CFSL Bulletin The latest Consumer Financial Services Litigation news, developments, and legal thinking

Category Archives: Real Estate Settlement Procedures Act

CFPB Gives Heads Up to Mortgage Servicers

Posted in Bureau of Consumer Financial Protection; Compliance; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Mortgage Foreclosures; Real Estate Settlement Procedures Act

During the Great Recession courts expressed frustration with sloppy paperwork and borrowers’ inability to get anyone to help them work out problem loans. Many courts refused to allow mortgage foreclosures to proceed because of the perceived mess. The Consumer Financial Protection Bureau just made it clear it was not going to tolerate these problems when it comes to the transfer of mortgage servicing rights. 

On Monday, the CFPB issued guidance directing servicers to “make sure consumers are not collateral damage in the mortgage servicing transfer process.” Servicer must be careful when transferring loans servicing rights. The CFPB wants servicers to know that, where appropriate, they will be required to prepare and submit “informational plans describing how they will be managing the related risk to consumers” when making transfers. 

Continue reading this entry

“Qualified Written Request” Under RESPA – No “Magic” Words, But the Right Questions Must be Asked

Posted in Mortgage Foreclosures; Real Estate Settlement Procedures Act

For the first time, the federal Court of Appeals for the Ninth Circuit recently opined on what constitutes a “qualified written request” under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Section 2605(e), in Medrano et al. v. Flagstar Bank, FSB et al., 2012 U.S. App. LEXIS 25274 (9th Cir. Dec. 11, 2012). While the Court held that there are no “magic” words in order for a written request to be deemed a Qualified Written Request (QWR) under RESPA, which would trigger a mortgage servicer’s obligation to respond, in Medrano, the Court sided with the mortgage servicer nonetheless because the borrower’s letters did not raise the appropriate issues necessary for the letters to become QWRs.

Section 2605(e) requires a mortgage loan servicer, upon receipt of a QWR from a borrower, to: (a) acknowledge the QWR within a certain number of days, and (b) make appropriate corrections or respond with a written explanation of clarification that includes specific certain information.  12 U.S.C. §§ 2605(e)(1)(A) & (e)(2). A QWR is defined in the statute as “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.

Id. § 2605(e)(1)(B). Failure to adhere to these requirements may subject the servicer to liability. Id. § 2605(f). 

In Medrano, the borrowers purchased a home, and entered into a home loan agreement, which was serviced by Flagstar. The borrowers’ monthly loan payment included installments of principal and interest, as well as escrow installments for property taxes and insurance. Subsequently, Flagstar notified the borrowers that their escrow account had insufficient funds, and required the borrowers to increase their monthly payment from $1,917.68 to $2,676.08. Flagstar also gave the borrowers an option to make a one-time lump payment to cover the deficiency. In challenging the increased installment amount, the borrowers’ lawyer sent three letters to Flagstar, including to Flagstar’s counsel, stating that the increase in payment was invalid because the borrowers’ broker previously advised them that their installments would not exceed $1,900 per month. The borrowers’ counsel demanded that Flagstar correct the loan account. Flagstar did not respond to the letters, nor did it make any changes to the borrowers’ account. The borrowers sued Flagstar alleging violations under state law and RESPA. The district court granted Flagstar’s motion to dismiss, and the Ninth Circuit affirmed.

The Court first noted that it never had a previous occasion to interpret Sction 2605(e). It then pointed out, however, that the Court of Appeals for the Seventh Circuit, in Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011), had previously considered the scope of Section 2605(e), which held that Section 2605(e) should be read broadly and that any “reasonably stated written request for account information can be a qualified written request.” (For a discussion of Catalan, see http://www.cfslbulletin.com/2011/01/14/any-reasonably-stated-written-request-for-account-information-can-be-qualified-written-request-under-respa/.) The Ninth Circuit followed the Seventh Circuit’s broad reading of Section 2605(e), holding that RESPA does not require any “’magic’ words” for a correspondence to be considered a QWR.

Nonetheless, the Ninth Circuit held that the borrowers’ correspondence did not meet the standards for a QWR because the borrowers’ three letters constituted “challenges to the terms of the loan and mortgage documents and are not disputes regarding Flagstar’s servicing of the loan.” Because the borrowers were challenging the amount of monthly payments that were due under their loan, the Court considered their correspondence as essentially a request for modification of the loan agreement, not a servicing issue, and should have been addressed to the borrowers’ lender. Therefore, the borrowers’ letters were not QWRs under RESPA, and Flagstar, as servicer, did not have an obligation to respond to the letters. 

While the Ninth Circuit acknowledged that Section 2605(e) should be interpreted to advance RESPA’s “broad remedial purpose,” the Court’s decision in Medrano attempts to balance the rights of borrowers and those of loan servicers which may be inundated with a large volume of inquiries and correspondences. It remains to be seen whether other appellate courts will agree with the Ninth Circuit’s holding if presented with the same or similar sets of circumstances.

CFPB Issues Final Rules Amending Regulation X and Regulation Z

Posted in Bureau of Consumer Financial Protection; Real Estate Settlement Procedures Act; Truth in Lending Act

Today, the CFPB issued final rules amending Regulation X (Real Estate Settlement Procedures Act (“RESPA”)) and Regulation Z (Truth in Lending Act (“TILA”)). The amendments focus on mortgage servicing requirements and servicer obligations, and largely track the CFPB’s proposed rules issued August 10, 2012. The CFPB’s announcement of the final rules includes the preamble, regulatory text and official interpretations of the final rules. The final rules and supporting documentation have not yet been published in the Federal Register.

The stated goal of the rules are to provide better disclosure to consumers of their mortgage loan obligations and to provide better information and assistance with available options to consumers having difficulties meeting their mortgage loan obligations. As with the proposed rules, the two final rules are set forth in different notices titled “2013 RESPA Servicing Final Rule” and “2013 TILA Servicing Final Rule.” The Major Topics covered in each are listed below:

The Regulation Z amendments cover:

  • Periodic Billing Statements;
  • Interest Rate Adjustment Notices; and
  • Prompt Payment Crediting and Payoff Statements.

The Regulation X amendments cover:

  • Force-Placed Insurance;
  • Error Resolution and Information Requests;
  • General Servicing Policies, Procedures and Requirements;
  • Early Intervention With Delinquent Borrowers;
  • Continuity of Contact With Delinquent Borrowers; and
  • Loss Mitigation Procedures.

The final rules (and supporting material) span 753 pages and will take effect on January 10, 2014. Prior to the effective date, mortgage loan servicers should take the time to review their business practices and implement any necessary changes. We will continue to post more detailed analysis and commentary regarding the amendments as the full scope of the final rules is assessed.

TILA Does Not Require a Loan Servicer to Identify the Loan’s Owner

Posted in Mortgage Foreclosures; Real Estate Settlement Procedures Act; Truth in Lending Act

The Ninth Circuit recently sided with a loan servicer who was sued by a borrower for failing to provide him with the loan owner’s information. In Gale v. First Franklin Loan Services et al., 686 F.3d 1055 (9th Cir. 2012), amended, 2012 U.S. App. LEXIS 18545 (9th Cir. Aug. 31, 2012), the Ninth Circuit held that a loan servicer is not required under the Truth in Lending Act (TILA) to disclose the owner of the loan obligation to the borrower even at the borrower’s request. The only exception is when the loan servicer is also the assignee-owner of the loan. 

The Plaintiff borrower in the case was Richard Gale. In November 2006, he refinanced his home mortgage loan with Franklin Loan Services (“First Franklin”). At the time, First Franklin was both the creditor and servicer of the loan. In June 2008, Gale lost his job, and consequently, he fell behind his mortgage payments. Seeking to renegotiate his loan, Gale sent a letter to First Franklin explaining his situation and offering solutions. In his letter, Gale also asked First Franklin for the identity of the “true owner” of his loan. First Franklin did not respond to Gale’s letter. Ultimately, Gale’s home was foreclosed when he continued to fall behind his mortgage payments. Gale subsequently sued First Franklin and others for violation of TILA, among others. The trial court dismissed the TILA claim, and the Ninth Circuit affirmed.

As it concerns the alleged violation of TILA, the issue before the Ninth Circuit was the last sentence of TILA, 15 U.S.C. section 1641(f)(2), which states, “Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name address, and telephone number of the owner of the obligation or the master servicer of the obligation.” The Court acknowledged that at first read, this sentence seems to apply to all creditors or servicers, but the Court ultimately rejected such a sweeping interpretation of the law. Instead, the Court noted that section 1641 does not apply to servicers in general, but only to “purchasers or assignees of mortgages.” Furthermore, the Court also held the section did not apply to an assignee merely for administrative convenience, as opposed to an assignee-owner of the loan obligation. As First Franklin was the original lender and merely the servicer, the Court held that the section did not apply to it. In reaching its conclusion, the Court examined section 1641 “as a whole before focusing on paragraph (f)(2)” and found that, contrary to what section 1641(f)(2)’s text may suggest, section 1641 is limited in scope to a servicer who is “an assignee of such obligation…” The Court also noted that the section further excluded an assignee “solely for the administrative convenience of the servicer in servicing the obligation.” The Court concluded that subsection (f) must be read “in keeping with the theme of § 1641 as a whole…” 

The Gale decision does not necessarily foreclose any relief to borrowers who find themselves in the same situation as Gale. As the Ninth Circuit pointed out, the 2010 amendment to the Real Estate Settlement Procedures Act (RESPA) required that all servicers must respond to a borrower’s request for information, although such requirement only applies prospectively from 2010. There may also be state law requirements that are broader than those required under TILA. For example, beginning January 1, 2013, California’s so-called Homeowners’ Bill of Rights comes into effect, which defines a “mortgage servicer” much more broadly than TILA’s section 1641. Thus, it is critical that owners of mortgage loans, lenders, and loan servicers are aware of the various other federal and state laws that may or may not require the same sets of obligations.

Hot Off of the Regulatory Printer — CFPB Releases Its Proposed “Know Before You Owe” Disclosures

Posted in Bureau of Consumer Financial Protection; Compliance; Consumer Financial Protection Act; Consumer Financial Protection Agency; Consumer Financial Protection Bureau; Fair Housing Act; Real Estate Settlement Procedures Act; Truth in Lending Act

For weeks the Consumer Financial Protection Bureau has been advertising the pending release of its proposed mortgage loan disclosures that “are easier for both consumers and lenders to understand and use.”  Alas, await no more.  The CFPB released its proposed mortgage loan disclosures today.   The purpose of the new, supposedly friendlier disclosures, is for the CFPB to meet the requirement under the Dodd-Frank Act that the Truth in Lending Act (commonly referred to as TILA) and the Real Estate Settlement Procedures Act (commonly referred to as RESPA) disclosures be combined into one easy-to-read disclosure.  If adopted, the new rule will modify the rules commonly known as Regulations X and Z.Continue reading this entry

Court Rules Semicolon in Statute Means Force-Placed Insurance Provision of RESPA is Not Yet Effective

Posted in Real Estate Settlement Procedures Act

In Williams v. Wells Fargo Bank, N.A., Judge Cecilia M. Altonaga of the United States District Court for the Southern District of Florida, ruled that a semicolon contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act means that force-placed insurance provisions contained in the amendments to the Real Estate Settlement Procedures Act (“RESPA”) are not yet in effect. Williams v. Wells Fargo Bank, N.A., S.D. Fla., No. 11-21233-CIV-ALTONAGA/Simonton, September 19, 2011.

The Plaintiffs in this case brought claims against Wells Fargo for violation the RESPA amendments, alleging that Wells Fargo unlawfully charged homeowners for force-placed insurance after the homeowners’ property-insurance policies lapsed. The Plaintiffs alleged that Wells Fargo violated the RESPA amendments by using the force-placed insurance to generate kickbacks from a third-party insurer. The Plaintiffs rely on the RESPA amendments that require charges on forced insurance payments to be “bona fide and reasonable,” alleging that these amendments took effect on June 2, 2010 (one day after the Dodd-Frank Act was signed into law).

Continue reading this entry

U.S. Supreme Court Grants Review Regarding RESPA Standing in the Absence of Economic Injury

Posted in Class Actions; Real Estate Settlement Procedures Act

On Monday, the U.S. Supreme Court granted certiorari in a proposed class action to determine the scope of a home-buyer’s standing to sue a title insurer company that allegedly violated the Real Estate Settlement Procedures Act of 1974 (RESPA). In First American Financial Corporation, et al. v. Edwards (10‑708), the question before the Court is whether a home-buyer has standing under Article III, § 2 of the United States Constitution to pursue a RESPA claim if the home-buyer cannot establish that the violation resulted in an increase in the amount the home-buyer paid for title insurance services.

Continue reading this entry

The Ninth Circuit Analyzes Procedure for Review of Arbitration Awards

Posted in Real Estate Settlement Procedures Act

In Johnson v. Wells Fargo Home Mortgage, Inc., the Ninth Circuit addressed issues regarding a district court’s review of an arbitration award, as well as the substantive merits of the plaintiff’s Real Estate Settlement Procedures Act (“RESPA”) claims. 2011 WL 505016 (9th Cir. Feb. 15, 2011). The plaintiff, Wes Johnson, brought suit against Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) alleging, inter alia, claims for violation of RESPA for Wells Fargo’s improper reporting to credit reporting agencies of Johnson’s delinquencies on two mortgage loans, which he secured as part of his business of purchasing undervalued properties and then refurbishing, renting, and selling them. The parties stipulated to binding arbitration. The arbitrator found in favor of Johnson awarding him damages. Wells Fargo then moved the district court to vacate the award. The district court directed that the appeal of the award should be heard directly by the appellate court, and without reviewing the award, confirmed it.

Continue reading this entry

Any Reasonably Stated Written Request for Account Information can be “Qualified Written Request” Under RESPA

Posted in Real Estate Settlement Procedures Act

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.

Continue reading this entry

Third Circuit Holds Mortgage Escrow Cushion Subject to Bankruptcy Process

Posted in Real Estate Settlement Procedures Act

In In re Rodriguez, No. 09-2724 (3rd Cir. Dec 23, 2010), a three-judge panel for the Third Circuit considered whether an automatic stay under the Bankruptcy Code prevented a mortgage servicer from accounting for a pre-petition shortage on a mortgage escrow account in its post-petition calculation of the bankrupt debtors’ future monthly escrow payments. The majority held that the bankruptcy stay did prohibit such conduct by the loan servicer. A copy of the opinion is available here.

Continue reading this entry

Eleventh Circuit Holds That Charging Loan Discount Points is not a “Settlement Service” Within the Meaning of RESPA

Posted in Real Estate Settlement Procedures Act

In Wooten v. Quicken Loans, Inc., the Eleventh Circuit Court of Appeals has affirmed the dismissal of a class action complaint that alleged improper fees under Section 8(b) of RESPA. At issue was whether charging loan discount fees — otherwise known as “points” or “discount points” — to provide a specific interest rate constitutes the “rendering of a real estate settlement service” within the meaning of Section 8(b). The Eleventh Circuit answered this question in the negative. Access the opinion here.

Continue reading this entry

HUD Solicits Comment on Possible Changes in Regulations Concerning Warehouse Loans and Other Finance Mechanisms

Posted in Real Estate Settlement Procedures Act

On November 16, 2010, the U.S. Department of Housing and Urban Development (HUD) issued a notice announcing that it is considering changes in its regulations on warehouse lending and other finance mechanisms that are used to fund federally insured mortgages.

Continue reading this entry

Challenged Fee Must be Split with Third Party Under RESPA §8(b), Fifth Circuit Holds

Posted in Real Estate Settlement Procedures Act

In Freeman et al. v. Quicken Loans, Inc. et al., the Fifth Circuit has ruled that that RESPA §8(b) is “exclusively an anti-kickback provision” which requires that the challenged fee be split with another party to be actionable. The Court noted the split of authority that exists among the federal courts concerning this issue. The Fifth Circuit’s Freeman decision joins similar rulings by the 4th, 7th and 8th Circuits, with contrary rulings issued in the 2nd, 3rd and 11th Circuits.

Continue reading this entry

Third Circuit Reverses Dismissal of RESPA 8(b) Markup Claim

Posted in Real Estate Settlement Procedures Act

In Tubbs v. North American Title Agency, Inc., No. 09-2757, 2010 U.S. App. LEXIS 16342, 2010 WL 3044067 (3d Cir. Aug. 5, 2010), the Third Circuit held that a lower court erred in dismissing a RESPA Section 8(b) claim.

Plaintiffs’ allegations concerned North American Title Agency’s role as settlement agent for their refinancing of two mortgages held with Wachovia Bank. Among the Title Agency’s fees was a “Release Recording Fee” of $150 ($75 per mortgage), charged for recording the release of the prior mortgages with the county clerk. The complaint alleged that Wachovia provided a payoff statement that listed charges for the release of the mortgages by the county clerk. Plaintiffs contended that Title Agency performed “no services” to earn its $150 fee, and that this fee was a prohibited “markup” under Section 8(b) of RESPA.

Continue reading this entry

Ninth Circuit Affirms Dismissal of RESPA Claim for Overcharges

Posted in Preemption; Real Estate Settlement Procedures Act

The Ninth Circuit affirmed the dismissal of a purported class action under the Real Estate Settlement Procedures Act ("RESPA") because the plain language of RESPA does not apply to the practice of "overcharging," as well as the dismissal of three state law claims that are preempted under the National Bank Act. 

The Plaintiffs claimed that they refinanced their home mortgage loan through Wells Fargo, who charged the Plaintiffs an $800 underwriting fee.  Plaintiffs alleged that this fee was excessive and violated RESPA and California’s Unfair Competition Law because the fee was not reasonably related to the actual costs of underwriting.  The district court dismissed all the claims against the Defendants. 

Continue reading this entry

HUD Clarifies How Real Estate Broker Commission Fees Should Be Disclosed Under RESPA

Posted in Real Estate Settlement Procedures Act

On January 22, 2010, the Department of Housing and Urban Development’s (“HUD”) general counsel, Helen Kanovsky, provided “clarification of how real estate broker and real estate agent commission fees are to be disclosed.” The clarification came in the form of a letter responding to an inquiry by RESPA attorney Jay Varon of Foley & Lardner, LLP.

According to the letter, RESPA permits real estate brokers to charge a flat fee and/or a percentage fee so long as (a) the fee is disclosed in the listing or buyer’s broker agreement, (b) the fee charged on the HUD-1 is equal to what was disclosed, and (c) the fee disclosed on line 700 of the HUD-1 is disclosed as part of the commission. Kanovsky goes on to stay:

RESPA also does not prescribe how these commission fees would be distributed between the real estate brokers and real estate agents. Therefore, the division of the compensation for their services in listing and selling the home is appropriately a matter for negotiation and agreement between the real estate brokers and real estate agents.

Click here for a copy of Kanovsky’s letter. Click here for RESPRO’s treatment of the issue.

HUD’s New Settlement Cost Booklet

Posted in Real Estate Settlement Procedures Act

The Department of Housing and Urban Development has released a new Settlement Cost Booklet, much of which is dedicated to the new Good Faith Estimate and HUD-1 Settlement Statement (read more about the changes here). Pursuant to the new rules promulgated under RESPA, effective January 1, 2010, lenders and mortgage brokers must provide the Settlement Cost Booklet within three days of when a borrowers applies for a loan. Click here for the electronic version of HUD’s Settlement Cost Booklet.

HUD Offers Online Outreach Program To Assist With Implementation of New RESPA Rules

Posted in Real Estate Settlement Procedures Act

Effective January 1, 2010, the amended regulatory requirements of the Real Estate Settlement Procedures Act (“RESPA”) will require lenders and mortgage brokers to provide consumers with a standard Good Faith Estimate (“GFE”) designed to disclose key loan terms and closing costs. Read more on the new RESPA rules here. The Department of Housing and Urban Development (“HUD”) has announced a series of “plain english” interactive live online presentations to assist professionals with the implementation of the new rules. HUD’s press release, which includes the remaining program schedule, can be found here.

HUD Announces 120-Day Enforcement Delay On New RESPA Rule, Subject To Good Faith Efforts To Comply

Posted in Real Estate Settlement Procedures Act

HUD announced today that it will follow a resolution of its Mortgage Review Board to show restraint during the first 120 days of 2010 with respect to enforcement of the new RESPA rule scheduled to go into effect on January 1, 2010 — so long as good faith efforts are being made to comply with the new rule. In addition, in separate letters, HUD requested regulators of federal depository institutions and the FTC to show similar restraint in any enforcement activities relating to the new rule and made the same request of relevant state agencies.

Continue reading this entry

Third Circuit Holds Overcharges Not Required in RESPA Actions

Posted in Real Estate Settlement Procedures Act

The Third Circuit just issued an opinion, Alston v. Countrywide Financial Corp., holding that plaintiffs are not required to have suffered an overcharge to bring a cause of action under the Real Estate Settlement Procedures Act (“RESPA”).

Continue reading this entry