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)

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) 

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

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

Home Equity Line of Credit: QWR Controversy

QUESTION
One of our loan products is the Home Equity Line of Credit. We received a complaint from a borrower, and we were about to treat it as a QWR.

But our General Counsel got involved and said we do not have to reply to treat their complaint as a QWR because RESPA says home equity loans are excluded.

Somehow, this does not make sense to me. I would like your view.

Are we required to treat complaints as a QWR on a Home Equity Line of Credit?

ANSWER
The response is going to be a bit convoluted. My answer is one that I think you can show your General Counsel. If he wants to talk about it, ask him to contact me

Let’s first outline some basics. The RESPA statute generally provides that its requirements apply to “federally related mortgage loans.” This term includes almost every loan secured by a lien on residential real property in the United States designed principally for one-to-four family occupancy. The term includes loans secured by first or secondary liens.

Like TILA, RESPA specifically exempts certain types of loans, such as business purpose loans, loans secured by 25 acres or more (viz., not including loans subject to the Truth-in-Lending and RESPA integrated disclosures provisions, or TRID Rule), loans secured by vacant land, and a few other limited exemptions.

Regulation X, which implements RESPA, also generally applies to “federally related mortgage loans.” But Regulation X includes exceptions. For instance, Subpart C of Regulation X, which contains most of the regulation’s servicing provisions, generally applies to “mortgage loans” rather than “federally related mortgage loans.” The regulation defines a “mortgage loan” to exclude the home equity line of credit.

Indeed, there has been litigation on just this exclusion.

In Herrmann v. Wells Fargo Bank, a federal district court in Virginia did not appreciate this distinction, so much so that it found the exclusion of home equity lines of credit invalid because the exclusion conflicts with the RESPA statute.[i] The court is not alone; actually, it relied on two earlier court opinions.

Here’s the fact pattern.

· In December 2006, the Herrmanns obtained a home equity line of credit from Wachovia, secured by a deed of trust on the Herrmann’s residence.

· In 2011, Wells Fargo began to service the loan.

· After Wells Fargo took over servicing, the Herrmanns claimed that they “became frustrated with their inability to understand the monthly statements and how their payments were being applied to their account.”

· In December 2017, they requested a payoff amount.

· Wells Fargo demanded $85,159.97.

· The Herrmanns paid that amount, but believed the amount should be less than $84,000.

· In January 2018, the Herrmanns began sending multiple written requests inquiring about the payment. The Herrmanns believe their letters constitute Qualified Written Requests (“QWRs”) under RESPA.

· Wells Fargo sent 13 letters between January 2018 and November 2019 in response to the QWRs, but the Herrmanns found that each letter failed to resolve their dispute.

· The Herrmanns eventually hired an accountant to interpret the conflicting information they had received from Wells Fargo. The accountant determined that the actual payoff amount was far less than what Wells Fargo had demanded.

· On December 10, 2019, the Herrmanns sued, alleging violations of RESPA § 6 for Wells Fargo’s failure to respond to the QWRs properly.

· Wells Fargo filed a motion for judgment on the pleadings, contending that the RESPA claims fail because RESPA does not apply to home equity lines of credit, and Wells Fargo had fully satisfied its RESPA obligations by providing at least 13 detailed responses.

Now, let’s consider the court’s view. 

The district court denied the motion as to the RESPA claims. The court began its analysis by noting that RESPA generally applies to “federally related mortgage loans,” a term that includes subordinate loans such as home equity lines of credit.

The court then stated that Regulation X provides that

... a “[m]ortgage loan means any federally related mortgage loan, as that term is defined in § 1024.2 subject to the exemptions in § 1024.5(b), but does not include open-end lines of credit (home equity plans).”

The court added,

“Thus, Regulation X appears to narrow the definition of a mortgage loan under RESPA to exclude home equity loans.”

As I noted, the court turned to two court decisions cited by the Herrmanns.

The first case, Hawkins-El v. First American Funding, LLC,[ii] held that RESPA applied to a plaintiff’s home equity line of credit. In Hawkins, the court reasoned that RESPA’s implementing regulations, which provide that the qualified written request provision does not include subordinate lien loans directly conflicts with the language in RESPA that includes subordinated liens in its borrower inquiry provisions. The court found the regulation and statute incompatible and applied RESPA’s more inclusive language “because an administrative agency’s regulation is ineffective to the extent it conflicts with its parent statute.”

The second case, Cortez v. Keystone Bank, Inc.,[iii] also held that RESPA applies to home equity lines of credit for the same reason as Hawkins-El.

Although the U.S. Court of Appeals for the 4th Circuit had not yet addressed the issue, the Herrmann court found Hawkins-El and Cortez persuasive. Those cases had dealt with an earlier version of Regulation X, but the same issue persisted in the current version. The court concluded that Congress’s definition of a “federally regulated mortgage” loan under RESPA includes home equity loans and provides home equity borrowers access to the QWR provisions under RESPA:

“Regulation X conflicts with this definition by excluding home equity loan borrowers from the protections of the RESPA. Therefore, the court will rely on the language of the statute and find that the Herrmanns [sic] claim regarding their home equity is proper under RESPA.”

The court then found that the Herrmanns had adequately alleged that Wells Fargo had failed to reasonably investigate their account dispute in response to their QWRs, by (1) stating that Wells Fargo had provided “inconsistent and inaccurate explanations,” (2) Wells Fargo had admitted that some of its earlier QWR responses were inaccurate, and (3) Wells Fargo had “claimed that it was unable to determine if it had provided inconsistent information to the [Herrmanns].” Accordingly, the court denied Wells Fargo’s motion.

Now, let’s put all of these decisions together to discuss complaints and other servicing inquiries involving a Home Equity Line of Credit.

RESPA § 6(e)(1)(A) [12 U.S.C. 2605] states

“If any servicer of a federally related mortgage loan receives a qualified written request from the borrower (or an agent of the borrower) for information relating to the servicing of such loan, the servicer shall provide a written response acknowledging receipt of the correspondence within 5 days.”

By applying this requirement to “mortgage loans” rather than “federally related mortgage loans” in Regulation X, did the CFPB act inconsistently with RESPA?

On the face of RESPA § 6, yes.

But let’s look at the CFPB's view:

“Section 19(a) of RESPA authorizes the Bureau (and formerly directed the Department of Housing and Urban Development (HUD)) to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA.”[iv] [My emphasis.] 

What "classes of transactions" might be considered? 

When the CFPB amended Regulation X in 2013, it explained why it was excluding home equity lines of credit from coverage by Subpart C and pivoted on RESPA § 19(a) in doing so. The CFPB also said it was concerned that certain provisions of Regulation Z (Truth-in-Lending) would substantially overlap with the servicer obligations that would be set forth in Subpart C, including, for example, billing error resolution procedures.[v]

For this and other reasons, the CFPB concluded:

“[T]he Bureau believes it is necessary and appropriate to achieve the purposes of RESPA to maintain the current exemption, which HUD originally adopted as 24 CFR 3500.21 nearly 20 years ago. Accordingly, this exemption is authorized under section 19(a) of RESPA.”[vi] [My emphasis.]

The Herrmann, Hawkins-El, and Cortez courts apparently overlooked this history. Perhaps, they might have reached the same conclusion if they had considered the historical record.

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director

Lenders Compliance Group

_____________________________________________
[i] Herrmann v. Wells Fargo Bank, 2021 U.S. Dist. (W.D. Va. Mar. 29, 2021)
[ii] Hawkins-El v. First American Funding, LLC, 891 F. Supp. 2d 402 (E.D.N.Y. 2012)
[iii] Cortez v. Keystone Bank, Inc., 2000 U.S. Dist. (E.D. Pa. May 2, 2000)
[iv] RESPA and Regulation X, Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), Bureau of Consumer Financial Regulation, Final Rule, Official Interpretations, 2/14/13, 78 FR 10695, II. C. See also 12 U.S.C. 2617(a). 

[v] See 12 CFR 1026.13, Billing Error Resolution

[vi] Op. cit. iv, Other Exemptions, Section 1024.30, Scope. See also 12 CFR 1024.