What is RESPA and Why Should You Care? Part 1
RESPA was enacted by Congress long before the subprime mortgage bubble popped in 2007 and was primarily designed to create standards for full and fair disclosure of the financial terms for residential loan closings. Leaving aside RESPA's effect on transparency at the closing table, RESPA does provide meaningful rights and remedies for victims of mortgage servicing abuse.
Borrowers can be faced with foreclosure for many reasons beyond their control, including improperly or misapplied payments, failure to recognize a loan modification or forbearance agreement, failure to properly pay or account for taxes, improper "forced placed" insurance covering flood hazards or for various other reasons. RESPA provides a mechanism for a borrower to bring an error to the servicer’s attention for immediate correction. [i] Lenders may be liable for delaying responses to or ignoring such requests. Even if the borrower's financial hardship caused a loan default, RESPA violations provide affirmative relief and bear attorney fees.
RESPA contains two significant post-closing protections. Under RESPA, borrowers have a right to timely acknowledgement of and answers to their questions about charges and loan terms, including any issues that arise as described above. The borrower’s questions must be in writing and sent to the proper address and is known as a “Qualified Written Request." Section 6 of RESPA creates a private right of action for damages and attorney fees for failure to timely acknowledge and respond to written requests from borrowers.
In addition, Section 10 of RESPA limits the amounts lenders may demand and retain in escrow accounts for payment of insurance and taxes. RESPA further requires the lender to timely make disbursements and pay any penalties due to late payments. If insurance is cancelled due to the lender’s failure to make timely payment or forced placed insurance is improperly issued, a borrower may bring a private action under RESPA. This can be significant because lenders inflate the cost of forced placed insurance and those fees can tip a struggling borrower into foreclosure.
In order for a borrower’s question or complaint to be considered, a “qualified written request" (QWR), RESPA requires that it be written correspondence, separate from any payment coupon or payment medium. It must contain the name and account number of the borrower. It must be about the servicing of a “federally related mortgage loan." Finally, it must include a statement of reasons for the belief the account is in error or give sufficient detail regarding information sought and request information relating to the servicing of a loan. [ii] “RESPA does not require any magic language before a servicer must construe a written communication from a borrower as a qualified written request and respond accordingly." [iii] A facsimile may constitute a qualified written request if it contains all of the information required to qualify under RESPA as a “Qualified Written Request." [iv]
Within twenty business days following receipt of a QWR, a servicer must provide to the borrower a written response acknowledging receipt of the QWR. [v] Failure of a loan servicer to acknowledge receipt of a QWR within 20 days is a violation of RESPA. [vi]
Within sixty business days following receipt of a QWR, a servicer has a duty to complete an investigation, make any corrections and report back in writing to the consumer the results. [vii] More specifically RESPA provides:
(3) Action with respect to the inquiry. Not later than 60 business days after receiving a qualified written request from the borrower and, if applicable, before taking any action with respect to the inquiry, the servicer shall:
(i) Make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of the correction. This written notification shall include the name and telephone number of a representative of the servicer who can provide assistance to the borrower; or
(ii) After conducting an investigation, provide the borrower with a written explanation or clarification that includes:
(A) To the extent applicable, a statement of the servicer's reasons for concluding the account is correct and the name and telephone number of an employee, office, or department of the servicer that can provide assistance to the borrower; or
(B) Information requested by the borrower, or an explanation of why the information requested is unavailable or cannot be obtained by the servicer, and the name and telephone number of an employee, office, or department of the servicer that can provide assistance to the borrower. [viii]
Failure to investigate, correct and report correction of the account constitutes a RESPA violation.
[i]A sample QWR is available from HUD. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/ramh/res/reslettr; accessed August 28, 2012.
[ii] 12 U.S.C. § 2605(e)(1)(B). Byrd v. Guild Mortg. Co., 2011 WL 6736049, *2 (S.D. Cal 2011). Obot v. Wells Fargo Bank, N.A., 2011 WL 5243773, 2 (N.D. Cal. 2011)(“In order to qualify as a QWR, the correspondence must satisfy several statutory requirements. Among other things, and most pertinent to the discussion here, a QWR must request information relating to the servicing of a loan. RESPA defines the term ‘servicing’ to mean ‘receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan ... and making the payments 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 loan."’); see also, Lawther v. OneWest Bank, FSB, 2012 WL 298110, 14 (N.D. Cal 2012)( “‘Not all requests that relate to the loan are related to the servicing of the loan’ Williams v. Wells Fargo, 2010 WL 1463521, *3 (N.D. Cal 2010). ‘A loan servicer only has a duty to respond if the information request is related to loan servicing.’ Copeland v. Lehman Bros. Bank, FSB, 2010 WL 2817173, *3 (S.D. Cal 2010)").
[iii] Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 687 (7th Cir. 2011).
[iv] McGinnis v. American home Mortg. Servicing, Inc., 2012 WL 426022, *3 (M.D. Ga. 2012).
[v] 24 CFR § 3500.21(e)(1).
[vi] 24 CFR § 3500.21(e)(1).
[vii] 12 U.S.C. § 2605(e)(1) & (3).
[viii] 24 CFR § 3500.21(e)(3)(regulation enforcing 12 U.S.C. § 2605(e)(2)).