What You Need to Know
- The Real Estate Settlement Procedures Act (“RESPA”) applies to errors made in the servicing of a loan like mishandling payments or providing incorrect account information, not to issues related to the terms or validity of an initial loan or loan modification itself.
- To successfully bring a claim under RESPA, a borrower must plead actual damages that were proximately caused by the mortgage servicer’s specific violation.
- Even if a borrower has standing to bring a RESPA claim and a violation is established, the borrower’s claim will be dismissed if they cannot show that the violation caused them actual, quantifiable harm.
Introduction
In a recent decision from the United States District Court for the Eastern District of New York, the District Court dismissed claims brought by a borrower against two mortgage servicers, alleging violations of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601 et seq., its implementing regulation—Regulation X, 12 C.F.R. §§ 1024.1 et. seq., and New York state laws prohibiting deceptive business acts and mandating annual accounting reports for mortgage loans. In the case, Murray v. Newrez LLC, the mortgage servicers failed to (1) respond to letters from the borrower’s counsel, deemed Qualified Written Requests (“QWRs”) under 12 U.S.C. § 2605(e)(1)(B), seeking information on her loan, and (2) provide notice of servicing transfers, which the borrower claimed led to the accrual of improper fees. The Court found that, while the servicers had violated RESPA’s procedural requirements, the borrower ultimately failed to adequately allege that these violations caused her any actual damages, leading to the dismissal of her claims. Murray v. Newrez LLC, 24-cv-6160, 2025 U.S. Dist. LEXIS 75676 (E.D.N.Y. Apr. 21, 2025).
Facts
Sherry Ann Murray (“Plaintiff”) was the borrower on a 2005 mortgage, recorded as a lien against real property she owned. After Plaintiff defaulted on payments, the noteholder commenced a foreclosure action that was later dismissed by stipulation in 2011. In October 2011, Plaintiff then entered into a Loan Modification Agreement with GMAC Mortgage, LLC, splitting the previous total balance of $510,602.15 into a “Deferred Principal Balance” of $131,717.67 and a “New Principal Balance” of $378,884.48. Plaintiff was not required to pay interest or make monthly payments on the Deferred Principal Balance, while the New Principal Balance had a 3.875% interest rate until October 1, 2016, when it increased to 4.25%.
Plaintiff alleged that the Loan Modification Agreement did not provide detailed information about the specific charges and fees constituting these balances. She noted that the $510,602.15 balance was a significant increase, specifically $70,277.15 over her original 2005 mortgage principal of $440,325. She claimed this increase represented “undisclosed and unidentified fees, interest, advances, and other charges and amounts” unlawfully added at the time of the modification, and that mortgage servicers, PHH Mortgage Corporation (“PHH”) and Newrez LLC (“Newrez” and collectively, “Defendants”), and their predecessors had continued adding “excessive, improper, and/or illegal [sums]” since 2011. PHH had been the servicer or subservicer of her loan account since 2018, and in April 2019, Newrez became the master servicer. Plaintiff alleged she did not receive notice of these servicing transfers.
In May 2024, Plaintiff’s attorneys sent two Qualified Written Requests (“QWR”) to PHH and Newrez, seeking information about her account and the amounts included in her loan balance. Neither defendant acknowledged receipt of the QWR letters nor provided a written response. In June, Plaintiff’s attorneys again sent QWRs to Defendants and received no acknowledgement nor response.
Based on these events, Plaintiff filed suit alleging Defendants violated RESPA and its implementing regulation, Regulation X, by failing to respond to her QWRs and failing to provide notice of servicing transfers. Additionally, she brought New York state law claims for deceptive business practices and lack of proper accounting. Defendants moved to dismiss under Rule 12(b)(1) and Rule 12(b)(6).
The District Court Decision
The Court first addressed Defendants’ Rule 12(b)(1) motion to dismiss, which facially challenged Plaintiff’s standing to bring her claims. Applying the Lujan three-part test, the Court found that it possessed the statutory and constitutional power to adjudicate Plaintiff’s claims because there was an injury in fact, causation, and redressability. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992). Specifically, Plaintiff had adequately showed that she suffered monetary injury from improperly imposed fees, increased debt, and financial burdens. These concrete injuries were caused by Defendants’ actions as servicers and further exacerbated by their failure to acknowledge or respond to her QWRs. As servicers of her account, Defendants were capable of redressing her injury by providing her with information regarding her mortgage or by correcting any inaccurate fees that may have accrued. Finding all three elements satisfied, the Court denied the Defendants’ motion to dismiss under Rule 12(b)(1).
The Court then assessed the substance of Plaintiff’s RESPA claims under Rule 12(b)(6). Under RESPA, servicers must acknowledge receipt of a QWR within five business days and provide a substantive written response within 30 days. Even if a QWR is deemed “overbroad or unduly burdensome,” the servicer must still provide a written determination to the borrower within five days, identifying any valid information request within the submission if reasonable to do so. The Court found that Plaintiff had sufficiently alleged that Defendants violated RESPA and Regulation X by failing to provide any acknowledgment or written response. Although Defendants had alleged that the requests were “overbroad or unduly burdensome,” the Court noted that under RESPA, they were still required to provide written notification of that determination within five days. Thus, by failing to respond at all to Plaintiff’s requests, Defendants had violated RESPA.
Despite Plaintiff’s success in establishing violations of RESPA, the Court found that she failed to plead actual damages related to servicing that were proximately caused by the Defendants’ failure to respond to the QWRs. The Court first clarified that liability under § 2605(e)(1) attaches to inquiries related to the servicing of a loan, not to challenges to a loan’s creation or validity. Thus, Plaintiff’s allegations arising from the 2011 Loan Modification, entirely unrelated to the servicing of the mortgage, did not fall under § 2605. Further, the Court explained that the alleged $70,277.15 in improper fees originating from the 2011 Loan Modification had occurred long before the 2024 QWRs were sent and thus could not have been proximately caused by the failure to respond to those requests. The Court also rejected Plaintiff’s argument that the costs of litigation and general emotional distress suffered qualified as actual damages, noting that attorney’s fees are insufficient to establish an entitlement to actual damages under RESPA, and Plaintiff’s allegations of emotional distress were insufficient as they were not shown to be proximately caused by Defendants’ violations.
The Court also dismissed the request for statutory damages because RESPA requires an allegation of actual damages as a prerequisite for statutory damages. Even if Plaintiff had adequately pled actual damages, the Court found that the two alleged instances of failing to respond to the May and June QWRs were insufficient to establish a “pattern or practice of noncompliance” as required for statutory damages.
Similarly, the Court dismissed the claim for failure to provide required notices of servicing transfers. While RESPA mandates that both servicers provide such notices, Plaintiff again failed to allege any non-conclusory actual damages proximately caused by the absence of these notices in 2018 and 2019. Her claim that the lack of notice prevented her from obtaining information to correct errors and stop the accrual of improper fees was linked to the fees allegedly imposed by the 2011 modification, not the servicing transfers themselves. Once more, the Court reiterated that actual damages under RESPA must relate to errors in the servicing, not the modification, of a mortgage loan.
Since all federal claims were dismissed, the Court declined to exercise supplemental jurisdiction over Plaintiff’s New York state law claims. The Court cited factors of judicial economy, convenience, fairness, and comity, which generally weigh in favor of dismissing state law claims when federal claims are dismissed early in the litigation.
The Court did grant Plaintiff leave to file an amended complaint to address the deficiencies regarding actual damages for the RESPA claims, specifically requiring allegations that the damages were proximately caused by the failure to respond and that the requests related to ongoing loan servicing errors, not the 2011 modification.
Takeaways
This case serves as a crucial reminder that simply demonstrating a technical violation of RESPA’s procedural requirements like failing to respond to a QWR or failing to provide notice of a servicing transfer is not enough to sustain a claim for damages. Plaintiffs must also plead and ultimately prove that they suffered actual, quantifiable harm that was a direct result of that specific violation. Moreover, this case reinforces that RESPA’s provisions on QWRs are focused on the servicing of the loan after it is originated or modified, and cannot be used to challenge fees or terms that arose from the initial loan agreement or a subsequent modification agreement.
For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com or Shelley Wu at swu@riker.com. We acknowledge our Summer Associate Carla Ko, Seton Hall University Law School, for her valuable contribution to this post.