Construing the Nuances of the QWR

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.

Will the real borrower please stand up?

A large servicing client called me about feeling she is a sitting duck when it comes to servicing litigation, most especially in the loss mitigation area. The caller, the company’s Chief Compliance Officer, referenced the “loss mitigation option” and felt that there is a tremendous burden placed on the servicer to implement the applicable guidelines.

The conversation went something like this.

Me: I feel for you, but this rule was not designed to assuage your inconvenience.

She: Maybe so, but I think there should be an Article III procedure to strengthen these litigation attacks, so that it is more of a two-way street.

Me: Well, under RESPA, only a borrower may bring a civil action and only a borrower would have Article III standing.

She: Wait, what?

Me. That’s correct. In fact, in this instance there has been litigation to determine who is entitled to the loss mitigation protections, and that is given Article III requirements being judicially applied.

[Long Pause.]

She: We are going to have to take yet another close, hard look at our procedures!

First, let’s get the “Article III” terminology out of the way. It is pretty much well settled now that there are constitutional requisites under Article III for the existence of standing; that is, the party seeking to sue must personally have suffered some actual or threatened injury that can fairly be traced to the challenged action of the defendant and that the injury is likely to be redressed by a favorable decision. For the most part, there must be a causal connection between the injury and the conduct complained.

Loan Statements to Consumers in Bankruptcy

Recently, I had a conversation with an attorney whose clients are in bankruptcy. Knowing that we have an entire group devoted to servicing compliance, he wanted to know why his clients were receiving loan statements again. It made no sense to him, since there was a time when borrowers in bankruptcy stopped receiving loan statements.

Actually, withholding of loan statements stems from confusion by courts. But I’ll get to that in a moment.

The fact is that, if you’ve represented borrowers in bankruptcy, you may remember a time when they received periodic residential loan statements from their mortgage servicer, much like they did before filing for bankruptcy protection. But you might also remember a time when the delivery of these loan statements to debtors suddenly ceased, with no explanation.

So, under the circumstances, my interlocutor certainly had a right to be confused.

The practice of withholding statements when a borrower files bankruptcy emerged out of confusion by courts, debtors, creditors, and the financial industry over whether sending statements was a violation of the automatic stay.

Case law was the culprit. For instance, in Garske v. Arcadia Financial, Ltd. (287 B.R. 537 (9th Cir. B.A.P. 2002) and Ramirez v. General Motors Acceptance Corporation (273 B.R. 620; Bankr. C.D. Cal. 2002), the bottom line is that there was no violation of the automatic stay or discharge injunction if the debtor intends to keep the property. Furthermore, In re Ennis (Case No. 14-02188-5-SWH; Bankr. E.D. N.C 2015) held that a motion for sanctions was denied because the court did not find that the debtor was damaged by erroneously generated post-petition statements, although the court deemed the generation of statements a willful violation of automatic stay. I know; I know. Kind of a distinction without a difference. Finding it too risky to be dragged into court, the financial industry veered hard right and took the most extreme approach and stopped sending statements to borrowers who had filed bankruptcy until the automatic stay was modified by the courts.

Confused yet?

Not yet? Good. So, let’s move on.