A new client of ours did a thorough investigation of a Qualified
Written Request (QWR) but, unfortunately, the borrower was not satisfied with
the conclusions. Our client contacted me because of concerns arising out of the
Notice of Error (NOE) and Request for Information (RFI) process. After reviewing
their response and decision tree, we suggested revisions to their policies and
procedures.
The importance of complying with RESPA’s NOE and RFI procedures is
fundamental to RESPA compliance. It is not a simple matter of having a dissatisfied
borrower on your hands, although that is bad enough. The larger problem is that
the borrower may commence litigation, which almost certainly will include a
RESPA claim for violations of these procedures. If they don’t already have a
claim when they start looking for causes of action, they may test the waters by
sending an NOE and/or RFI.
This is a situation of significant exposure to the financial
institution. In point of fact, by my count more than 1,100 court decisions
filed since August 1, 2013 have involved alleged QWR, NOE, or RFI violations.
Here’s just one of the cases among the hundreds upon hundreds of
such actions.
First, let me set the stage. Effective January 10, 2014, the Consumer
Financial Protection Bureau (CFPB) reorganized the provisions of Regulation X
regarding error resolution and borrower inquiries. Regulation X [12 C.F.R. § 1024.35]
addresses NOEs and § 1024.36 covers RFIs. The revised processes subsume the QWR
requirements of the RESPA statute, with both sections expanded to include
certain written borrower inquiries that are not QWRs.
Section 1024.35 applies to any written NOE from a mortgage loan
borrower to the servicer that: (1) asserts an error; (2) includes the name of
the borrower; (3) includes information that enables the servicer to identify
the borrower’s mortgage loan account; and (4) describes the error the borrower
believes occurred.
When a servicer receives an NOE, it is required to acknowledge
receipt in writing within 5 business days. In general (with certain
exceptions), it then must respond to the NOE within 30 business days by
correcting the error and providing written notice of correction or conducting a
reasonable investigation and providing a written notification that describes
the result of the investigation.
So, having set the stage, let’s
look at a particular case involving a borrower who is not satisfied with an
explanation.
The case I am choosing is Finster v. U.S. Bank N.A. (11th Cir Jan. 31, 2018).
Finster defaulted on her home mortgage loan. US Bank initiated
foreclosure proceedings. Before the sale date, Finster submitted an application
for a loan modification. The bank found her eligible, provided she made three
timely trial period payments and submitted a loan modification agreement. She
made the three payments.
The bank then dismissed the foreclosure action and sent her two
copies of a loan modification agreement to execute and return. But Finster did
not return the originals, as instructed. Instead, she signed copies of the
originals, with images of the “Sign & Date” and “Notarize” stickers copied
onto the documents. The bank did not execute and record those documents because
they did not satisfy recording requirements.
About a month later, the bank sent Finster’s counsel a second set
of documents but did not explain why. The bank claimed it attempted to contact
Finster’s counsel to explain, but Finster’s counsel stated that he had no
record of the communications. The bank denied the modification because Finster
failed to return the second set of documents.
However, Finster continued making payments after the trial period.
The bank rejected them because it had denied the modification. The bank
instituted a second foreclosure action.
Finster, through counsel, then sent three NOEs.
The first NOE said the bank had violated Regulation X § 1024.41 by proceeding
with foreclosure despite Finster’s performance of the modification and
wrongfully terminating the modification without providing her an opportunity to
cure. The bank responded by indicating that “no error occurred” and that it had
not accepted her package because she had not correctly signed the documents.
The second NOE faulted the bank for failing to timely credit five
of Finster’s mortgage payments. The bank again responded that no error had
occurred, that it had held four of the payments in escrow while Finster’s
account was in loss mitigation review and then applied them to her account once
the bank issued a non-approval, and that it had returned the final payment
because it was not sufficient to bring her loan current after the modification
was rejected.
The third NOE alleged that the bank had wrongly repudiated the
modification agreement. Again, the bank responded that no error had occurred
and recounted that Finster had failed to return satisfactory documents.
Finster sued the bank for violating RESPA. Partly in response, the
bank allowed her to re-execute the modification documents, waived late fees and
costs, dismissed the foreclosure action, and brought her loan current under the
terms of the original loan modification.
The district court granted summary judgment for the bank and the
11th Circuit affirmed. The bank’s responses to the NOEs had complied with RESPA
by providing explanations, even though Finster had found the responses
unsatisfactory and unreasonable.
The Court concluded:
“The gist of Finster’s position
seems to be that U.S. Bank’s actions were unreasonable. And maybe they were.
But unreasonable conduct by a servicer does not necessarily amount to a
violation of RESPA or Regulation X, even if their requirements seek to
establish a baseline of reasonable conduct in many ways. In this regard, the
fact that U.S. Bank later granted Finster the loan modification does not create
a genuine issue of material fact as to whether U.S. Bank violated RESPA in
responding to Finster’s notices of error. Specifically, it is not
‘significantly probative’ evidence that U.S. Bank’s prior explanation was wrong
or insufficient.”
Here’s my big question: how much effort would it really have taken
for the bank way back at the beginning of this fiasco to ask the borrower to
return a recordable set of documents? If the bank in fact sent the second set
of documents without any explanation, I would hope it has revisited its
policies and procedures by now as a consequence of this litigation!
Despite the detailed provisions of Regulation X,
the CFPB believes borrowers are most likely to raise questions and complaints
outside the regulation’s formal processes. To ensure that servicers have
systems in place for responding to errors and information requests through
informal means (such as verbal inquiries), the CFPB clearly believes servicers
should have reasonable policies and procedures for these situations.
Accordingly, Regulation X § 1024.38(b)(ii) and (iii) generally requires
servicers to maintain policies and procedures reasonably designed to ensure
that they can investigate, respond to, and provide accurate and timely
information and documents in response to borrower requests. (The regulation
exempts “small servicers” from this requirement.) Any servicer that does not
have clear, distinct, and unambiguous procedures and a decision tree for
handling QWRs is risking considerable exposure to litigation.
