By John Rao
A borrower was recently denied the right to sue her servicer for noncompliance with the RESPA inquiry and dispute procedures simply because the P.O. Box number she used to send her written request to the servicer had a mistake in one digit. She mailed the letter to "PO Box 24726" rather than servicer's designated address at "PO Box 24736." Even though the servicer actually received and responded to the request, the court dismissed the borrower's complaint that the servicer's response was deficient. The trap that the borrower fell into is that she did not use the servicer's "exclusive address." The decision, Best v. Ocwen Loan Servicing, LLC, 2016 WL 125875 (E.D. Mich. Jan. 12, 2016), and a number of related new decisions on this issue, are discussed in the online version of NCLC's Foreclosures and Mortgage Servicing § 184.108.40.206.
The Exclusive Address Requirement
The obligation to comply with RESPA § 2605(e) is triggered simply by the servicer's "receipt" of a qualified written request (now referred to as a notice of error or request for information). However, a provision added to Regulation X permits servicers to establish, upon notice to the borrower, a separate and "exclusive" office and address for receipt and processing of qualified written requests.
This rule gave rise to extensive litigation before the recent Regulation X amendments, often with the issue being raised for the first time as a "gotcha" in litigation by defense counsel. The Consumer Financial Protection Bureau had the opportunity to fix the problems with the rule when the borrower inquiry and dispute procedures were significantly amended in 2013. Rather than make the provision more consistent with RESPA's remedial consumer purpose, the Bureau actually made matters worse for consumers.
How the New Rule Makes Matters Worse
Before the CFPB's new rules, a line of decisions had reached the reasonable conclusion that if the servicer actually receives the qualified written request, the only impact of the exclusive address rule is that it alters the timing for when the servicer needs to comply with the request. In other words, if the letter is received by the servicer (often established by its acknowledgement of receipt as required by RESPA), the clock begins to start for compliance purposes only after the letter is transferred internally to the "exclusive" department within the servicer's shop that handles borrower inquiries.
Unfortunately, language used by the CFPB in the final regulation undermines these decisions and suggests that a request sent to an address other than the exclusive address is not valid for purposes of RESPA enforcement, even if actually received. In describing the notice to be provided to borrowers about the exclusive address, §§ 1024.35(c) and 1024.36(b) provide: "The notice shall include a statement that the borrower must use the established address to assert an error [request information]." The court in Best v. Ocwen concluded that the "borrower must use" language "leaves no ambiguity" that a servicer has no duty to comply with a request that is not sent to the exclusive address.
Despite the CFPB's amendments, several new decisions added to § 220.127.116.11 still hold on to the earlier view that a request sent to a different address can be valid if received by the servicer, although one court suggests that it has become the "minority view." See, e.g., McMillen v. Resurgent Capital Servs., L.P., 2015 WL 5308236, at *6 (S.D. Ohio Sept. 11, 2015) (adopting the "minority view" on issue and concluding that "the statutory language indicates that receipt triggers the servicer's duty to respond under RESPA"); Allen v. Bank of Am., N.A., 933 F. Supp. 2d 716, 733 (D. Md. 2013) (letter sent by plaintiffs' friend to servicer's outside counsel that was forwarded to servicer was valid qualified written request because "§ 2605(e)(1) is triggered if the servicer "receives" the request, regardless of whether it was first directed to the servicer"). More case law on this issue can be found in the recently updated online version of NCLC's Foreclosures and Mortgage Servicing § 18.104.22.168.
Avoiding the Trap Where Servicer Fails to Disclose Adequately the Exclusive Address
The CFPB did make some improvements to the rule on the issue of how the servicer must notify borrowers about the exclusive address—if inadequate notice of the address, there is no requirement to send the request to that address. In addition, the servicer has the burden to prove that proper written notice of the designated address was provided to the borrower. Advocates should be skeptical of servicer attempts to establish this without proof of the practices and procedures that were in effect when the borrower request was sent. For example, a court recently rejected the defense where the servicer attempted to prove notice of the existence of an exclusive address based on a mortgage statement dated years after the borrower had sent the requests. See McClain v. Citimortgage, Inc., 2016 WL 269568 (N.D. Ill. Jan. 21, 2016). Section 22.214.171.124 not only discusses these requirements, but also several other practice tips for avoiding the exclusive address trap.