What You Need to Know

• The United States District Court for the Eastern District of Virginia recently dismissed RESPA claims because plaintiffs could not prove when they submitted their loss mitigation application
• Court emphasized that "dual tracking" claims require complete loss mitigation applications submitted at least 37 days before foreclosure
• Trustees and law firms acting as trustee’s agents are exempt from RESPA liability
• Courts require specific timeline documentation for RESPA claims - verbal assurances from servicers about postponing foreclosure are insufficient protection
• Heflin v. PHH Mortgage Corp. (March 2025) reinforces that courts strictly interpret technical requirements of RESPA's loss mitigation procedures

Introduction

In a recent case from the Eastern District of Virginia, property owners sued the loan servicer PHH Mortgage Services (“PHH” or the “Servicer”) and McCabe Weiberg and Conway (“MWC”), counsel for the Trustee of the Loan Pool after attempting to submit a loan modification application to stop the foreclosure of their home. Ultimately, the Court found that Plaintiffs failed to state a claim against the Servicer because they did not allege sufficient facts as to when and how they submitted their application to the extent it could be determined to be complete and timely submitted.  Thus, the United States District Court could not determine if PHH impermissibly dual tracked the loan modification negotiations and foreclosure in violation of the loss mitigation procedures or regulation X, 12 C.F.R. 1024 of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601, et seq. (“RESPA”).  The Court then dismissed the claim against MWC because the firm acted on behalf of the Trustee and trustees are not subject to the statute upon which the Plaintiffs sought relief. Heflin v. PHH Mortg. Corp., Civil Action No. 3:24CV232 (RCY), 2025 U.S. Dist. LEXIS 40988 (E.D. Va. Mar. 6, 2025).

Facts

Jerry and April Robertson Heflin (the “Plaintiffs”) owned a home in Fredericksburg, Virginia (the “Property”) that was subject to a mortgage serviced by PHH. Plaintiffs submitted an application to prevent the foreclosure of the Property, and on November 16, 2023, they received a “letter of under review” from PHH. On November 23, 2023, Plaintiffs called and spoke with a PHH representative who stated that she would extend the foreclosure until January 1, 2024. That said, the November 30, 2023 foreclosure sale date was not moved. According to Plaintiffs, they called the lenders’ office and the trustee’s office, but no one could tell them what to do. As a result, the foreclosure sale moved forward, and on December 1, 2023, MWC, on behalf of the Trustee, completed the Sheriff sale of the Property.

Proceeding pro se, Plaintiffs subsequently filed suit against PHH and MWC, alleging that Defendants failed to comply with the RESPA loss mitigation procedures. Specifically, they alleged that Defendants moved forward with the foreclosure auction on their Property despite PHH’s assurances that the foreclosure would be rescheduled, and that their application was “under review,” in violation of the “dual tracking” provision of 12 C.F.R. § 1024.41, which prohibits the foreclosure of a house while a loss mitigation application is pending. Plaintiffs sought recission of the foreclosure, reinstatement of their loan, and damages based on loss of income, storage rental unit costs, and emotional distress. In defense, Defendants moved to dismiss, arguing that Plaintiffs failed to submit, or failed to timely file, their loss mitigation application, and failed to allege actual damages.

Decision

The Court determined that Plaintiffs failed to allege enough facts to state a claim that is plausible on its face.

Specifically, under 12 C.F.R. § 1024.41(g), “dual tracking” is prohibited when:

a borrower submits a complete loss mitigation application after a servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process but more than 37 days before a foreclosure sale, a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless:

(1) The servicer has sent the borrower a notice pursuant to paragraph (c)(1)(ii) of this section that the borrower is not eligible for any loss mitigation option and the appeal process in paragraph (h) of this section is not applicable, the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower's appeal has been denied;

(2) The borrower rejects all loss mitigation options offered by the servicer; or

(3) The borrower fails to perform under an agreement on a loss mitigation option.

The Court noted the statutory distinctions between complete, incomplete, and facially complete loss mitigation applications as defined in 12 C.F.R. § 1024.41. A complete application is defined as “an application in connection with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower,” whereas a facially complete application is defined as an application where the servicer determines additional information is needed, and treats the application as facially complete until the borrower is given a reasonable opportunity to respond to the additional request for information.

In order to state a plausible claim under this statute, Plaintiffs were required to allege that they submitted a complete loss mitigation application, that the application was submitted at least thirty-seven days before the foreclosure sale, and that none of the above three exceptions apply.

Given the statutory timeline to submit the complete application, Plaintiffs were required to submit to PHH by October 25, 2023, for their scheduled foreclosure date on December 1, 2023. However, Plaintiffs’ complaint did not indicate when they submitted their application. Plaintiffs attached letters from PHH, dated November 6 and November 16, 2023, confirming the receipt of their application, but the letters contained no indication of when Plaintiffs sent in their application. As such, the Court held that the complaint did not plead facts necessary to support a claim against Defendants under 12 C.F.R. § 1024.41(g).

Further, the Court also found that Plaintiffs failed to state a claim against MWC, because the statute only permits actions against a servicer of a loan, which is defined as the person responsible for servicing the federally related mortgage loan, 12 C.F.R. § 1024. Here, Plaintiffs only alleged that MWC sold their home and failed to honor the extension of the foreclosure deadline. However, MWC was acting as a trustee, not a servicer, and Plaintiffs alleged no other independent basis for liability. As a result, the Court granted MWC’s motion to dismiss with prejudice, because no amendment to the complaint would change MWC’s status as a non-servicer of Plaintiffs’ loan.

Plaintiffs’ claims were therefore dismissed with prejudice as against MWC, but dismissed without prejudice, and with leave to amend, as against PHH, out of deference to Plaintiffs’ pro se status.

Takeaways

This case underscores that as to RESPA claims,  courts will require specific and detailed factual pleadings as to all elements of the claim and particularly timeliness.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Matthews Florez at mflorez@riker.com, Kori Pruett at kpruett@riker.com or Shelley Wu at swu@riker.com.