RESPA Claims: Get Your Defense Teed Up
Courts have been grappling with a recent influx of claims made under §1024.41 of “Regulation X” which implements various provisions under the Real Estate Settlement Procedures Act of 1974 (RESPA). The allure of section 1024.41 for borrowers is its effectiveness in obtaining multiple adjournments of a scheduled foreclosure sale. In addition, mortgage loan servicers beware because if a borrower is able to establish a violation of section 1024.41, the servicer could be on the hook for the borrower’s actual damages and all attorney’s fees and costs to bring suit.
With these somewhat elevated stakes in mind, how can a servicer avoid these unenviable consequences? One argument that has recently gained momentum can be attractive to servicers because if correct, the provisions in section 1024.41 that require sale adjournments never get triggered. Stated differently, a borrower is only entitled to the enhanced protections and rights of section 1024.41 if that borrower submits a “complete loss mitigation application” which is achieved when 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.” 12 C.F.R § 1024(b)(1) (emphasis added).
Importantly, note that the adjournment-triggering standard is servicer-centric. Therefore, servicers can precisely dictate what they require for an application to be considered “complete” in this context. Logically, then all the servicer needs to do is adequately convey its requirements to the borrower and the burden shifts to the borrower to establish that a “complete” application was submitted. Better yet for the servicers, to the extent the requirements are easily identifiable and were demonstrably conveyed to borrowers, the complete vs. incomplete test can be applied in the pre-answer, motion to dismiss context, thereby providing servicers with a viable option to avoid going to discovery on every section 1024.41 claim. Since there are numerous ways to properly tee this defense up, please contact our principal, Matthew Eyet, Esq, if you would like to further discuss this or any other financial services litigation issue.