Every once
and a while I get what may seem like an oddball question, but actually is a
very perceptive question! There are so many intricacies to federal and state
regulatory compliance laws, rules, regulations, and common practices, that it
is a constant challenge to stay current.
Now you might
think this is an oddball question: does a QWR relate only to servicing?
But it is not
odd at all! In fact, the question is brilliant, and the answer requires
considerable fine-tuning to be precise, comprehensive, and practicable.
Let’s look
closer!
RESPA Section
6 includes a set of procedures that
mortgage loan servicers must follow when handling customer inquiries. The
statute defines a Qualified Written Request (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 provides sufficient detail to the servicer regarding
other information sought by the borrower."
Previously, Regulation X §
1024.21(e)(2) restated this definition almost word-for-word, except for two
additions, one of which is relevant to the answer. Regulation X, RESPA’s
implementing regulation, added to item (ii) the phrase “relating to the
servicing of the loan” before “sought by the borrower.”
Today’s version of Regulation X, in 12 CFR 1024.31, also includes the
phrase “relating to the servicing of the loan” in its definition of the term:
"Qualified written
request means a written correspondence
from the borrower to the servicer that includes, or otherwise enables the
servicer to identify, the name and account of the borrower, and either:
(1) States the reasons the
borrower believes the account is in error; or
(2) Provides sufficient detail to
the servicer regarding information relating to the servicing of the mortgage
loan sought by the borrower."
If the borrower states the reasons
for believing an error has occurred in the account, the borrower need not also
provide sufficient detail regarding “information relating to the servicing of
the mortgage loan.” It probably would be fair to conclude that an account being
in error relates to servicing, so a QWR must relate to servicing.
Regulation X §§ 1024.35(a) and
1024.36(a) explain that a qualified written request “that asserts an error
relating to the servicing of the mortgage loan” is a Notice of Error (NOE)
within the meaning of § 1024.35 and a qualified written request “that requests
information relating to the servicing of the mortgage loan” is a request for
information (RFI) within the meaning of § 1024.36.
The definition of “error” in
Regulation X § 1024.35(b), which lists examples of what are and are not
“errors,” includes a catch-all category of “any other error relating to the
servicing of a borrower’s mortgage loan.” This also suggests that the NOE must
relate to servicing. In contrast, the RFI provisions of Regulation X §
1024.36(f)(1)(iii) do not define “information” and appear to encompass any
request for information except when the “information is not directly related to
the borrower’s mortgage loan account.” That’s an interesting nuance, given that
a Request for Information aims at identifying policies and best practices to
promote consistent interpretation of existing authorities.
Since we’re now in the tumultuous
world of nuances, let’s refine the answer even more. Regulation X § 1024.2(b)
generally defines the term “servicing” to mean “receiving any scheduled
periodic payments from a borrower pursuant to the terms of any federally
related mortgage loan, including amounts for escrow accounts under section 10
of RESPA (12 U.S.C. § 2609),
and making the payments to the owner of the loan or other third parties of
principal and interest and such other payments with respect to the amounts
received from the borrower as may be required pursuant to the terms of the
mortgage servicing loan documents or servicing contract. In the case of a home
equity conversion mortgage or reverse mortgage as referenced in this section,
servicing includes making payments to the borrower.”
Courts differ regarding whether a
QWR must relate to servicing. A federal district court in Ohio recently gave
its opinion on the matter. Take Baker v. Nationstar, LLC,
2018 U.S. Dist. (S.D. Ohio July 20, 2018).
In 1995, the Bakers obtained a
mortgage loan to purchase their home. In 2008, the lender began foreclosure proceedings,
which led to a foreclosure judgment that was ultimately vacated. The Bakers
then hired counsel to dispute the servicer’s collection activity.
The Bakers’ counsel sent the
servicer a letter on February 28, 2014, disputing all late charges, inspection
fees, appraisal fees, force-placed insurance charges, legal fees, and other
advances charged to the Bakers’ account. The letter also requested eight
categories of information, including a copy of all appraisals, property
inspections, and risk assessments completed for the account.
The servicer responded by
providing much of the information requested, and indicated that although the
information regarding appraisals, property inspections, and risk assessments
was unavailable, the information appeared correct.
The Bakers sued, complaining that
the servicer’s response had failed to comply with RESPA because it had not
provided any information regarding the charges for appraisals and property
inspections or a copy of the inspection reports.
In response, the servicer argued
that it could not violate RESPA by failing to respond to inquiries about
appraisals and property inspections because those inquiries did not “relate to
servicing” under RESPA.
The court granted partial summary
judgment for the Bakers, holding that the servicer had failed to meet its
obligations under RESPA § 6.
The court noted that was no
reasonable dispute about whether the letter was a QWR. The letter had stated it
was a QWR and its list of requested information clearly included items related
to servicing, such as a complete payment history.
The court recognized that some
courts had drawn a distinction between requests related to servicing and those
that do not relate to servicing, and found RESPA liability available only for
failing to respond to requests related to servicing.
Here’s the point: the court did
not agree that inquiries regarding appraisals and property inspection fees
cannot create RESPA liability. The statutory language does not limit the
definition of QWR to correspondences related to servicing. Nor does the statute
mention the word “servicing” in its QWR definition. The request seeking
information about appraisals and property inspections triggered the servicer’s
obligation to respond, regardless of whether the inquiry related to
“servicing.”
The court cited the U.S. Supreme
Court’s statement that where “Congress includes particular language in one
section of a statute but omits it in another, it is generally presumed that
Congress acts intentionally and purposely in the disparate inclusion or
exclusion” (see Russello v.
United States, 464 U.S. 16, 23 (1983)).
Congress could have, but did not, include the word “servicing” in the definition
of QWR or in its statement of options a servicer who receives a QWR must take
within 30 days to fulfill its obligations under RESPA. Accordingly, “This Court
will not read the word ‘servicing’ into the statute where it is not, and thus
holds that the information sought by the borrower need not relate to servicing
to constitute a QWR, and a servicer must fulfill its obligations under 12
U.S.C. § 2605(e)(2) regardless of whether such
information relates to the statutory definition of ‘servicing.’”
Thus, RESPA required the servicer
to provide the borrower with the “information requested by the borrower or an
explanation of why the information requested is unavailable or cannot be
obtained by the servicer.” The servicer was required to meet the substance of
each of the Bakers’ requests and explain why it could offer no more than it
did. Instead, it did not include the requested information in its response nor
did it explain why it was unavailable. The servicer did not point to any
evidence that it had conducted a “reasonably thorough” examination. It had
relied only on the language in its response to conclude that an investigation
had been conducted.
What’s more, the court offered an
alternative basis for its holding: even if the information sought in a QWR must
relate to servicing, the statutory definition of “servicing” is broad enough to
encompass appraisals and inspection charges. The court rejected the servicer’s
argument that the definition was limited to the receipt and application of a
borrower’s payments, to wit, that the definition did not encompass the Bakers’
failure to make and the servicer’s failure to receive any payments for
inspection or appraisal fees. In the court’s words, “Whether a payment has been
in fact received does not cabin the definition of ‘receiving.’ Rather,
receiving is a process - implicit in the idea of receiving a payment is the
idea that such a charge must first be made. It makes little sense for the RESPA analysis to turn on whether a
servicer actually has a payment in hand. Borrowers must first be able to
challenge the validity of the requested payment and seek information relating
to the same.”
And here’s the malocchio-mugging denouement:
the court also held that Ohio law time-barred the servicer and noteholder from
any action to enforce the mortgage or note because more than six years had
passed since they had accelerated the due date by filing the ultimately vacated
foreclosure action.
Not
a good day for that servicer!
So,
do you think a QWR relates only to servicing?
I
would note that the court’s opinion did
not make clear why it never turned to Regulation X to support its conclusion.
Instead, it based its decision solely on statutory analysis.
The Bakers certainly had a right
to challenge the validity of the servicer’s assessment of appraisal and
property inspection fees. Assessing those fees to their account related to
servicing, even if incurred during the foreclosure process. To be sure, RESPA
and Regulation X do not put loans on an exit ramp due to foreclosure
activities. To determine the legitimacy of those fees, the Bakers were
certainly entitled to copies of the reports for which the fees were assessed.
Other recent court decisions have
considered the applicability of statutes of limitation to actions to enforce
mortgages, pointing out the need for lenders and servicers to keep an eye on
the intricacies of timing. For example, in Jorrie v.
Bank of New York Mellon Trust Co., 2018 U.S. App. (5th Cir. July 2,
2018), a lender accelerated a mortgage note on June
8, 2009, but then faced two legal proceedings (an automatic stay in bankruptcy
and a temporary injunction) that prevented it from exercising its right to
foreclose. On March 27, 2014, the lender abandoned the acceleration by
notifying the borrower that her note’s balance was no longer due and she could
cure her default by resuming her original loan payments. When the lender
accelerated the note a second time on November 19, 2015, the borrower filed a
quiet title action and claimed that Texas’s 4-year limitations period barred
enforcement of the lender’s lien. However, the lender had precisely calculated
the limitations period, adding 85 days for the automatic stay and 208 days for
the temporary injunction, which had equitably tolled the limitations period to
expire on March 28, 2014. Way to close to jumping past the comfort zone, the
lender preserved its ability to enforce the lien just in time by abandoning its
first acceleration on March 27, 2014.
I have found a recent 9th Circuit decision, Steinberger v. Ocwen Loan Servicing, 2018 U.S.
App. (9th Cir. June 28, 2018), that offers another
means of “escaping” the effect of a statute of limitations by showing that the
borrower had acknowledged the debt in separate writings - a forbearance
agreement and a hardship affidavit - and made required payments due on the note
during a trial modification period.
