In Catalan v. GMAC Mortg. Corp., a three-judge panel of the Seventh Circuit Court of Appeals has reversed a grant of summary judgment to defendant, GMAC Mortgage (“GMAC”) on the plaintiffs’ claims under the Real Estate Settlement Procedures Act (“RESPA”). The court held that GMAC failed to establish that, as a matter of law, it was entitled to RESPA’s safe harbor protection under 12 U.S.C. § 2605(f)(4). Construing the facts in the light most favorable to the plaintiff borrowers, the court reasoned that certain letters sent by the plaintiffs to GMAC constituted “qualified written requests,” triggering GMAC’s obligations under § 2605(e), but which GMAC had not shown to have fulfilled as required to invoke the protection. The court also rejected GMAC’s argument regarding damages. A copy of the decision is available here.
Plaintiffs predicated their RESPA claims on § 2605 (“§ 6”), which establishes requirements regarding mortgage loan servicing and the administration of escrow accounts. Plaintiffs alleged that GMAC, in its attempt to foreclose on the Plaintiffs’ house, failed to comply with certain duties that § 6 imposes on loan servicers, including promptly acknowledging and responding to plaintiffs’ written requests for information. Under § 6, this duty is triggered by a “qualified written request” (“QWR”), which RESPA defines as written correspondence (other than notices on a payment coupon or similar documents) from the borrower or her agent that requests information or states reasons for the borrower’s belief that the account is in error.
GMAC argued that the letters that it received from plaintiffs did not constitute QWRs because they did not “identify an error in plaintiffs’ account or provide any statement of the reasons plaintiffs believe their account was in error.” Rather, GMAC contended, the letters merely disputed a debt or requested information, which was insufficient to trigger the obligations under § 6. The Seventh Circuit disagreed with respect to two of the letters that plaintiffs had sent to GMAC, finding that:
- a QWR need not contain a statement of reasons for the borrower’s belief of error; rather, it must reasonably identify the borrower and account and “include 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;”
- where GMAC had returned plaintiffs’ check and indicated that it would pursue foreclosure, a letter by plaintiffs disputing GMAC’s attempt to collect on the account and stating that GMAC had “refused to process checks to alleviate any unnecessary actions or undue harm” was a statement of belief that their account was in error; and
- the fact that GMAC received one of the letters from the Department of Housing and Urban Development (“HUD”) and not directly from the plaintiffs did not prevent it from being a QWR where the plaintiffs had exhausted other attempts to communicate with their loan servicers before sending the letter to HUD.
As QWRs, then, two of plaintiffs’ letters triggered GMAC’s obligation to respond. Under § 6, a servicer must provide a written acknowledgment within 20 business days of receipt of a QWR. A QWR also trigger an affirmative duty to investigate the problem identified by the borrower, which must be rectified or explained not later than 60 business days after the receipt of the QWR. In addition, servicers are prohibited from providing information to a consumer reporting agency during the 60 days following receipt of the QWR concerning overdue payments related to that period or to the QWR.*
However, the Seventh Circuit found, GMAC had neither argued nor shown that it had satisfied its obligations § 6 to investigate and respond and to refrain from reporting the plaintiffs as delinquent to the credit reporting bureaus. Having failed to address these questions—which the Seventh Circuit left for resolution on remand—the district court erred in finding that GMAC was eligible for the safe harbor in § 6(f)(4).
The Seventh Circuit also rejected GMAC’s alternative argument that plaintiffs’ claims could not survive summary judgment because they lacked competent evidence of actual damages under RESPA. Plaintiffs’ contentions in this regard—that they were denied loans and lines of credit as a result of GMAC’s actions—raised interesting evidentiary issues. GMAC offered a statement by a bank representative that the bank’s denial of plaintiffs’ application “would have been no different” without the credit reporting at issue. However, in opposition to summary judgment, the plaintiff testified that a bank loan officer told her that the plaintiffs’ loan applications “would not be approved until their foreclosure was removed.” The Seventh Circuit rejected GMAC’s argument that this was “classic hearsay” that could not be used to avoid summary judgment. Rather, found the court, the statement did not constitute hearsay in that it was merely a statement describing the bank’s collective intentions; and even if it were hearsay, it would be admissible (i) as a statement of a party agent or (ii) a statement of the declarant’s then existing state of mind. The court also found that Plaintiffs’ own testimony was admissible evidence in support of emotional distress damages.
While plaintiffs’ evidence was sufficient to overcome summary judgment, it remains to be seen whether, on remand, it will be sufficient to ultimately prove their RESPA theories and damages.
* The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) amends § 6 of RESPA to decrease these response times. Under the Dodd-Frank amendments, a servicer will have 5 business days to provide notice of receipt; 30 business days to respond; and an optional 15-day extension if notice is provided to the borrower.