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5th Circuit: Loan originators cannot be liable for loan servicers’ violations of RESPA loss mitigation requirements
On December 21, the U.S. Court of Appeals for the 5th Circuit held that a mortgage loan originator cannot be held vicariously liable for a loan servicer’s failure to comply with the loss mitigation requirements of RESPA (and its implementing Regulation X). According to the opinion, in response to a foreclosure action, a consumer filed a third-party complaint against her loan servicers and loan originator alleging, among other things, that the loan servicers had violated Regulation X’s requirement that a servicer evaluate a completed loss mitigation application submitted more than 37 days before a foreclosure sale. In subsequent filings, the consumer clarified that the claims against the loan originator were for breach of contract and vicarious liability for one of the loan servicer’s alleged RESPA violations. The district court dismissed both claims against the loan originator and the consumer appealed the dismissal of the RESPA claim.
On appeal, the 5th Circuit affirmed the dismissal for two independent reasons. First, the 5th Circuit noted it is well established that vicarious liability requires an agency relationship and determined the consumer failed to assert facts that suggested such a relationship existed. Second, in an issue of first impression at the circuit court stage, the court ruled that, as a matter of law, the loan originator could not be vicariously liable for its servicer’s alleged violations of RESPA, as the applicable statutory and regulatory provisions only impose loss mitigation requirements on “servicers,” and therefore only servicers could fail to comply with those obligations. The appellate court reasoned that Congress explicitly imposed RESPA duties more broadly in other sections (using the example of RESPA’s prohibition on kickbacks and unearned fees that applies to any “person”), but chose “a narrower set of potential defendants for the violations [the consumer] alleges.” The court concluded, “the text of this statute plainly and unambiguously shields [the loan originator] from any liability created by the alleged RESPA violations of its loan servicer.”
Court holds RESPA loss mitigation claim is ripe prior to a foreclosure sale
On August 14, the U.S. District Court for the Northern District of Illinois held that RESPA (and its implementing Regulation X) does not require a plaintiff to wait until a property is foreclosed upon to bring an action for a violation of Regulation X’s loss mitigation requirements. The plaintiff filed a complaint against her mortgage servicer for (among other claims) allegedly violating RESPA when the company initiated a foreclosure action while she had a pending loss mitigation application, even though the company did not ultimately foreclose on the property. The company moved to dismiss the RESPA claim as unripe and the court disagreed, finding there is no language in the statute or implementing regulation that states a plaintiff must wait. Conversely, the implementing regulation “expressly states that the prohibited action is a servicer making ‘the first notice or filing required by applicable law…’” and, therefore, the plaintiff’s claim did not fail for lack of ripeness. The court ultimately dismissed the plaintiff’s action against the company, however, finding the plaintiff did not adequately plead actual damages, and granted the plaintiff leave to file an amended complaint.
CFPB updates TRID Small Entity Compliance Guide and Guide to Forms
On May 15, the CFPB released the 2018 updated versions of the “Know Before You Owe” mortgage disclosure rule Small Entity Compliance Guide (versions 4.1 and 5.2) and Guide to Forms (versions 1.5 and 2.1). Because the optional compliance period with the 2017 TILA-RESPA Integrated Disclosure Rule (TRID) extends through October 1, the CFPB updated both versions of each guide. Additionally, all four versions are updated with the 2018 TRID changes (covered by InfoBytes here), which will become effective prior to the end of the 2017 optional compliance period.
Pennsylvania adopts CFPB mortgage servicing regulations
On April 28, the Pennsylvania Department of Banking and Securities adopted regulations to effectively incorporate Subpart C of the CFPB’s RESPA mortgage servicing regulations (Regulation X), which were amended effective as of April 19. The adopted regulations address, among other things, (i) disclosure requirements; (ii) mortgage servicing transfers; (iii) escrow payments and account balances; (iv) forced-place insurance; and (v) loss mitigation procedures. The adopted regulations were effective on April 28.
Federal Reserve releases updates to interagency examination procedures for Regulations X and Z
On April 19, the Federal Reserve Board (Fed) issued a consumer affairs letter (CA 18-3) announcing revised interagency examination procedures for Regulation X (RESPA) and Regulation Z (TILA) that supersede procedures previously issued in September 2015. The updated procedures account for amendments to mortgage servicing rules under Regulations X and Z that took effect October 19, 2017 (see previous InfoBytes coverage here), as well as amendments to Regulation Z published by the CFPB through April 2016, including rules concerning small creditors’ mortgage lending to rural and underserved areas. However, the Fed stated in its letter that, at this time, the updated procedures do not incorporate Regulation Z amendments concerning the CFPB’s TILA-RESPA integrated disclosure rule or those regarding prepaid accounts. These amendments will be addressed in a future update.
CFPB updates mortgage servicing Small Entity Compliance Guide, releases mortgage servicing coverage chart
On March 29, the CFPB released version 3.1 of its mortgage servicing Small Entity Compliance Guide. The updated guide supports the implementation of the 2016 Mortgage Servicing Final Rule, including the amendment to the Rule released earlier this month. The Rule replaces the previous single-billing-cycle exemption with a single-statement exemption when servicers transition to providing modified or unmodified periodic statements and coupon books to consumers entering or exiting bankruptcy. See previous InfoBytes coverage here. The Bureau also released a mortgage servicing coverage chart, which summarizes the mortgage servicing rules that will be in effect as of April 19.
CFPB releases FAQs on bankruptcy issues under the 2016 Mortgage Servicing Final Rule
On March 20, the CFPB released updated FAQs to support the implementation of the 2016 Mortgage Servicing Final Rule. Specifically, the updated FAQs pertain to the mortgage-servicing provisions regarding bankruptcy, which are effective April 19. The CFPB released ten bankruptcy-related question and answers. The bankruptcy topics include periodic statements, coupon books, reaffirmation, successors in interest, and timing of compliance.
As previously covered by InfoBytes, the CFPB recently issued a final rule updating technical aspects of the upcoming periodic statement requirements for borrowers in bankruptcy under Regulation Z.
CFPB Issues Interim Final Rule Regarding Foreclosure Communications; Seeks Comment on Proposed Rule About Periodic Statements During Bankruptcy
On October 4, the CFPB announced one change and one proposed change to the amendments to its mortgage servicing rules under Regulations X and Z. These amendments, which were previously covered by a Buckley Sandler Special Alert, are scheduled to take effect in two phases on October 19, 2017 and April 19, 2018.
First, the CFPB amended the amendments to Regulation X’s provision regarding early intervention notices in order to address timing issues that result when a borrower has invoked his or her cease in communication rights under the FDCPA. Had the most recent amendment not been made, a mortgage servicer subject to a cease in communication request would have been required to provide a modified early intervention notice to the borrower every 180 days but not more than once during any 180-day period, leaving no margin for error and creating operational challenges if the 180th day fell on a weekend or holiday. Based on concerns from the mortgage industry the CFPB issued an interim final rule without advance public comment to give servicers a 10-day window to provide the modified notices at the end of the 180-day period. The interim final rule becomes effective on October 19, 2017, at the same time the broader amendments to the early intervention requirements take effect.
Second, the CFPB proposed to update technical aspects of the upcoming periodic statement requirements for borrowers in bankruptcy. Specifically, the CFPB is seeking public comment on changes to the transition rules for borrowers who enter or leave bankruptcy, including replacing the single-billing-cycle exemption with a single-statement exemption for the next periodic statement the servicer would have to provide regardless of when in the billing cycle a triggering event occurs. The Bureau proposed that these amendments take effect on April 19, 2018, at the same time as the new periodic statement requirements for borrowers in bankruptcy.
The comment period on both the interview final rule and the proposed rule will close 30 days after publication in the Federal Register.
Eleventh Circuit Rules that Return of a Certified Mail Receipt Satisfies Regulation X of RESPA
In a per curiam opinion issued on March 1, 2017, the Eleventh Circuit Court of Appeals affirmed the dismissal of a complaint alleging that a mortgage servicer had violated Regulation X of the Real Estate Settlement Procedures Act (“RESPA”) by failing to “correctly or timely acknowledge receipt of his [written request for information (“RFI”)].” See Meeks v. Ocwen Loan Servicing LLC, [Order] No. 16-15536 (11th Cir. Mar. 1, 2017). Regulation X requires that, within five days of receiving an RFI, mortgage servicers must “provide to the borrower a written response acknowledging receipt of the information request.” 12 C.F.R. § 1024.36(c). Plaintiff alleged that the mortgage servicer violated 12 C.F.R. § 1024.36(c) when it signed and sent a Certified Receipt on the same day as receiving the RFI and when it sent a substantive response nine days later. Plaintiff sought actual damages of less than $100 and attorneys’ fees and costs.
The Eleventh Circuit ruled, as a matter of first impression, that the mortgage servicer’s return of the Certified Receipt , which the plaintiff’s attorney “unquestionably received,” satisfied Regulation X. Alternatively, the Court affirmed the district court’s decision because the plaintiff “did not suffer any compensable damages from [the] alleged violation” and plaintiff’s counsel’s notice of error “falsely question[ed] the servicer’s receipt in order to create a claim for damages.” As to the claim for statutory damages, the Eleventh Circuit held that the plaintiff lacked Article III standing because he did not suffer a concrete injury-in-fact. Rather, because the plaintiff (and his attorney) “had undisputed actual knowledge of receipt of the RFI,” plaintiff “suffered at most ‘a bare procedural violation.’”
CFPB Seeks Public Comment on its Plans for Assessing RESPA Mortgage Servicing Rule
On May 4, the CFPB issued a request for comment on its plans for assessing the 2013 Real Estate Settlement Procedures Act (RESPA) servicing rule’s effectiveness in meeting the purposes and objectives outlined in the Dodd-Frank Act, which requires the CFPB to assess each significant rule or order it adopts under Federal consumer financial laws. According to the request for comment and a May 4 blog post on the CFPB’s website, the self-assessment will focus on objectives to ensure that: (i) “[c]onsumers are provided with timely and understandable information to make responsible decisions about financial transactions”; (ii) “[c]onsumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination”; (iii) “[o]utdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens”; (iv) “[f]ederal consumer financial law is enforced consistently”; and (v) “[m]arkets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
In 2013, the Bureau adopted the 2013 RESPA Servicing Final Rule and further amended the rule several times to address questions raised by the industry, consumer advocacy groups, and other stakeholders. The CFPB deemed the 2013 RESPA Servicing Final Rule, effective January 10, 2014, a “significant rule” for purposes of the Dodd-Frank Act. Importantly, however, in Footnote 10 of its most-recent request for comment, the Bureau clarifies that it “is not seeking comment on the amendments to the mortgage servicing rules that became or will become effective after the January 10, 2014 effective date.” (emphasis added) Accordingly, it appears that the Bureau is not presently seeking comments on the Amendments to Regulation X and Regulation Z that the CFPB published as a Final Rule (12 CFR Parts 1024 and 1026) in the October 19, 2016 edition of the Federal Register – see earlier InfoBytes coverage here – and which are slated to take effect in part on October 19, 2017 and in full on April 19, 2018.