The United States Court of Appeals for the Seventh Circuit recently affirmed a district court’s grant of summary judgment to a loan servicer on a Real Estate Settlement Procedures Act (“RESPA”) claim when the borrowers could not sufficiently allege any connection between their alleged injury and the RESPA violation.  See Diedrich v. Ocwen Loan Servicing, LLC, 2016 WL 5852453 (7th Cir. Oct. 6, 2016).  In the case, the defendant loan servicer initiated a foreclosure action against the plaintiffs, and later entered into a loan modification agreement.  The  plaintiffs then became concerned about whether the defendant was correctly administering their escrow account and whether they were being improperly charged fees from the litigation.  The plaintiffs then sent a qualified written request to the defendant.  See 12 USC § 2605(e).  The defendant responded with a form letter explaining its policies, and eventually another letter stating it could not identify a problem and requesting more information.  The plaintiffs then sued under RESPA, alleging that the defendant’s response was insufficient.  Although the defendant acknowledged the deficiency in its response, it argued that the plaintiffs could not present anything connecting their alleged injuries with the RESPA violation.  The district court agreed and granted the defendant’s summary judgment motion.  On appeal, the Seventh Circuit affirmed.  Although it acknowledged that the plaintiffs had alleged a concrete injury, including damage to their credit and higher interest rates, they failed to connect these damages with the defendant’s failure to properly respond to their qualified written request.  More specifically, most of the damages alleged were related to the foreclosure and modification process, not the RESPA violation.  Therefore, although the plaintiffs properly alleged a violation and injuries, “they failed to demonstrate the essential element that they were injured specifically by [the defendant’s] inadequate response to a request for information under RESPA.”

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

In a case “that appears to be a new question in the court of appeals,” the United States Court of Appeals for the Sixth Circuit recently affirmed a lower court’s holding that a lender’s failure to notify its borrowers of the assignment of the borrowers’ deed of trust did not entitle the borrowers to rescind the loan under the Truth in Lending Act (“TILA”).  See Robertson v. U.S. Bank, N.A., 831 F.3d 757 (6th Cir. 2016).  In the case, the borrowers executed a note and deed of trust in 2005.  The note was eventually assigned to the defendant, whereas the deed of trust simply listed MERS as the beneficiary.  After the borrowers defaulted in 2011, MERS assigned the deed of trust to the defendant.  In 2014, after receiving a notice of trustee’s sale for the property, the borrowers sent a “notice of rescission” to the defendant and, the day before the scheduled sale, filed an action claiming that the defendant’s failure to notify them of the assignment of the deed of trust in 2011 violated TILA and allowed the borrowers to rescind the loan.  The defendant moved for summary judgment, which the district court granted.  On appeal, the Sixth Circuit affirmed.  First, it found that TILA’s notice requirement only applied to an assignment of the underlying debt, not the deed of trust.  The note here was assigned in 2006, three years before the notice provision was enacted, and therefore that the assignment could not have violated TILA.  See 15 USC § 1641.  Regardless, however, the Sixth Circuit further held that, even if the debt had been assigned in violation of TILA’s notice provision, the right of rescission found in 15 USC § 1635 applied only to a failure to make “material disclosures.”  Because 15 USC § 1602(v) lists the required “material disclosures” and appears to be exhaustive, the court found that the a failure to notify of an assignment does not entitle the borrowers to rescind.

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

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.

The New Jersey Appellate Division recently affirmed a lower court’s decision that held that a 1949 covenant restricted the use of property to a single family residence and prohibited the construction of a religious center.  See James O. v. Chai Ctr. for Living Judaism, Inc., 2016 WL 4262655 (N.J. Super. Ct. App. Div. Aug. 15, 2016).  There, two tracts of land were conveyed in 1899 subject to a covenant that prohibited “business of any kind” from being conducted.  The restriction further listed a number of proscribed businesses, including breweries and slaughterhouses.  In 1949, the owner of four of these restricted lots sold one, and the deed stated that “the premises hereby conveyed shall be restricted to one private dwelling house for one family with garage appurtenant thereto.”  In 2009, the owner of this lot, as well as its neighbor, filed an application to demolish the existing structures on the lots and construct a house of worship.  The other neighbors filed this lawsuit to enjoin this construction, and the parties cross-moved for summary judgment.  The trial court held that, although the 1899 restriction did not prohibit this construction, the 1949 deed did, and the court barred the defendants from constructing their house of worship.  Both parties appealed, and the Appellate Division affirmed.

The Appellate Division first determined that the restrictions in the 1899 deed did not prohibit this construction on the properties.  It agreed that the terms of the covenant were ambiguous because it listed a number of “objectionable” businesses that were prohibited, none of which included a house of worship, and “cannot be found to solely restrict use of the property to a single family residence.”  However, the court also affirmed that the restriction in the 1949 deed was specific enough for the plaintiffs to prevail.  The covenant was put in the deed by the grantor, who also owned the neighboring lots, and who “sought to ensure the grantor’s continued quiet enjoyment of the two retained lots.”  Finally, the court found that the defendants’ free exercise of religion was not being impeded because “when reviewing a valid restrictive covenant ‘[n]either at law nor in equity is it written that a license has been granted to religious corporations, by reason of the high purpose of their being, to set covenants at naught.’”

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

In a precedential decision, the United States Court of Appeals for the Third Circuit recently affirmed a decision that title insurers did not waive their ability to compel individual arbitration when attempting to do so earlier would have been futile under then-existing law.  See Chassen, et al. v. Fidelity National Financial, Inc., et al., 2016 WL 4698256 (3d Cir. Sept. 8, 2016).  There, the putative class of Plaintiffs claimed that they were overcharged between $70 and $350 from their settlement agents (title agencies and closing attorneys) to record deeds and mortgages in connection with New Jersey real estate purchases and refinancings from 2003 until the present.  Despite having never sought recovery of those purported overcharges from the settlement agents themselves, Plaintiffs looked to recover hundreds of millions of dollars in claimed damages on behalf of the alleged class from the title insurance companies that issued title insurance coverage for those transactions.

At the time Plaintiffs filed their complaint in 2009, arbitration provisions that did not permit class arbitration, like those at issue in Chassen, were deemed unconscionable and unenforceable under New Jersey law.  Thus, for two and a half years, the parties engaged in broad litigation, including extensive class discovery and dispositive motion practice.  Then, on April 27, 2011, the United States Supreme Court, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), held that the Federal Arbitration Act preempted state laws that prohibited a party from compelling only individual arbitration.  Shortly thereafter, the Defendants in Chassen demanded that the Plaintiffs individually arbitrate their claims pursuant to the arbitration clauses contained in the title policies, and the Plaintiffs refused.  Following several motions by all the parties, as well as an evidentiary hearing, the District Court held that the Defendants had not waived their right to seek individual arbitration during the two and a half years of litigation because it would have been futile for the Defendants to have sought to exercise that right prior to Concepcion and further found that virtually all of the Plaintiffs had agreed to individual arbitration.  The District Court issued an order compelling those Plaintiffs to arbitrate individually, but certified the issues for interlocutory appeal to the Third Circuit.

On appeal, the Third Circuit affirmed and agreed with the District Court’s order compelling individual (and not class) arbitration under the title insurance policies.  After confirming that it would have been futile under then-existing law for the Defendants to have sought to compel individual arbitration prior to the Concepcion decision, the Third Circuit broke from its traditional waiver analysis and determined that the factors concerning delay and resulting prejudice applied differently in a futility context.  In short, the Third Circuit found that the Defendants could not be penalized for failing to pursue a right that did not exist under New Jersey law and that since they had sought individual arbitration shortly after Concepcion had been decided and no prejudice had resulted therefrom, the Defendants had not waived their right to compel individual arbitration.  As a critical component of that determination, the Third Circuit recognized the material distinction between arbitrating claims individually versus arbitrating a putative class action, holding that “the right to individual arbitration is a distinct right separate from the right to class arbitration” and that “each can be independently waived, thereby requiring that each receive a separate futility analysis.”  Accordingly, the Third Circuit affirmed the District Court’s order compelling Plaintiffs to individually arbitrate their claims, which right to compel Defendants had not waived.

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