REQUIRED READING: A recent 7th Circuit Court of Appeals decision regarding the scope of qualified written requests (QWRs) under the Real Estate Settlement Procedures Act (RESPA) is the latest in a growing trend of decisions that liberally construe consumer-protection statutes and may change the way servicers do business.
In Catalan v. GMAC Mortgage Corp., the court held that GMAC failed to establish that it was entitled to RESPA's safe-harbor protection and attempted to clarify what constitutes a QWR, finding, among other things, that ‘RESPA does not require any magic language before a servicer must construe correspondence from a borrower as a QWR.’
Simply put, under Catalan, any "reasonably stated written request for account information can be a [QWR]."
While the impact of Catalan and other recent court decisions is not yet apparent, prudent loan servicers should now consider their current practices as well as the implementation of new procedures to manage and mitigate the risk posed by the broadening scope of QWRs.
Reviewing current practices is particularly important in light of new servicer requirements instituted by the Dodd-Frank Wall Street Reform Act. These requirements include shortened time frames for servicers to respond to QWRs and increase damages due to a servicer's failure to respond to a valid QWR. This article will analyze recent court decisions that provide both insight and conflicting views concerning what constitutes a QWR under RESPA and will attempt to identify some practical suggestions for servicers faced with potential litigation due to alleged RESPA violations.
A QWR is defined in 12 U.S.C. § 2605(e)(1)(B) 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."
While Catalan involved five letters that the borrowers alleged were all QWRs, perhaps of most significance was the court's ruling that a letter addressed to foreclosure counsel that stated in the first sentence, "I am disputing your attempt to collect on the above-referenced account" was "unequivocally a QWR under RESPA." GMAC argued that this letter did not constitute a QWR because the borrowers did not identify any errors on the account, nor did they provide any basis for the belief that the account had errors. The court found the servicer's reasoning unconvincing.
Catalan casts some doubt on the widely held belief that correspondence must be sent directly to the servicer in order to be considered a QWR. The court's ruling appears to fly in the face of prior decisions, such as Griffin v. Citi- Financial Mortgage Co. Inc., where the court held that correspondence directed to outside bankruptcy counsel was not a QWR under the plain language of RESPA.
Unlike Catalan, the borrowers in the Griffin case filed a Chapter 13 bankruptcy, and the court ruled that the bankruptcy court was the appropriate forum to resolve the discovery dispute. While questions remain concerning Catalan's impact, it appears unlikely that the case would call into question a previously relied-upon servicer safeguard that permits a loan servicer to designate an address for QWRs, as this issue was not addressed with the district court.
The 3rd, 4th, 6th and 9th circuits have also issued decisions this year that arguably broaden the definition of a QWR. A Michigan district court in Sims v. Chase Home Finance LLC held that a borrower's request for information concerning the original security on the account, chain of transfer of ownership and charged/collected fees, and the alleged debt owed to the servicer was a QWR. According to the court, the letter satisfied the statute because it contained the borrower's name and account number, as well requested specific and extensive information from the servicer regarding the loan.
The same district court held a few months later that a RESPA claim would not be dismissed for failing to specifically assert an error if a borrower provided sufficient detail to the servicer regarding the information sought. While the borrower's correspondence did not state why the borrower disputed the amount owed, the court found that the letter qualified as a QWR because it provided sufficient detail to the servicer regarding other information sought by the borrower.
More details wanted by the courts
Despite the aforementioned recent trends, many courts have reached contrary rulings in favor of servicers. In Gorham-Dimaggio v. Countrywide Home Loans Inc., a New York district court held that a QWR did not exist when the borrower disputed the escrow and asked for a full accounting of her escrow balance.
"The letter's single sentence does not contain a statement of the reasons for the belief of the borrower that the account is in error or provide detail," the court ruled. The court further reasoned that the borrower needed to go beyond the general term of "accounting" in order to consider her request a QWR.
While not necessarily inconsistent with the Catalan decision, several jurisdictions have ruled in favor of the servicer when the correspondence only involved document requests or disputed the validity of the loan. In Griffin v. American Home Mortgage Servicing Inc., another New York district court found in favor of the servicer when the borrower's request was for loan origination documents (inspections, appraisals, copy of mortgage pooling and servicing agreement, loss mitigation rules and workouts, etc.).
The court required the borrower to identify a potential error and held that it was not sufficient to simply request the origination file without providing a reason why the information was sought. (See also Keen v. American Home Mortgage Servicing, where the borrower's demand to cancel the trustee's sale of home and for rescission disputed the validity of the loan but did not dispute the servicing of the loan and was found to not be a QWR.)
Two recent 8th Circuit decisions distinguished Catalan, both holding in favor of the servicer where the borrower did not identify errors on the account or simply asked questions relating to the servicing of the loan. In Hintz v. JPMorgan Chase Bank, the borrowers had sent letters complaining of irregularities in the lending practices of the servicer, and the court found that "RESPA does not require a servicer to respond to any questions that a borrower may ask – no matter how broad, vague or far afield." There was a similar holding in Smith v. Chase Manhattan Bank, where the borrower asked for the original mortgage note and other documents pertaining to accounting and invoices, and in which the court again held the letter did not constitute a QWR under RESPA.
Despite concerns over the broadening scope of QWRs, the good news for servicers is that courts are continuing to scrutinize closely what constitutes a submissible claim under RESPA. According to the decision in Mantz v. Wells Fargo Bank NA, there are generally two requirements for a threshold evaluation of a RESPA claim.
First, the borrower must plead his or her case with specificity (i.e., assert to whom the QWR was made, how the servicer failed to respond, whether the required statutory period elapsed and whether the defendant meets the standard definition of a servicer). Second, the borrower must allege the breach resulted in actual damages. In Mantz, the court dismissed the borrower's claim, stating the borrower did not specify when he sent a QWR and also did not claim that an alleged failure to respond resulted in damages.
A similar decision was reached in Ward v. Security Atlantic Mortgage Electronic Registration Systems Inc., where the court emphasized how difficult it is for a borrower to prove actual damages. The court held that the borrower's correspondence to the servicer was a QWR. However, the borrower's RESPA claim was dismissed because the borrower did not allege actual damages. Several decisions this year have also dismissed RESPA claims due to the borrower's failure to allege damages, including courts located within the 1st, 4th, 5th, 6th, 8th, 9th, 10th and 11th circuits.
Impact on servicers
In light of the current environment, servicers should proceed with caution when handling correspondence by a borrower that may be considered a QWR. Servicers should review their current practices and determine whether new safeguards and procedures should be implemented. The following are a few suggestions:
- A servicer's staff should be trained regularly and in all departments on how to handle all correspondence from borrowers with care. Clear operating procedures should be in writing and consistent. Detailed and written procedures can assist servicers when they are defending against allegations that they failed to respond properly to a QWR.
- A servicer should ensure that it has an address designated for receiving QWRs and that its outside foreclosure counsel also forward potential QWRs received by the borrowers.
A Massachusetts district court chastised a defendant law firm for not forwarding a letter received by the borrower on to the servicer because this sound practice would have mitigated some of the litigation that ensued. Servicers should work closely with their foreclosure counsel to develop a consistent plan for handling correspondence from a borrower. Local counsel can also review the facts of each case and consult on matters such as potential exposure, procedural nuances particular to the jurisdiction, appropriate defenses, and the possibility of resolution outside litigation.
- A servicer should ensure it is appropriately staffed to review and promptly respond to potential QWRs and consider establishing a separate department to review them in order to respond to such requests timely and efficiently. This is extremely important, as a servicer is now required to acknowledge a QWR in five days (previously 20 days) and to respond to the QWR in 30 days (previously 60 days) under the Dodd-Frank Act.
In many instances, borrowers do not wish to engage in protracted litigation – they simply want to keep their home. Working with foreclosure counsel to determine what the borrower really wants, and responding quickly to requests made in writing, can help to minimize risk and RESPA claims.
Holly A. Smith and Jennifer M. West are associate attorneys with Overland Park, Kan.-based South & Associates. Smith can be reached at holly.smith@southlaw.com, and West can be contact at jennifer.west@southlaw.com.
