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From Banking and Finance Law Daily, May 13, 2016

Form-letter reply implies inadequate response to RESPA error claim

By Richard A. Roth, J.D.

A consumer’s assertion that a mortgage servicer used a form letter to respond to her concerns that she had been overcharged was enough to imply that the servicer had not reasonably investigated her error claim, according to the U.S. Court of Appeals for the Eleventh Circuit. Reversing the dismissal of the consumer’s Real Estate Settlement Procedures Act claims, the court also said that the consumer had outlined both damages from the servicer’s claimed RESPA violations and a pattern and practice of violations (Renfroe v. Nationstar Mortgage, LLC, May 12, 2016, Martin, B.).

The consumer said that her problems began when the servicing rights to her loan were transferred to Nationstar Mortgage, which increased her monthly payments by about $100 without any explanation. Despite the consumer’s efforts to resolve the problem, the overcharge continued until she refinanced with a different lender.

Error claim and reply. After she refinanced, the consumer wrote Nationstar, asking for a detailed explanation of the payment increase and suggesting that the company either was improperly collecting for property taxes or using an incorrect amortization schedule. She submitted several documents with her letter. This constituted a claim of error under RESPA to which Nationstar was obligated to respond.

Nationstar denied there was any error, saying that relevant documents had been reviewed and had been found to comply with the relevant laws and regulations. The reply said that some loan documents had been attached; however, some of the documents had not been requested by the consumer, while others simply were the same documents she had sent the servicer.

The company’s reply described the kind of information that such documents would include, but it did not describe the contents of the specific documents that related to the consumer’s loan. The reply also neglected to address the consumer’s specific suggestions about the cause of the overcharge. Nationstar’s letter concluded by saying that the account "will continue to be serviced appropriate to its status," even though Nationstar no longer was the servicer.

Complaint and dismissal. The consumer sued Nationstar, claiming RESPA violations. As outlined by the opinion, she said that the company had failed to investigate the error she claimed, failed to respond to her notice, and failed to refund the overcharges.

The district court judge, however, disagreed with the allegation that RESPA had been violated. Nationstar’s assertion that it had reviewed the necessary records was enough to show that it had investigated the error claim, the judge decided, and the consumer also had failed to show how she had been damaged by any RESPA violation. In the absence of actual damages, no pattern or practice damages were possible, the judge added.

Failure to respond to error claim. RESPA requires a servicer either to correct an error claimed by a consumer or to determine there was no error after carrying out a reasonable investigation. In the latter case, the consumer is to be given a statement of the reasons for the decision that there was no error and told how relevant documents can be obtained.

Assuming that the consumer’s claims were true, Nationstar had not satisfied its obligations, the appellate court said. The company offered no reply about whether it was improperly collecting for tax payments and did not identify the amortization schedule it was using. The company conceded that its reply offered no reasons for its conclusions, the court pointed out. Nationstar’s letter did not give the reasons for its decision, as RESPA required.

The court explicitly rejected the company’s assertion that the conclusions it gave in its letter should be enough to override the consumer’s claims. On a motion to dismiss, the claims in the complaint are to be accepted as true, the court reminded Nationstar. The company’s conclusions that unknown documents supported its decision could not be accepted. "If servicers want to try to shelter behind their RESPA response letters, they must provide a more comprehensive, supported explanation of their findings, or else introduce the supporting attachments . . .," the court advised.

Damages. RESPA allows two types of damages—actual damages resulting from a violation proved by a consumer, and additional damages if a pattern and practice of violations is shown. The district court judge decided that neither had been shown. The appellate court disagreed with both conclusions.

Nationstar’s failure to reasonably investigate the consumer’s error claim could have damaged the consumer by denying her the refund she was owed, the court first said. While the overcharges themselves could not have been caused by the company’s RESPA violations, the court conceded, the failure to detect and refund the overcharges could have been caused by the failure to carry out a reasonable investigation.

The consumer had outlined a pattern and practice of RESPA violations, the court then said. There was no bright line as to how many violations were needed to constitute a pattern or practice, but precedent indicated that five would suffice. The consumer had described five claimed violations by Nationstar:

  • failing to investigate her claim of error;
  • providing generic documents in response to error claims regardless of the specific complaint raised;
  • using form letters that give boilerplate conclusions without responding to specific consumer error claims;
  • sending form response letter to consumers in at least four other cases; and
  • responding that the consumer’s loan would continue to be serviced, which showed that she had been sent a form reply.

The case is No. 15-10582.

Attorneys: Kenneth J. Riemer (Kenneth J. Riemer, Attorney at Law) for Margaret C. Renfroe. Gregory Carl Cook (Balch & Bingham, LLP) for Nationstar Mortgage, LLC.

Companies: Nationstar Mortgage, LLC

MainStory: TopStory AlabamaNews FloridaNews GeorgiaNews Mortgages RESPA

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