Eleventh Circuit Holds That Servicer Did Not Violate RESPA by Not Evaluating Loss Mitigation Application

The United States Court of Appeals for the Eleventh Circuit recently held that a loan servicer did not violate the Real Estate Settlement Procedures Act (“RESPA”) when it did not evaluate an untimely loss mitigation application or when it issued a form response to a notice of error.  See Lage v. Ocwen Loan Servicing LLC, 2016 WL 5864507 (11th Cir. Oct. 7, 2016).  Pursuant to Regulation X of RESPA, if a servicer receives a loss mitigation application from a mortgagor more than 37 days prior to a foreclosure sale, it must evaluate all loss mitigation options and inform the borrower in writing of its determination regarding the same.  12 CFR 1024.41(c).  A servicer may not conduct a foreclosure sale while a timely and properly-filed application is pending.  Likewise, a servicer must investigate and respond to a notice from a borrower that the servicer failed to provide accurate loss mitigation options to a borrower.  12 CFR 1024.35.  Specifically, “the servicer must either correct the errors the borrower identified and notify the borrower in writing or, after a reasonable investigation, notify the borrower in writing that it has determined no error occurred and explain the basis for its decision.” 

In the case, the plaintiffs first submitted their loss mitigation application three weeks before the scheduled date of the sheriff’s sale, and did not complete the application until two days before that scheduled date.  The sale was then cancelled and rescheduled for six weeks later—i.e., more than 37 days later.  Five days before the sale, the servicer informed the plaintiffs that their application had been rejected as untimely.  The plaintiffs then submitted a notice of error letter to the servicer.  After acknowledging receipt, the servicer provided a generic denial letter to the plaintiffs.  The plaintiffs then filed this action, alleging violations of the two aforementioned provisions of Regulation X.  After discovery, the district court granted the servicer summary judgment and the plaintiffs appealed. 

On appeal, the Eleventh Circuit affirmed.  First, it held that the fact that the sheriff’s sale was adjourned to a date more than 37 days from the date the plaintiffs submitted their complete application was irrelevant.  Under the plain language of Regulation X, the determination of whether an application is timely “shall be made as of the date a complete loss mitigation application is received.”  Therefore, because the sheriff’s sale was only two days away when the plaintiffs completed their application, it was untimely and the servicer did not have to evaluate it regardless of the adjournment.  Second, the court found that the plaintiffs did not properly allege damages in support of their claim that the servicer had not responded to their notice of error, which was fatal to that claim.  The only actual damages alleged by the borrowers were with regard to the loss mitigation application, and the court’s holding that there was no RESPA violation there eliminated the plaintiffs’ claim for actual damages.  Thus, the only other way the plaintiffs could have alleged damages would be by alleging that the servicer engaged in a “pattern and practice” of noncompliance.  Although the borrowers argued that it would be unreasonable to believe the servicer would create a form letter and not send it to multiple consumers, the borrowers did not set forth any evidence that any borrowers other than themselves received the letter.  Therefore, this claim failed as well.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Michael Crowley at mcrowley@riker.com.