Case Law Newsletter

Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

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December 2008

CREDITOR CANNOT USE THE INCOME FROM A NON-DEBTOR SPOUSE TO CALCULATE CONSUMER’S “INCOME” IN THE ASSESSMENT OF WHETHER A PRE-PAYMENT PENALTY IS ALLOWED UNDER HOEPA.

The issue in Zeno v. Colonial Mortgage and Loan Corp. 08-CA-246 2008 (La. App. 5th Cir., November 25, 2008) 2008 WL 5000136 was whether, for purposes of determining if a pre-payment penalty is allowed on a HOEPA loan, 15 U.S.C. § 1639©; 12 C.F.R. § 226.32(e)(1), the creditor could use the income coming into a consumer’s household from a non-debtor spouse. The borrower contended that only her income and expenses may be considered. If so, her monthly debts exceeded 50% of her monthly gross income, making the inclusion of a prepayment penalty illegal. The lender, on the other hand, argued that it may consider gift income or other unverifiable income just as the Bankruptcy courts do. According to the lender, the use of the term “consumer” as an adjective in 15 U.S.C. § 226.2(a) (11) does not provide a statutory definition of “consumer” as a noun. The intent of Congress in using the term “consumer” was to describe the type of credit transaction. The lender said there was no logical basis to conclude that Congress meant to limit the phrase “gross income of the consumer” to only monies earned by the consumer yet to exclude monies regularly available to the consumer. The court sided with the borrower but without really addressing the issue in detail. It simply acknowledged “that Bankruptcy laws and consumer debt protection laws were enacted for different purposes. There is no analogy between them for purposes of this case.” Therefore, only the borrower’s income may be considered under Section 32 when calculating the ratio between the monthly income available to the consumer and the monthly indebtedness for which the consumer is obligated.

BORROWER DID NOT HAVE TO PROVE SERVICER RECEIVED THE COMMUNICATION TO PROVE VIOLATION OF RESPA. ALSO A COMMUNICATION SENT TO SERVICER’S ATTORNEY SUFFICES AS A QUALIFIED WRITTEN REQUEST.

In McLean v. GMAC Mortgage Corp., Inc. No. 06-22795-CIV. (S.D.Fla., December 16, 2008) the court was asked to decide if two letters sent by the borrowers to the servicer complaining about an increase in the amount of their loan payment were Qualified Written Requests (QWR) under Section 6 of RESPA, 12 U.S.C. § 2605(e). The first letter, which the servicer denied receiving, was sent to the address provided on the reverse of the account statement. The second letter was addressed to the servicer, but in care of its bankruptcy counsel, which the attorney then forwarded to the servicer. The court rejected the servicer’s argument that its failure to properly respond to both letters violated RESPA. As to the first letter, the court held that it was enough that the plaintiff’s provided competent evidence that they mailed it; they did not have to prove the servicer also received it. The court also excused them for sending the letter to an address different than the one the servicer said was the one designated to receive such inquiries. Nothing in the Mortgage Account Statements, the court said, indicated that the designated address listed under “General Inquiries” was the “separate and exclusive office and address for the receipt and handling of qualified written requests.” With respect to the second letter, which was sent to its outside bankruptcy counsel, the loan servicer contended it was not required to respond to the letter as a matter of law even if it had received it from counsel. It relied on a holding that a letter sent to the servicer’s attorney was not a QWR. The court distinguished that case authority because there the plaintiff’s counsel said that he could not accept the letter on behalf of the defendant and directed the plaintiff’s counsel to send the letter to the defendant directly. In the second case, there was no evidence that the servicer’s bankruptcy counsel contacted the plaintiffs and advised them to directly speak to the servicer and the service admitted receiving it from its attorney. (Note that a different court held that a request from an attorney was not a QWR and that to prove a violation of Section 6 the borrower had to show the servicer actually received the communication. Gorham-Dimaggio v. Countrywide Home Loans, Inc. 1:08-CV-00019 (N.D.N.Y., December 17, 2008)).

“FINANCIAL ASSISTANCE” UNDER SECTION 3605(B) OF FHA DOES NOT INCLUDE ASSISTANCE FOR BORROWERS WHO HAVE DEFAULTED ON THEIR LOANS.

As alluded to above, there were several issues of note in Gorham-Dimaggio v. Countrywide Home Loans, Inc. 1:08-CV-00019 (N.D.N.Y., December 17, 2008) but the FHA claim is particularly noteworthy given the increasing frequency in which we are seeing this statute used in garden variety mortgage disputes. In this case borrower received a bill from the lender showing an unexpected increase. She paid that bill, but only part of the next one. Her check was returned and she defaulted on the mortgage loan shortly thereafter. Her attorney made inquiries and was told the increase followed an escrow re-analysis. She did not try to call the lender herself but the lender tried to reach her to encourage her to re-finance. During those calls she was told that that the escrow amount had not increased and the total monthly payment was what she had originally paid. She filed a multi-count lawsuit, including a count under Section 3605 of the FHA. 42 U.S.C. § 3605(b)(1). The court said she had no claim because she did not allege that she ever attempted to procure new financing, or even information regarding such financing from the lender-defendants. She erroneously suggests that the lenders failure to assist her or provide her with financing options is not “financial assistance” as that is defined under Section 3605. “Under a [sic] plain language of the statute, ‘financial assistance’ means providing prospective purchasers with financing information to help them purchase or rent a home, and does not include assistance for borrowers who have defaulted on their loans.” 42 U.S.C. § 3605(b)(1); 24 C.F.R. § 100.120. Moreover, the court determined that although she had a disability she only offers conclusory allegations to demonstrate that discriminatory measures were implemented because of her disability, and that “able-bodied” persons were not affected. These allegations were actually contradicted by other allegations by Plaintiff that the Defendants’ motive in the conduct alleged was retaliatory; made in an effort to recoup concessions and not motivated by any animus towards her status as a disabled person.