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.

What You Need to Know

• Restrictive covenants are strictly construed: Courts apply the principle that restrictive covenants must be interpreted literally and any ambiguities are resolved in favor of the property owner's unrestricted use of their land. Here, the court found that Section 8.1(c) of the HOA declaration, which specifically addressed fences and their requirements, governed rather than Section 8.1(dd), which set a 30-foot setback for "accessory buildings" but didn't mention fences.
• Intentional omission doctrine applied: Under "expressio unius est exclusio alterius," the court ruled that mentioning fences in some sections but not in the setback provision (8.1(dd)) indicated the drafters intentionally excluded fences from that requirement.
• HOA's own actions undermined their position: The Association's Architectural Control Committee had approved the fence with full knowledge of its 4-inch setback location, and they only attempted to amend the declaration to add fence setback requirements after the fence was built, which homeowners rejected.

Introduction

In a recent decision from the New Jersey Appellate Division, the Court affirmed an order granting summary judgment, finding that a setback specified in a section of a homeowners association’s declaration  did not govern fences where the language failed to expressly state that it did and deferred to Town’s ordinances. Ests. at Layton’s Lakes Homeowners Ass’n, Inc. v. Watson, No. A-3123-23, 2025 N.J. Super. Unpub. LEXIS 760 (App. Div. May 7, 2025).

Background

Plaintiff, the Estates at Layton’s Lakes Homeowners Association, Inc. (the “Association”), is a non-profit corporation that governs a residential community in Carneys Point Township. Defendants, Bonnie Watson and Lorraine Bock (the “Defendants”), own a home on a half-acre property within that community (the “Property”). In 2008, the Association recorded a Declaration of Covenants, Conditions, and Restrictions (the “Declaration”) that is applicable to properties within the community, including the Property. Further, the Declaration contains a section of “Protective Covenants” which enumerates restrictions on owners’ use of their lots.

Specifically, Section 8.1(c) of the Declaration requires that any “fence, wall, hedge, mass planting, or similar continuous structure” must be: (1) a maximum of four feet tall; (2) approved by the Architectural Control Committee (the “Committee”); (3) not in conflict with any municipal ordinance; (4) constructed of wood, white PVC or black aluminum tubing; and (5) of an open style. Carneys Point Township’s zoning ordinance (the “Ordinance”) barred fences erected less than four inches from a property line without written approval of the adjacent property owner. Carneys Point Township, NJ. Code § 94-12 (1982). Additionally, Section 8.1(dd) of the Declaration provided for a minimum thirty-foot setback on any “accessory building, shed, shack, porch, or other similar type of structure of improvement” located on any lot within the community.

In November 2022, the Defendants sought to erect a fence on the Property. A survey of the Property showed the exact size (forty-eight inches in height) and location of the fence (four inches from the property line along the sides and back of the property). The Defendants obtained a permit from the zoning board, as well as approval from the Committee which did not advise that the height or location of the fence violated the Declaration. After the fence was constructed, the Association attempted to amend Section 8.1(c) of the Declaration to add a ten-foot setback restriction to all fences within the community, despite their later claim that the setback in Section 8.1(dd) applied to fences. The proposed amendment was rejected by homeowners.

In September 2023, the Association filed a complaint seeking a declaratory judgment determining that Section 8.1(dd) of the Declaration governs fences within the community and sought injunctive relief requiring the Defendants to remove the fence because it was located within the designated thirty-foot setback.

In response, the Defendants filed an answer and counterclaim requesting that the trial court rule that Section 8.1(c) of the Declaration governed fences and that it deferred to the four-inch setback stated in the Ordinance.

The Chancery Court granted summary judgment in favor of the Defendants, denying the Association’s motion for summary judgment. The trial court held that a clear, unambiguous reading of the Declaration shows that Section 8.1(c) governs fences and defers to the Ordinance in which the defendants’ fence does not violate.

The Decisions

On appeal, the Association asserted that the trial court incorrectly determined that Section 8.1(c) of the Declaration deferred to the Ordinance regarding fence setback requirements for two reasons: (1) the trial court interpreted Section 8.1(c) in isolation and failed to consider broader context of the remaining provisions in the Declaration, specifically Section 8.1(dd); and (2) the trial court based the decision on the judge’s personal opinion that the setbacks were not “aesthetically pleasing” and differed from setbacks in other communities.

The Appellate Division rejected the Association’s first argument stating that the mention of “fence[s]” in Section 8.1(c) of the Declaration, but not Section 8.1(dd), implies the omission was intentional. The Declaration is a restrictive covenant that is subject to the general rules of contract construction, including contract interpretation focusing on the intent of the parties. Under the doctrine of expressio unius est exclusio alterius, the inclusion of one thing implies the intent to exclude another not mentioned. Moreover, restrictive covenants are subject to strict construction in which a judge should interpret a document according to its literal terms without looking to another source to determine its meaning. Any ambiguities in a restrictive covenant must be resolved in favor of an owner’s unrestricted use of their property.

Here, Section 8.1(c) of the Declaration expressly applies to fences and is silent on setbacks, but requires that a fence must be approved by the Committee. However, a fence must not be in conflict with any municipal ordinance, which requires a four-inch setback in Carneys Point Township. Section 8.1(dd) appears twenty-seven paragraphs after and does not have the word “fence.”  The word “fence” only appears in Sections 8.1(c) and 8.1(z) (which does not apply to the Property) of the Declaration, not Section 8.1(dd). The mention of “fence[s]” in other sections and exclusion from Section 8.1(dd) implies the omission was intentional. Thus, in its entirety Section 8.1(c) applies to fences and defers to the Ordinance in which the fence on the Property does not violate.

Further, the Ordinance was enacted twenty-six years prior to the recording of the Declaration, so the Association should have been aware of Carneys Point Township’s four-inch setback requirement for fences. If the Declaration drafters intended a greater setback, then they should have expressly stated so. In fact, the Association had the opportunity to advise that the fence was in violation of the Declaration when the Defendants presented their application to the Committee. Instead, their application, with a survey depicting the exact location of the fence and an indication of four-inch setback, was approved for construction on the Property.

Lastly, the Court found no support in the record for the Association’s argument that the trial court’s decision was based on the judge’s personal opinion. The judge determined that Section 8.1(c) governed fences, not Section 8.1(dd), through analyzing Declaration’s plain and unequivocal language. The trial court judge did not attempt to rewrite the Declaration or find a meaning for its language outside the bounds of the document. Rather, he merely made a remark stating he had never heard of a thirty-foot setback for fences and such a setback would significantly reduce the size of Defendants’ useable yard.

Takeaway

This case highlights that restrictive covenants are strictly enforced against those seeking to exercise them and must be set forth in clear unequivocal language. The absence of clear language will lead a court to decline to enforce such a covenant. 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 Maya Pacheco-Smith, Rutgers Law School, for her valuable contribution to this post.