation, promptly modify that item, delete that item, or permanently block the reporting of that item. 

If the furnisher fails to comply with these requirements, a consumer may sue for actual damages caused by the failure, and seek punitive damages if the furnisher willfully fails to comply. 

Marcialene Radford claimed that LoanCare negligently and willfully violated the FCRA by failing to conduct a reasonable investigation into her credit disputes and verifying inaccurate information to the CRAs. LoanCare defended by arguing that it had investigated Radford’s payment history and determined the CRAs’ reports were accurate, and Radford did not show damages due to the alleged violation. 

Like RESPA, the FCRA does not define the level of investigation required. It simply requires the investigation to be reasonable. I realize you seem to believe the reasonable investigation standard is “arbitrary” and not “time-tested.” Here, the court concluded that the reasonableness of LoanCare’s investigation was genuinely disputed. 

At the time LoanCare received automated credit dispute verification (ACDV) requests from the CRAs, the loan notes on Radford’s account already reflected repeated disputes in the preceding months regarding her June and July payments, but LoanCare did not even claim that it had reviewed those complaints during its investigation. 

Here’s a takeaway: 

While a furnisher of information need investigate only what is contained in the CRA’s dispute notice as to the nature of the dispute, it must actually investigate. That is, it must conduct some degree of careful inquiry. 

In light of the information provided by Radford’s letter, a reasonable jury could conclude that the failure to examine Radford’s repeated disputes and communications fell short of this standard. 

As for damages, the court pointed out that because Radford had alleged both a negligent and a willful violation, she could recover statutory and punitive damages if she could prove a willful violation even if she did not suffer any actual damages. 

In any event, Radford provided evidence of actual damages by presenting some evidence of emotional distress and evidence that LoanCare’s failure to correct inaccurate information had caused her denial of credit. Specifically, her affidavit asserted that her attempts to co-sign her son’s applications for car loans in July and October 2022 were rejected after the car dealerships made credit inquiries with Equifax and Experian. This evidence was sufficient to present a genuine dispute of material fact regarding Radford’s actual damages. As a result, the court denied LoanCare’s motion for summary judgment. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] Radford v. LoanCare, LLC, 4:21 CV 1368 CDP (E.D. Mo. May. 2, 2023)

Collecting a Debt from a Susceptible Consumer

QUESTION 

Our compliance department received a complaint from a borrower about being harassed. She is overdue in her payments, her escrow is going negative, and we have tried to get her to respond to letters and calls. Our attorney is now involved in replying to her. 

But it is very frustrating when we try to contact the borrower in every way, and then she accuses us of harassment. The main threat she has is that we intimidated her and used threatening language. I doubt it. 

We have received debt collection training and know what we’re doing, what to say and what not to say. Nevertheless, this complaint happened! 

Maybe you can provide guidance by discussing the prohibitions against harassment to collect a debt. 

What are some prohibitions regarding harassment in debt collection? 

ANSWER 

Over the years, we have handled disputes like the one you describe. Indeed, generally, your situation is rather common, though each case is reflective of particular facts. 

Some of the abusive acts my firm has encountered in connection with collecting a debt are:

 

·  using threat or use of violence or other criminal means to harm a person;

·  using obscene or profane language;

·  advertising for a debt to coerce payment of a debt;

·  repeatedly contacting a debtor with an obvious intent to annoy, abuse, or harass  them; and,

·  placing calls without any meaningful disclosure of the caller’s identity. 

And, believe it or not, we’ve encountered an attempt to collect a debt by publishing a list of consumers who allegedly refuse to pay debts! 

Proverbs (22:7) says, “the borrower is servant to the lender.” But such harassing and abusive acts are morbidly extreme and straight-out violations of the Fair Debt Collection Practices Act (FDCPA).  

The FDCPA aims to protect consumers from harassment or abuse concerning debt collections.[i] There are five specific types of prohibited conduct that constitute harassment or abuse. I’ll list them below. 

Before listing them, I will note the following provision in the FDCPA: 

“… a debt collection may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”[ii]

[Emphasis added.] 

You might think this is subjective, but you would be wrong. The purpose of the provision, as stated by Congress in the Senate report regarding the consideration of the FDCPA, is to “enable the courts, where appropriate, to proscribe other improper conduct which is not specifically addressed.”[iii]

Thus, a debt collector may be liable even if its actions do not fall under the five prohibitions. If you want to wind up in court, be my guest. There’s a huge body of case law that will get you focused real quickly. 

Alternatively, seek competent, professional guidance to ascertain if your plans to collect a debt are potentially liable, especially if they seem to fall outside the five specific prohibitions. 

Here are the five examples of conduct – and note the word “examples,” meaning these are not meant to be exclusively comprehensive – that fall under the prohibition:[iv]

 

1.  Threatening to contact third parties;

2.  Communicating unnecessarily with third parties when the consumer can be reached directly;

3.  Using intimidating or insulting language;

4.  Repeated and frequent personal contact with the consumer; or

5.  Continuing to collect after multiple notices of bankruptcy discharge.

The terms “harass,” “oppress,” and “abuse” are not defined under FDCPA, and so are given their plain meaning. Note the phrase quoted above – “the natural consequence of which is to harass, oppress, or abuse” – uses all three terms. Therefore, a standard is used to determine the issue, and whether or not the consumer actually believes they are being harassed, oppressed, or abused is not relevant. 

The term for a standard that courts often use is the “susceptible consumer” standard. That standard is not “subjective” and can be applied objectively. Under the “susceptible consumer” standard, courts look to a consumer who is “relatively more susceptible to harassment, oppression, or abuse” based on their circumstances.[v] 

A final point: the FDCPA applies to the harassment or abuse of not only consumers but also “any person” in connection with debt collection. Thus, a debt collector may be liable for the natural consequences of its actions on family members, friends, or others. 

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director 

Lenders Compliance Group

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[i] 15 USC § 1692d

[ii] Idem

[iii] Senate Report # 382, 95^th Congress, First Session 4 at 4 (1977)

[iv] FTC Staff Commentary on FDCPA § 806

[v] Jeter v Credit Bureau, Inc., 760 F.2d 1168, 1179 (11^th Circuit 1985) 

Debt Collection: Contact with the Consumer

QUESTION

We need help with revising our debt collection procedures. A few weeks ago, our regulator notified us that our debt collection policies are "defective" in the area of communicating with the consumer. We were shocked because we had passed previous exams. 

The two problem areas cited by the regulator involved the requirements for contact with the consumer and when an attorney represents the consumer. 

We have been in touch with your firm to help us with this project. However, I hope you will let other companies know about these issues since I’m sure they always come across them. 

What are the general requirements for communicating with a consumer for debt collection? 

Also, what is the prohibition against communicating with a consumer if an attorney represents the consumer? 

ANSWER

I will provide an answer that is generally responsive to your question. Keep in mind that the requirements of the regulatory framework that is foundational to debt collection, the Fair Debt Collection Practices Act (FDCPA), are rather vast, and there are plenty of regulatory minefields. We're glad to help you with a comprehensive policy document that reflects your compliance needs; however, much also depends on an institution’s size, complexity, and risk profile. 

Under the FDCPA,[i] a debt collector must have the prior consent of the consumer, or the express permission of a court of competent jurisdiction, to communicate with the consumer in connection with the collection of any debt. 

Essentially, there are three communication prohibitions. The debt collector should not contact the consumer 

1. At any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer; 

2. Directly, if the debt collector knows the consumer is represented by an attorney concerning such debt and has knowledge of, or can readily ascertain such attorney’s name and address, unless

o   the attorney fails to respond within a reasonable period of time to a communication from the debt collector

o   or unless the attorney consents to direct communication with the consumer; or 

3. At the consumer’s place of employment, if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.[ii] 

I am often asked what constitutes an unusual or inconvenient time or place to contact the consumer. 

In the first place, without the required prior consent of the consumer or court authorization, a debt collector may not contact the consumer on any date, at any time, or in any place if the debt collector knows or should know that such time, date, or place is inconvenient. I hope I am making myself clear and unambiguous! Note, the term “consumer” includes the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or an administrator.[iii] 

Contact between 9:00PM and 8:00AM is presumed to be unusual and inconvenient.[iv] The Federal Trade Commission (FTC) has taken the position that contacts on Sunday are not presumptively unusual or inconvenient. But I advise you not to call a consumer on Sunday.[v] The courts and the FTC may view communications with certain types of employees at their places of employment as inherently inconvenient. Examples abound, such as contacting a nurse or doctor at a hospital or a waiter at the employing restaurant. 

So is there a rebuttal defense if the debt collector calls at an inconvenient time, date, or place? Not if the consumer has informed the debt collector, even casually or informally, that a particular time or place of contact is inconvenient. If the consumer informs the debt collector and the debt collector knows or should know that a time, date, or place is inconvenient, courts will generally find actual knowledge pertains. In fact, courts will often impose a burden of reasonable inquiry on the debt collector to determine what times or places are inconvenient. 

As to a debt collector learning – even indirectly or informally – that an attorney represents a consumer, the debt collector must contact only the attorney, not the consumer. The only exception that pertains here is obtaining the prior consent of the consumer or the attorney. 

But, there is no “should have known” language in the applicable statute. Consequently, it is more difficult to impute knowledge to the debt collector than under the FDCPA prohibition against contacting the consumer at an unusual or inconvenient time or place. Thus, if a debt collector knows that an attorney represents a consumer with respect to a debt, the debt collector is not required to assume similar representation with respect to other debts the consumer owes.[vi] A creditor’s knowledge of a consumer’s representation is not automatically imputed to the debt collector. 

Plenty of FDCPA cases wind up in court. Courts will vary in deciding what contacts are subject to restriction when a debt collector knows the consumer is represented by an attorney and what constitutes a valid nullification of the restriction.

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

Lenders Compliance Group

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[i] Fair Debt Collection Practices Act (FDCPA), 15 USC § 1692c(a)

[ii] Idem

[iii] 15 USC § 1692c(d)

[iv] 15 USC § 1692c(a)(1)

[v] FTC Staff Commentary on FDCPA, § 805(a)

[vi] FTC Staff Commentary on FDCPA, § 805(a)(3)

Right to Cancel or Right to Rescind

QUESTION 

We did not get a receipt for a Notice of Right to Cancel. We usually do, but we messed up in this case. 

The borrower wants to rescind the loan, even though we closed the loan well over a year ago, outside the rescission period. She is claiming that she didn't receive the Notice. But she also says the right to rescind is tantamount to the right to cancel. So, she should be able to cancel the loan. 

We have never had a borrower make such a claim. How could she think that rescinding a loan somehow means she can cancel it? It makes no sense. 

How is it that a borrower can mix up the right to rescind with the right to cancel? 

And, how important is it to get a receipt for the Notice of Right to Cancel? 

ANSWER 

Financial people may not realize that a consumer does not necessarily understand the meaning of specific mortgage banking words, or maybe they do, but the meaning is not what they expect it to mean. 

“But 'glory' doesn't mean 'a nice knock-down argument,'” Alice objected.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master – that’s all.”

Alice in Wonderland, Lewis Carroll 

Would you know what "rescind" means if you weren't a financial person? You might; then, again, you might not! Or, you might know what "cancel" usually means, such as voiding an arrangement, contract, or obligation of some kind, but you might not know what canceling has to do with rescinding – especially if you don't know what rescinding means. 

Unless specifically exempted by the Truth in Lending Act (TILA), for any credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, Regulation Z[i], TILA’s implementing regulation, gives each consumer residing in the subject dwelling whose ownership interest is (or will be) subject to the security interest the right to rescind the transaction. 

A case comes to mind that resembles some of your issues, although it concerns a trust. But, in this instance, that’s alright since credit extended to a trust established for tax or estate planning purposes is considered credit extended to a natural person.[ii] These trusts are considered consumers entitled to TILA disclosures and the right to rescind. 

The case is Alejandro v Freedom Mortgage Corp.[iii] It partially touches on your concerns in a way that helps to respond to your question. 

On January 22, 2021, Olivia Alejandro, individually, and Olivia Alejandro and Jonathan Alejandro, trustees of the Alejandro Family Revocable Living Trust, obtained a mortgage loan from Finance of America Mortgage to refinance a prior mortgage loan secured by their home. On March 26, 2021, the mortgage note was assigned to Freedom Mortgage Corp. (“FMC”). 

On March 8, 2022, the Alejandros filed a complaint, alleging violations of TILA and the FDCPA. They claimed they had not received notices of their right to rescind and all the required TILA disclosures. They also claimed FMC had harassed them by calling them "almost every day at our workplace" and at home, "sabotaged" their credit ratings, "defamed our character," and "sunk our credibility." 

The court dismissed the claims. Their Fair Debt Collection Practices Act (FDCPA) claim failed because the Alejandros had not alleged facts to show that FMC fell within the definition of "debt collector." Specifically, none of their allegations suggested that FMC was (1) an entity whose most important aim was the collection of debts; (2) collecting the debts of another; or (3) a servicer assigned the loan after it went into default. 

As happened with your loan, the TILA damages claim was time-barred because the Alejandros filed their claim more than one year after the alleged violation. 

However, it is the rescission claim that I want to zero in on. Their TILA claim for rescission failed because the Alejandros had not alleged any facts to rebut the presumption of delivery created by their signing of the "Notice of Right to Cancel" that FMC attached to its motion to dismiss. 

Similar to the assertion made by your borrower, the Alejandros made an unusual argument that the "Notice of Right to Cancel" they received was misleading because it used the term "cancel" instead of "rescind." So much for plain language! But it might be interesting to survey the public to determine how many people know what the term "rescind" means or whether they have ever heard the term outside the TILA context. In any event, the court rejected this argument because the notice contained substantially similar language and an identical heading, "Notice of Right to Cancel," as the model rescission (i.e., cancellation) forms set out in Regulation Z. 

Even if the claim was timely, though, the TILA claims failed because they were inadequately pleaded: the Alejandros had not alleged that the violations were apparent on the face of the disclosure documents, as necessary to charge the assignee with liability. The notices attached to the motion to dismiss did not reveal any apparent TILA violations. 

A brief thought about assignees. Assignees are exempt from any alleged disclosure violations except as provided under TILA[iv]. TILA[v] provides, in essence, that assignees may be liable for disclosure violations only if the disclosures are apparent on the face of the disclosure statement, except when the assignment was involuntary. A "violation apparent on the face of the disclosure statement" is held to include, but is not limited to, either (1) a disclosure that can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure that does not use the precise terms required to be used by TILA and Regulation Z. TILA also excludes high-cost mortgage loans from the general rule exonerating assignees.[vi] 

My view is that it is useful and often critical to obtain signed acknowledgments of the receipt of disclosures, including receipt of the "Notice of Right to Cancel." Under TILA[vii] written acknowledgments are specifically addressed, with a limitation: 

"Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under [TILA] by a person to whom information, forms, and a statement is required to be given pursuant to [TILA § 125 (right of rescission)] does no more than create a rebuttable presumption of delivery thereof." 

Thus, although TILA does not elsewhere so provide, this TILA subsection certainly implies that a written acknowledgment of receipt of disclosures in a nonrescindable transaction would be at least some evidence that the disclosures were actually received. 

TILA offers even more specific protection to assignees, except as to rescindable transactions: 

"[I]n any action or proceeding by or against any subsequent assignee of the original creditor without knowledge to the contrary by the assignee when he acquires the obligation, written acknowledgment of receipt by a person to whom a statement is required to be given pursuant to [TILA] shall be conclusive proof of the delivery thereof and, except as provided in subsection (a), of compliance with [TILA chapter 2]."[viii] 

This TILA subsection does not affect the obligor's rights in any action brought against the original creditor (as opposed to an assignee). 

One final observation: Regulation Z generally provides that the segregated closed-end disclosures (including the TILA disclosures that must be presented in a "federal box")[ix] may not contain any information not directly related to their required disclosure items, and the regulation expressly authorizes the inclusion of an "acknowledgment of receipt" among the segregated disclosures or in the federal box. 

We’ll let Humpty have the last word, words being his expertise: 

“So here’s a question for you” [says Humpty]. "How old did you say you were?”

 Alice made a short calculation, and said “Seven years and six months.”

 “Wrong!” Humpty Dumpty exclaimed triumphantly. “You never said a word like it.”

“I thought you meant ‘How old are you?’” Alice explained.

“If I’d meant that, I’d have said it,” said Humpty Dumpty.

Alice in Wonderland, Lewis Carroll

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] Regulation Z § 1026.23(a)(1)

[ii] Comment 2(a)(11)-3 clarifies that "Credit extended to trusts established for tax or estate planning purposes, as described in comment 3(a)-10, is considered to be extended to a natural person for purposes of the definition of consumer."

[iii] Alejandro v. Freedom Mortgage Corp., 2022 U.S. Dist. (E.D. Pa. June 8, 2022)

[iv] TILA § 131(a) and (d) (12 U.S.C. § 1641)

[v] TILA § 131(a)

[vi] TILA § 131(d)

[vii] TILA § 125(c) (12 U.S.C. § 1635)

[viii] TILA § 131(b)

[ix] A “federal box” is a place on the document where all TILA disclosures are grouped together, separating them from all other information. It is a term for the TILA disclosure requirements set forth in Regulation Z § 226.17.

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