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If a mortgage servicer fails to comply with its obligations under the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. 2601, et seq., or its implementing regulations, a borrower may recover “any actual damages . . . as a result of the failure.” 12 U.S.C. 2605(f)(1)(A). Thus, to prevail on a RESPA claim, a borrower must show “actual damages” sustained as a result of the failure to comply. What constitutes “actual damages” has been the subject of a litany of recent decisions involving RESPA claims. In Baez v. Specialized Loan Servicing, LLC, 2017 WL 4220292 (Sept. 22, 2017), the Eleventh Circuit provided more clarity on the scope of “actual damages” under the statute.

Jaki Baez took out a mortgage loan in 2005, and Specialized Loan Servicing (“SLS”) took over the servicing of the loan a few years later. In January 2015, Baez stopped paying her mortgage to see if she could qualify for a loan modification agreement. She retained a law firm to both help with any ensuing foreclosure and to achieve a loan modification. She agreed to pay the firm a flat fee of $400 per month in connection with those efforts. In September 2015, Baez, through her attorney, sent a written request for information under 12 C.F.R. 1024.36(a) (part of RESPA’s implementing Regulation X, 12 C.F.R. part 1024) to SLS, in which she asked for information about her mortgage loan. SLS acknowledged the letter and later submitted a packet of information in response, but Baez claimed that the packet was deficient because it did not contain a file with SLS’s communications with her. Soon after receiving SLS’s purportedly deficient response, Baez filed suit under RESPA. The trial court granted summary judgment in favor of SLS, finding that Baez failed to show that she had been injured by SLS’s response to her request for information. Baez appealed, and the Eleventh Circuit affirmed.

Continue Reading 11th Circuit Provides that Postage Fees Incurred for Sending a Request for Information under RESPA are Insufficient to Independently Establish “Actual Damages”

In a case of first impression for the Court, the Eleventh Circuit recently addressed whether federal district courts retain original subject matter jurisdiction over state law claims included in a class action filed pursuant to the Class Action Fairness Act (“CAFA”) even after all class claims have been dismissed.  In Wright Transportation, Inc. v. Pilot Corporation, No. 15-15184, ___ F.3d ___ (Nov. 22, 2016), the Court sided with the other Circuits that have addressed this question, holding that CAFA confers original jurisdiction over state law claims that qualify as CAFA claims, and that this jurisdiction survives the dismissal of class claims.

Pilot Corporation contracts with long-haul trucking companies to sell diesel fuel at discounted rates. In 2013, Wright Transportation, Inc., an Alabama company and Pilot customer, filed a putative class action in the Southern District of Alabama, alleging that Pilot employees withheld discounts without their customers’ knowledge or approval. Wright asserted claims under the federal RICO statute, as well as various state law claims which, Wright alleged, qualified as CAFA claims, thereby vesting the district court with subject matter jurisdiction.

The district court eventually dismissed several of Wright’s claims, including the RICO claims and the class claims. Specifically, the district court dismissed the class claims because, while the case was pending, a rival class-action in the Eastern District of Arkansas reached a court-approved settlement.  Both Wright and Pilot acknowledged that judicial approval of the settlement would divest Wright of standing to pursue the class claims. However, state law claims for breach of contract and unjust enrichment, both of which originally qualified as CAFA claims, survived for Wright individually.

The case was then consolidated with six similar lawsuits into one multidistrict-litigation proceeding in the Eastern District of Kentucky. However, soon thereafter, the MDL court discovered information showing that Pilot was an Alabama citizen, therefore depriving the court of diversity jurisdiction as to Wright’s claims. Without deciding the question of whether original jurisdiction still existed over those claims pursuant to CAFA, the MDL court remanded the case to the Southern District of Alabama.

On remand, Wright asked the district court to dismiss the remaining claims without prejudice so that it could re-file them in Alabama state court. Pilot opposed Wright’s motion, asserting that the district court retained CAFA jurisdiction over Wright’s state law claims notwithstanding the dismissal of all class claims. Ultimately, the district court granted Wright’s motion, holding that the dismissal of the class claims (and the RICO claims) had stripped it of original jurisdiction, and declining to exercise supplemental jurisdiction over the remaining state law claims.

Pilot appealed to the Eleventh Circuit, arguing that CAFA conferred original jurisdiction over all of Wright’s claims, including the state law claims, at the time that Wright actually filed them such that jurisdiction could not have divested when the class claims were dismissed. The Court agreed with Pilot, concluding that CAFA effectively serves as an extension of diversity jurisdiction, which is not destroyed by post-filing changes to a party’s citizenship. Thus, a post-filing change in circumstances does not remove subject matter jurisdiction under CAFA, even when the class claims are dismissed. In other words, original subject matter jurisdiction for claims brought under CAFA cannot be divested unless the trial court determines that it did not actually possess original subject matter jurisdiction at the time of the initial filing. Because there was no allegation that the district court lacked subject matter jurisdiction at the time Wright’s claims were originally filed, the Court concluded that CAFA continued to confer original federal jurisdiction over the remaining state law claims despite the dismissal of Wright’s class claims.

Although Wright provides support for class action defendants who wish to remain in federal court following the dismissal of CAFA claims, it is important to note that this ruling is relatively narrow. First, and most importantly, the Court suggests that, although a plaintiff who originally filed its class action in state court cannot amend its complaint after removal to federal court in order to divest the federal court of CAFA jurisdiction, a plaintiff who originally filed its lawsuit in federal court is free to amend its complaint in order to remove claims upon which the court’s original jurisdiction is based. Second, in Wright, all of the remaining state law claims qualified for CAFA jurisdiction; therefore, the Court did not have to analyze the issue of supplemental jurisdiction. Litigants who wish to remain in federal court following the dismissal of class claims will still have to establish the district court’s jurisdiction over any remaining non-CAFA claims.

In Gloor v. BancorpSouth Bank, No. 2140914 (Ala. Civ. App. April 1, 2016), the Alabama Court of Civil Appeals held that a creditor may revive and collect on an unpaid judgment that is older than 10 years, further clarifying a significant protection afforded to financial institutions charged with recovering past due amounts owed by judgment debtors.

Continue Reading Alabama Court of Civil Appeals affirms revival of 11-year old uncollected judgment based on affidavit testimony of creditor’s corporate officer with knowledge of debtor’s nonpayment

Following the Eleventh Circuit’s decision last month in McGinnis v. American Home Mortgage Servicing, Inc., No. 14-13404, mortgage servicers should be aware that failing to recognize and correct miscalculations of a borrower’s payment may subject them to liability for extreme and outrageous conduct in certain circumstances.

American Home Mortgage Servicing, Inc. took over the servicing of mortgages on several rental properties in Georgia owned by Jane McGinnis. American’s welcome letter to McGinnis stated that her monthly payment had risen over $200 from the amount she had been paying the previous servicer. Believing she did not owe this additional amount, McGinnis continued paying the original amount, and American charged her additional fees for the apparent deficiency. Eventually, American conceded that it had miscalculated the payment amount, but insisted that McGinnis pay the previously incurred late fees. American eventually foreclosed on one of McGinnis’s properties due to nonpayment of these late fees and related charges. McGinnis sued America for wrongful foreclosure, intentional infliction of emotional distress, and conversion, among others.

Continue Reading Eleventh Circuit Affirms Jury Verdict Against Mortgage Servicer for Extreme and Outrageous Conduct

As Chief Judge Steele in the Southern District of Alabama recently put it, “a veritable avalanche” of recent federal cases has found that Alabama law does not recognize a cause of action for negligence or wantonness in the servicing of a mortgage account. Borrowers’ claims for negligence and wantonness against mortgage servicers have been routinely dismissed under the weight of this precedent, but borrowers continue to assert these claims. Until now, the Alabama Supreme Court had not spoken definitively on the subject. In U.S. Bank National Association v. Shepherd, No. 1140376, — So. 3d — (Ala. Nov. 20, 2015), the Alabama Supreme Court squarely addressed the issue, holding that negligent and wanton mortgage servicing claims are not cognizable claims under Alabama law.

The underlying facts in Shepard are somewhat convoluted. Emily and Chester Shepherd owned three parcels of real property. In 2003, the Shepherds executed a mortgage with H&R Block with the intent to secure the mortgage with Parcel 1. The mortgage mistakenly indicated that the loan was secured by Parcel 2, but both the Shepherds and H&R Block agreed to proceed with the mortgage and correct the description later. The description was not corrected when H&R Block later assigned the mortgage to LaSalle Bank, who filed a substitute mortgage with a new description of the encumbered property—this time mistakenly describing Parcel 3. The Shepherds failed to make their mortgage payments, and LaSalle filed a notice of foreclosure on Parcel 2. Parcel 2 was sold in September 2007, and a deed was transferred to LaSalle describing Parcel 3. In the same month, H&R Block took possession of Parcel 1, installed new locks, and attempted to sell the property on multiple occasions between 2007 and 2011. In 2011, U.S. Bank National Association—who had succeeded LaSalle in interest to the 2003 mortgage—filed an action seeking a reformation and a declaration that U.S. Bank held proper title to Parcel 1. The Shepherds filed several counterclaims, including claims of wantonness and trespass. The trial court conducted a bench trial and found for the Shepherds on their claims, and declined to reform the 2003 mortgage on the purported basis that there can be no mutual mistake of contract when both parties are aware of the error. U.S. Bank appealed to the Alabama Supreme Court, which reversed and remanded.

The Court noted that both H&R Block and the Shepherds testified that they intended to encumber Parcel 1 with the 2003 mortgage, and that any statement in the mortgage to the contrary was clearly a mistake. Thus, the Court held that—under the unusual circumstances presented—reformation of the contract was appropriate even though all parties were aware of the mistake when the mortgage was executed. Similarly, because the intent of the parties was to encumber Parcel 1, H&R Block and its successors had a legal right to take possession of Parcel 1 when the Shepherds defaulted, so the Shepherds’ trespass claim failed.

Perhaps of most import to mortgage servicing litigation in Alabama, the Court held that the Shepherds’ wantonness claim failed because, among other reasons, Alabama law does not recognize a claim for wanton mortgage servicing. The Court noted that the relationship between a borrower and a lender with regard to the servicing and handling of mortgages is based on contract and that disputes arising from that relationship are more appropriately addressed through a breach of contract claim. The Court quoted Chief Judge Steele’s opinion in James v. Nationstar Mortgage, LLC, 92 F. Supp. 3d 1190, 1198–1200 (S.D. Ala. 2015), holding that James correctly stated Alabama law as it applies to claims alleging that lenders have acted wantonly with regard to servicing and handling mortgages. See id. (“The mortgage servicing obligations at issue here are a creature of contract, not of tort, and stem from the underlying mortgage and promissory note executed by the parties, rather than a duty of reasonable care generally owed to the public.”) Because the Shepherds agreed to dismiss their negligence claims, the Court did not specifically address Alabama law with respect to claims for negligent mortgage servicing, though the Court’s approval of the rationale set forth in James and related federal cases indicates that the Court would treat mortgage servicing claims rooted in negligence the same way as those rooted in wantonness.

Too often, borrowers needlessly amplify the scope of litigation by asserting wantonness claims in an attempt to turn a dispute based on the application of a simple mortgage provision into a vehicle for additional, punitive damages. Federal courts applying Alabama law have done much to curb this money grab in recent years; now, the weight of the Alabama Supreme Court has dealt an even larger blow to borrowers seeking to assert these types of claims.

Increasingly in courts around the country, borrowers have attempted to transform the Real Estate Settlement Procedures Act (RESPA), along with its implementing regulation (Reg. X), into a “Gotcha!” device through which borrowers could almost automatically recover damages against their mortgage servicers for responding to notices of error or requests for information. The pattern generally goes like this: the borrower sends a letter to the servicer requesting a laundry list of information related to their (usually defaulted) loan. Then, when the servicer does not respond in the exact way desired by the borrower, the borrower will sue the servicer alleging that the servicer’s response was deficient under RESPA, with the borrower seeking actual damages, statutory damages, and attorney’s fees.

Two recent decisions out of the Southern District of Florida are two of the latest federal decisions in the Eleventh Circuit to reject these types of claims by litigious borrowers.

In O’Brien v. Seterus, Inc., No. 9:15-CV-80300, 2015 WL 4514512 (S.D. Fla. June 24, 2015), the borrowers defaulted on their mortgage, and their servicer began regular drive-by inspections of the borrowers’ home. The borrowers sent a qualified written request (QWR) to their servicer, and after receiving the servicer’s response, sued the servicer under RESPA (for the QWR response) and the Florida Consumer Collection Practices Act (FCCPA) (for the drive-by inspections).

The Court granted the servicer’s motion to dismiss the RESPA claim. The QWR had requested a complete loan history and “detailed” information about the property inspections that had been occurring. The servicer’s 52-page response included a payment history for the time the servicer had serviced the borrowers’ loan, as well as the payment history provided by the borrowers’ prior servicer. The servicer’s response also included invoices for all property inspections and explained its reasons for performing the property inspections (i.e., due to the borrowers’ delinquency).

The Court wrote that although the borrower “did not give [the borrowers] the answers they desired, or respond with the level of specificity [the borrowers] apparently requested,” the servicer had adequately responded to the borrowers’ QWR. The Court held that a question about whether the servicer’s exercise of its inspection authority was proper was “a question for a different cause of action—not [RESPA]. RESPA requires a servicer to respond to requests for information. [The servicer] did so.”

By virtue of the Court’s dismissal of the RESPA claim, there was no longer federal question jurisdiction in the case, so the Court dismissed the borrower’s FCCPA claim for lack of subject matter jurisdiction.

In Russell v. Nationstar Mortgage, LLC, No. 14-61977-CIV, 2015 WL 5029346 (S.D. Fla. Aug. 26, 2015), the borrowers sent their servicer five separate qualified written requests (QWRs), primarily seeking a “complete” loan history. The servicer responded to each of these QWRs,

each time sending or referring to a complete payment history from the time the servicer began servicing the loan. The borrowers eventually stopped making their mortgage payments, the servicer foreclosed, and the borrowers filed a RESPA claim against the servicer.

The borrowers argued that the servicer’s repeated failure to provide a payment history for the entire life of the borrowers’ loan, including the period before the servicer serviced their loan, constituted a pattern or practice of RESPA noncompliance, which would entitle the borrowers to statutory damages. Nationstar contended that it had met its obligations to fully and timely respond to each of the borrowers’ QWRs, and that any of the borrowers’ actual damages, other than postage costs, were caused by the borrowers’ own actions in ceasing payments.

Noting that the Eleventh Circuit has characterized a servicer’s obligations under RESPA as rooted in “transparency and facilitation of communication,” the Court followed other recent federal decisions in holding that Nationstar “is not required to give a response that is desired by or satisfies [the borrowers,] but is merely required to provide a statement of its reasons.” The Court found that a servicer has no obligation to provide loan information from a prior servicer in its QWR response if that information could not be the source of a current problem with the borrower’s account. The pay histories provided by the servicer showed, and neither party disputed, that the borrowers’ account was current at the time the servicer began servicing the loan. Accordingly, the Court held that the servicer was not required to provide prior servicer loan histories; thus, there was no pattern or practice of RESPA noncompliance by the servicer.

As to actual damages allegedly caused by the servicer’s QWR responses, the Court derided as “audacious” the borrowers’ argument that they had suffered emotional distress “as a result of writing, mailing, receiving, and processing mail,” including standing in “long lines” at the post office. The Court found that Nationstar could not have provided the borrowers with any information that would have mitigated the damages they claim to have suffered. Moreover, the Court stated in a footnote that it was “not convinced” that actual damages could consist of postage and photocopying costs, but refrained from ruling on that issue.

Though the flood of litigation related to these types of throw-in RESPA claims shows no signs of slowing down, federal decisions such as O’Brien and Russell are providing more and more authority for servicers to draw upon in order to fight back.

The Eleventh Circuit recently affirmed the dismissal of a putative class action relating to the settlement charges a mortgage service provider is allowed to collect under the Real Estate Settlement Procedures Act (“RESPA”).  In Clements v. LSI Title Agency, Inc., No. 14-11636, the Court held: (1) that a mortgage service provider does not perform only “nominal” services when it procures a closing attorney; and (2) that a mortgage service provider does not violate RESPA by marking up the price of a third-party service.

When Patricia Clements refinanced her mortgage, the bank hired LSI Title Agency to provide refinancing services.  Because Georgia law requires all closing services to be performed by a licensed attorney, LSI contracted with the Law Offices of William E. Fair III, LLC.  The law office arranged for an independent closing attorney to provide the requested services.

Clements later filed a putative class action in state court against LSI, the Law Offices of William E. Fair III, LLC, and Fair, individually.  The defendants removed to federal court, where Clements filed an amended complaint.  Clements alleged two violations of RESPA.  First, she claimed that the defendants and the closing attorney split a $300 settlement fee in violation of RESPA because the defendants provided no actual services related to the closing of the loan.  Second, Clements argued that LSI violated RESPA by charging an $85 markup for “government recording charges.”  The defendants moved to dismiss, arguing that Clements lacked standing, and, in the alternative, that Clements had failed to state a claim upon which relief could be granted.  The trial court agreed, finding that Clements lacked standing because she received a credit for the exact amount of her closing costs, which included the $300 settlement fee and the marked-up recording charges.  The trial court dismissed the amended complaint, and Clements appealed.

The Eleventh Circuit affirmed in part and reversed in part.  At the outset, the Court determined that the trial court erred when it dismissed Clements’s complaint for lack of standing.  Clements alleged that had she not been charged the $300 settlement fee and the $85 government recording markup, she would have received an additional $385 at closing.  The Court found that even though Clements had received a credit for an amount equal to that $385, that fact did not necessarily refute her claim that she would have otherwise received that amount in addition to the credit she received. Accordingly, the Court found that Clements had alleged an actual injury sufficient to give her standing to pursue her claims.

Nevertheless, the Court held that Clements did not state a viable claim under RESPA.  According to RESPA, “[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed.”  12 U.S.C. § 2607(b).  The Court held that § 2607(b) required Clements to plead that “no services were rendered in exchange for a settlement fee.”  According to the Eleventh Circuit, each of Clements’s attempts fell short.

First, Clements alleged that the defendants violated RESPA when they split the $300 settlement fee, because they provided only “nominal” services.  According to Clements, the services were nominal because LSI provided services that only licensed attorneys can provide, and Fair and his law office only provided the service of finding a closing attorney to perform closing services.  The Court held that the fact that Georgia law made it illegal for LSI to provide settlement services did not mean that the settlement services it actually provided were nominal, i.e., “existing in name only.”  The Court further held that Fair and his law office earned their portion of the settlement fee because “arranging for a third party contractor to perform a service is itself a service.”  Therefore, LSI, Fair, and his law office “actually performed” “services” for their “portion[s], split[s], or percentage[s]” of the settlement fee.  See 12 U.S.C. § 2607(b).

Second, Clements claimed that LSI violated RESPA by imposing an $85 markup on “government recording charges,” because, Clements argued, a markup of a charge to a consumer violates RESPA when the mortgage service provider “accepts” an unearned portion of that charge.  See 12 U.S.C. § 2607(b).  Joining the majority of courts of appeals to have addressed the issue, the Court decided that markups are not a violation of RESPA.  The Court looked to the U.S. Supreme Court’s recent decision in Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034 (2012), where the Court analyzed the language of § 2607(b) and determined that the terms “give” and “accept” in § 2607(b) refer to the exchange between a service provider and a third party, not the exchange between the consumer and the service provider.  In other words, the Court held, when a service provider marks up a fee, the provider “give[s]” a “portion, split, or percentage” to a third party, and the third party “accept[s]” that “portion, split, or percentage,” and that exchange does not violate RESPA when the third party has “actually performed” a service.  See § 2607(b).   Accordingly, the Court determined that LSI had neither “give[n] . . . [nor] accept[ed] any portion, split, or percentage of any charge . . . other than for services actually performed.”

On Tuesday February 10, 2015, the United States District Court for Southern District of Alabama adopted a Magistrate Judge’s Report and Recommendation dismissing a Real Estate Settlement Procedures Act (RESPA) claim brought by a borrower against a former servicer of her mortgage loan.  The borrower’s RESPA claim was based on a response to a Qualified Written Request (QWR) she mailed to her former servicer, Nationstar Mortgage, LLC, several months after she refinanced her loan and after Nationstar had ceased servicing her loan.  In her QWR she asked why her payments had increased by $100.00 per month during the time Nationstar serviced her loan.  Nationstar timely responded to the QWR, explaining that it reviewed its servicing records and that it had not erred in servicing the borrower’s loan.  Additionally, Nationstar’s response attached several documents associated with the loan, including a detailed payment history.  Nationstar also provided additional contact information in case the borrower desired further information. 

The borrower alleged that Nationstar failed to comply with RESPA because Nationstar’s response to the borrower’s QWR “failed to correct” a servicing error and contained boilerplate statements without sufficient detail to explain why there was no servicing error.  The borrower further alleged that Nationstar had a “pattern or practice” of providing similar boilerplate responses to QWRs to five other individuals in Alabama and other states. 

Nationstar moved to dismiss the complaint and a Magistrate Judge issued a report and recommendation, finding that Nationstar’s QWR response complied with RESPA because a servicer is only required to do one of three things once it receives a QWR: (1) make appropriate corrections to the borrower’s account, (2) explain why it believes the account is correct, or (3) provide requested information or explain why it is not available.  According the Magistrate Judge’s report, Nationstar’s response, that “related documents [to the loan] were reviewed” and that “after conducting an investigation, Nationstar is unable to locate the information you requested …. However, we did review the account, and all transactions appear to be correct from our records,” complied with RESPA. Specifically, “[u]nder RESPA, Nationstar is not required to give a response that is desired by or satisfies Plaintiff, but is merely required to ‘provide a statement of its reasons,’ which Nationstar did.”  The Magistrate Judge also found that the borrower failed to adequately allege the existence of actual damages, that the expense of sending a QWR (e.g. postage) cannot provide the sole basis for actual damages under RESPA, and that the borrower could not establish a causal link between her alleged damages (the $100/month overpayment) and the QWR response, in part, because the alleged damage had occurred before the QWR was sent.  Further, Nationstar was not required to “correct the account” because Nationstar’s response indicated that it had determined that the account appeared to be correct.  Finally, the Magistrate Judge found that, because there was no RESPA violation in this case and the borrower had provided only one additional QWR response, the borrower’s pattern or practice claim was insufficient as a matter of law. 

The borrower filed a notice of appeal to the Eleventh Circuit shortly after the District Court adopted the Magistrate Judge’s Report and Recommendation.