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Mortgage Servicing and Loan Modifications: 3.3.6.3 Use of Multiple Offices and Internet Intake

A servicer is not required to designate an address for receipt of both notices of error and requests for information, but if they do, the same address must be used for both notices and requests.353 The official interpretations of Regulation X indicate that a servicer may designate multiple office addresses for receiving notices and requests, such as different addresses for borrowers located in certain states or regions.354 This could create confusion for borrowers who may have misplaced the init

Mortgage Servicing and Loan Modifications: 3.3.6.4 Failure to Send Notice or Request to Exclusive Address

The exclusive address requirement has produced extensive litigation, often with the issue being raised for the first time as a “gotcha” by defense counsel. Failure to send a notice or request to the servicer’s exclusive address often results in dismissal of the borrower’s claim under RESPA § 2605(e).357 The CFPB had the opportunity to fix problems with the rule when the borrower inquiry and dispute procedures were significantly amended in 2013.

Mortgage Servicing and Loan Modifications: 3.3.7 Who Can Send a Request or Notice?

A servicer is required to respond to a notice of error, request for information, or qualified written request that is sent by the borrower or the borrower’s “agent.”368 A letter seeking an itemized payoff on a mortgage sent by a non-attorney housing counselor that did not specifically identify the counselor as the agent of the borrower was held to be a qualified written request when the servicer had previously received the borrower’s authorization for release of information to the counseling agency.369

Mortgage Servicing and Loan Modifications: 3.3.8 When to Send a Request or Notice: Following Transfer of Servicing or Discharge of Loan?

Though not addressed in RESPA, Regulation X imposes a condition based on whether the borrower inquiry is timely. A written request need not be treated as a qualified written request, notice of error, or request for information if it was delivered to the servicer more than one year after either (1) “servicing for the mortgage loan . . . was transferred from the servicer receiving the [notice of error or request for information] to a transferee servicer,” or (2) “the mortgage loan is discharged.”376

Mortgage Servicing and Loan Modifications: 3.3.9.1 Generally

The receipt of a qualified written request, notice of error, or request for information triggers certain obligations on the part of the servicer.391 These obligations are mandatory and demand strict compliance.392 Even an “unintentional” act or omission can be a violation of RESPA § 2605(e)(2), as in the case of a servicer who claimed to be unable to respond to a qualified written response because a prior servicer had not forwarded evidence of misapplied payments made by the borrower and other n

Mortgage Servicing and Loan Modifications: 3.3.9.2.3 Reasonable investigation of error

Significantly, section 2605(e) is not simply a disclosure statute; it requires that servicers take affirmative action to investigate and correct a servicing error if an account dispute is asserted in a qualified written request or notice of error.434 By invoking the protections of section 2605(e), borrowers can challenge the misapplication of payments, improper evaluation of loss mitigation application, escrow overcharges, improper late fees or other charges, or any erroneous claim of default.435

Mortgage Servicing and Loan Modifications: 3.3.9.2.1 Overview

Effective January 10, 2014, the servicer must acknowledge receipt of a notice of error within five days (excluding holidays, Saturdays, and Sundays) after receiving the notice.395 Alternatively, the servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements if it corrects the error or errors asserted by the borrower, and notifies the borrower in writing of the correction, within the five business day period.396

Mortgage Servicing and Loan Modifications: 3.3.9.2.2 Servicer remedies during response period; prohibition on adverse credit reporting

During the sixty-day period beginning upon receipt by a servicer of a qualified written request or notice of error relating to a payment dispute, the servicer cannot give any adverse information to a credit reporting agency concerning the payments subject to the request.420 Although the response period to a notice of error was shortened from sixty to thirty business days effective January 10, 2014, RESPA and Regulation X continue to provide a prohibition on adverse reporting for sixty days after receipt of a notice of error (or qualified writ

Mortgage Servicing and Loan Modifications: 3.3.9.3.1 Overview

Effective January 10, 2014, the servicer must acknowledge receipt of a request for information within five days (excluding holidays, Saturdays, and Sundays) after receiving the request.449 Alternatively, the servicer need not provide this acknowledgment or otherwise satisfy the compliance requirements if it provides the borrower with the information requested, and notifies the borrower in writing of contact information (including a telephone number) for further assistance, within the five business day period.

Mortgage Servicing and Loan Modifications: 3.3.9.4 Compliance with Qualified Written Requests Prior to January 10, 2014

For qualified written requests sent before January 10, 2014, the servicer must initially provide a written response acknowledging receipt of a qualified written request within twenty days (excluding holidays, Saturdays, and Sundays).476 The servicer need not provide this acknowledgment if it takes the requested action within the twenty day period and provides notice of that action to the borrower.477

Mortgage Servicing and Loan Modifications: 3.3.9.5 No Litigation Exemption

A servicer is not relieved of its obligations under section 2605(e)(2) simply because a borrower inquiry is made while litigation is pending between the parties. Nothing in the Act or Regulation X precludes a qualified written request, notice of error, or request for information from being sent during litigation or while a borrower’s bankruptcy is pending, even if the information sought might be obtained under applicable discovery rules.483

Mortgage Servicing and Loan Modifications: 3.3.10 Prohibition on Charges for Responding to a Request or Notice

The Dodd-Frank Wall Street Reform and Consumer Protection Act added a new subsection 2605(k)(1)(B) to RESPA which clarifies that a servicer shall not charge a fee for responding to a “valid qualified written request.”486 This provision has been implemented by Regulation X § 1024.35(h) for notices of error and section 1024.36(g) for requests for information.487 A servicer is prohibited from charging a fee, or requiring a borrower to make any payment that may be owed on a borrower’s account, as a

Mortgage Servicing and Loan Modifications: 3.3.12 Pleading a Section 2605(e) Violation

A huge number of court actions were brought in response to the recent foreclosure crisis by unrepresented homeowners and inexperienced attorneys. This has produced numerous decisions, particularly from the U.S. District Courts, in which complaints alleging RESPA § 2605(e) violations were dismissed for failure to sufficiently plead the elements of the cause of action.

Mortgage Servicing and Loan Modifications: 3.4.1 Introduction

Typically, a mortgage loan will be assigned or sold several times during its term, and may be held by one entity but serviced by another. Section 2605(a) provides that the originating lender of a mortgage loan must disclose whether servicing of the loan may be transferred during the term of the mortgage. In addition, the borrower must be notified if servicing of the loan is transferred from one entity to another after the loan is made.

Mortgage Servicing and Loan Modifications: 3.4.2 Disclosure at Time of Loan Application

Section 2605(a) requires that at the time of application for a mortgage loan, any person who makes a mortgage loan covered by RESPA must disclose to each applicant whether the servicing of the loan may be assigned, sold, or transferred at any time during the term of the mortgage.508 This RESPA provision is implemented by Regulation X, and was initially applicable to all mortgage loans other than subordinate-lien mortgage loans.509 However, the RESPA requirement was later included by the CFPB in

Mortgage Servicing and Loan Modifications: 3.4.3.1 Generally

If the servicing of a mortgage is actually transferred after the mortgage loan is made, RESPA requires that the former servicer (transferor) must notify the borrower in writing fifteen days before the effective date of the transfer.528 Such a notice need not be given, however, if the lender provided it at loan closing.529 In addition, the new servicer (transferee) must provide the identical notice to the borrower not more than fifteen days after the effective date of the transfer.

Mortgage Servicing and Loan Modifications: 3.4.4 Pleading a Transfer Requirement Violation

A servicer’s failure to provide the borrower with a transfer notice or the grace period for payments gives rise to a private right of action.562 When pleading a cause of action for transfer notice violations, the plaintiff should specifically allege which defendant failed to give the notice (transferee, or transferor servicer, or both), when the alleged transfer took place (the effective date of transfer), and which entities were involved in the transfer (or charging of fees) and had the duty to notify the plaintiff of the transfer or provide

Mortgage Servicing and Loan Modifications: 3.5.1 Introduction

Escrow accounts are typically required by lenders and servicers to ensure payment of taxes, insurance, or other charges. These accounts are most commonly established and initially funded at the time of the loan settlement. After settlement, a portion of the borrower’s mortgage payment is allocated to the escrow account.

Mortgage Servicing and Loan Modifications: 3.5.2.1 Generally

RESPA requires that a lender or servicer perform an escrow account analysis at the time an account is established and annually thereafter.575 An “escrow account analysis” means the accounting that a servicer conducts to determine: (1) the appropriate target balances for the escrow items (for example, taxes, insurance) to be paid under the account; (2) the borrower’s monthly escrow payments for the upcoming twelve-month period; and (3) whether any surpluses, shortages, and deficiencies exist.576

Mortgage Servicing and Loan Modifications: 3.5.2.2 General Limits on Escrow Deposits

Once an escrow account has been established, RESPA prohibits a servicer from requiring a borrower to pay into the escrow account a monthly amount greater than one-twelfth of the total of all disbursements payable during the computation year.585 The servicer may also require a “cushion” on the account which may not exceed an amount equal to one-sixth of the total disbursements for the year (the equivalent of two months of escrow payments).