Borrowers Questions Good Enough to Require Response From Lender Under RESPA; Summary Judgment Overturned by Seventh Circuit
The Seventh Circuit has reversed a summary judgment that GMAC had obtained in District Court against a complaint alleging violations of RESPA section 12 U.S.C. 2605(e), which requires a lender to investigate and respond when a borrower makes a “Qualified Written Request” (“QWR”) asking for information or reporting an error in their account. (Catalan v. GMAC Mortgage Corp. __ F 3d __ (7th Cir. January 10, 2011))
The borrowers in this case tell a sad story of mistakes and obtuse responses, compounded by an assignment of the loan to GMAC in the middle of the problems. Borrowers purchased a home in June 2003 and obtained a 5.5% 30 year fixed loan from RBC Mortgage Company, which would set most people on a happy course. However, unknown to the borrowers, RBC miscoded the loan so that the first payment was due in July, rather than in August, which was the correct date. This set off a daisy chain of errors, returned and mis-credited checks and miscommunications.
While the home was in a slow-motion foreclosure process, with several payments being made, some of which were correctly credited, RBC assigned the loan to GMAC. GMAC continued to send incorrect communications, including demands for payment and reports of renewed assignment for foreclosure and alleged delinquency reports to credit agencies. In 2005, through the intercession of HUD, the financial issues were resolved, with the borrowers not paying any fees or penalties.
Borrowers sued under 12 U.S.C. 2605(e), which requires a loan servicer to acknowledge and respond to a QWR that requests information or states reasons for the borrower’s belief that the account is in error. The QWR must include the name and account of the borrower or must enable the servicer to identify them.
Within 60 days after receiving a QWR, a loan servicer must (1) make appropriate corrections to the borrower’s account and notify the borrower in writing of the corrections; (2) investigate the borrower’s account and provide the borrower with a written clarification as to why the servicer believes the borrower’s account to be correct; or (3) investigate the borrower’s account and either provide the requested information or provide an explanation as to why the requested information is unavailable. The servicer must provide a name and telephone number of a person who can assist the borrower.
The borrowers contended that five written communications they had sent were QWRs. The Court of Appeal agreed as to two, one of which was relayed through HUD, finding that they adequately reported an error in the account that triggered the response requirement. The other communications merely stated requests for handling of the loan, but did not adequately request information or report errors. The District Court had found that GMAC qualified for a safe harbor based on its eventual correction of the account records, but the appellate court found that GMAC did not properly “notif[y] the person concerned of the error” and therefore did not qualify for the safe harbor.
The Court of Appeal also
•reinstated the borrower’s breach of contract cause of action. The District Court had agreed with GMAC that the borrowers themselves had first breached the contract by failing to make payment, although GMAC had refused to apply the checks that the borrowers had sent. The appellate court felt that a reasonable jury could conclude that borrowers had done their best.
•Agreed that no tort could be stated. Under the economic loss doctrine, there can be no tort recovery for economic losses based on failure to perform contractual obligations.
•Found that borrowers had adequately stated recoverable damages based on rejections of several loan applications, including three loans at LaSalle Bank. (“We are not quite done yet,” the Court states on page 36 of its opinion) Although a LaSalle loan officer testified that the loan applications would have been rejected regardless of the issues in this case, borrowers were permitted to introduce a statement by a LaSalle loan officer told her that borrowers’ loan applications would not be approved until their foreclosure was removed. GMAC contended that this was “classic” hearsay, but the Court found that the statement either was not hearsay because it was a statement of the bank’s intentions or was admissible under the state of mind exception.