The United States District Court for the District of New Jersey recently denied a loan servicer’s motion to dismiss a borrower’s claim that the servicer violated the Real Estate Settlement Procedures Act (“RESPA”) by failing to properly respond to the borrower’s loss mitigation applications and Notice of Error. See Grembowiec v. Select Portfolio Servicing, Inc., 2019 WL 3183588 (D.N.J. July 16, 2019). In May 2018, the plaintiff borrower submitted a loss mitigation application to the defendant servicer. Defendant responded and informed plaintiff that the submitted documents were insufficient. Although plaintiff sent additional documents, defendant later sent another letter saying the application had been terminated because there had been no activity on the file. Plaintiff then submitted a Notice of Error stating defendant had failed to properly address the application. Defendant responded claiming no error occurred. In September 2018, plaintiff submitted a second mitigation application, and defendant again requested more documents. Plaintiff again submitted the requested documents but defendant did not respond. Plaintiff then brought this action alleging violations of RESPA, and defendant filed a motion to dismiss.
The Court denied the motion. First, it found that plaintiff had alleged a violation of 12 CFR § 1024.41(b)(2)(i)(B), which states that a servicer must exercise reasonable diligence in obtaining documents for a loss mitigation application, and “[i]f a loss mitigation application is incomplete, the notice [from the servicer] shall state the additional documents and information the borrower must submit to make the loss mitigation application complete[.]” Here, the servicer twice responded to plaintiff’s mitigation applications by stating that additional documents were needed but not specifying which ones, and instead stating, “[p]lease contact us . . . so we can provide clarification on what is needed.” The Court also found that plaintiff sufficiently alleged that defendant failed to acknowledge that the loss mitigation applications were complete once plaintiff submitted the additional documentation, in violations of 12 CFR § 1024.41(c)(3).
Second, the Court found that plaintiff had alleged a violation of 12 CFR § 1024.35 by failing to properly respond to plaintiff’s Notice of Error. Servicers are required to respond to a Notice by either correcting any errors or “[c]onducting a reasonable investigation” and informing the borrower that no error occurred. Here, defendant’s response to the Notice of Error was that no error occurred because it requested two bank statements and plaintiff only submitted one. However, plaintiff’s Complaint attached defendant’s actual response to the Notice, which clearly requested only one bank statement. Thus, the Court found that “Defendant’s contradictory assertions as to how many bank statements it required plausibly indicates that Defendant failed to conduct a reasonable investigation into the First Notice.”
Finally, the Court confirmed that plaintiff adequately pleaded actual damages, including the attorneys’ fees incurred in responding to defendant’s correspondence. Nonetheless, the Court found that plaintiff could not seek damages based on her allegation that interest rates increased during the period when defendant delayed, because even if defendant had responded to plaintiff’s applications appropriately, nothing obligated defendant to provide plaintiff with any loss mitigation option.