Pennsylvania District Court Holds That Regulation X Imposes A Substantive Obligation To Respond To A Notice Of Error That Is Not Satisfied By The Mere Procedural Completion Of Some Investigation Followed By A Written Statement Of Reasons

The district court in Wilson v. Bank of Am., N.A., CIV.A. 14-2498 (E.D. Pa. Sept. 24, 2014) explicated what duties a servicer has in response to a Notice of Error under the new Regulation X, 12 C.F.R. § 1024.35(e). In _Wilson_, the Plaintiff sent the loan servicer an inquiry which was divided into two sections. The first part, labeled Notice of Error, asserted that the sheriff’s sale had been scheduled in error, requested correction of the mishandling of the Plaintiff’s HAMP application, and sought removal of improper fees and expenses. The second part, labeled a Request for Information, sought itemized information and documents, including servicing logs and communications between Plaintiff and the servicer, copies of property inspection reports and invoices from the foreclosure firm for fees or costs. The servicer responded by acknowledging the missed payment and purporting to give the true reason that Plaintiff was denied a HAMP modification. The letter did not provide any explanation for the property inspection charges, stating only that property inspection charges had been increased and did not explain why the foreclosure fees were almost $3,000 more than the previous quote. It did not send the documents pertaining to the consideration of Plaintiff for loan modification, or the servicing logs, property inspection reports, or invoices paid to the foreclosure firm. Plaintiff sued under RESPA. In ruling on the servicer’s motion to dismiss the court noted that Regulation X governs at least part of this claim. The new regulation delineates separate procedures for responding to a borrower’s Notice of Error and a borrower’s Request for Information. Plaintiff alleged that the defendant did not conduct a reasonable investigation within the meaning of Reg. X. The court agreed. Given the varying explanations Defendant offered for the treatment of the account, no reasonable investigation occurred with respect to the Notice of Error. Moreover, the defendant’s response did not contain the required statements – new obligations under Regulation X – that no error had occurred and that she was entitled to request copies of all documents relied upon to support that determination. Notably the court did not value the defendant’s reliance on two cases that held that RESPA only required servicers to timely respond to borrowers’ inquiries, and to provide a statement of the reasons for which the servicer believes the account of the borrower is correct. These case, Servicer argued, held the law did not impose any other substantive duties on a servicer. The court noted that the cases pre-dated Regulation X which altered the landscape of a servicer’s obligations. In response to a Notice of Error, a servicer must now conduct a ‘reasonable investigation.’ The addition of the word ‘reasonable’ imposes a substantive obligation that is not satisfied by the mere procedural completion of some investigation followed by a written statement of reasons. Plaintiff adequately plead that the servicer did not comply with Regulation X where she alleged she was offered a TPP agreement under the HAMP program, made payments and supplied documentation, but that the loan was never permanently modified. Defendant then had her start a new agreement, but again never modified the loan and ultimately refused to deal with her. Defendant thereafter sent her two letters with contradictory explanations for why her loan could not be modified. She then submitted her requests for information and Notice of Error, the responses to which were contradictory. Given the varying explanations Defendant offered for the treatment of the account, Plaintiff properly and adequately asserted that no reasonable investigation has occurred with respect to her Notice of Error.

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