In Medrano v. Flagstar Bank, 11-55412 (9th Cir. Dec. 11, 2012), a mortgage loan servicer sent a notice of escrow shortage to the borrowers and demanded that they increase their monthly payments or make a lump-sum payment to cover the escrow shortage. The borrowers sent three letters to the servicer in response. The first letter asserted that the loan documents did not accurately reflect the payment schedule that the loan broker said would apply and demanded that the servicer revise the loan and reduce their payment accordingly. The second letter informed the servicer that the borrowers intend to continue making the payment agreed upon at origination and expected the servicer to apply the payment in full satisfaction of their obligation. The third letter acknowledged that the demand for an increase payment was consistent with the loan documents, but was nevertheless invalid as being inconsistent with what the loan broker told them the payment would be. The borrowers then sued under RESPA claiming the servicer failed to respond to the borrowers’ three letters, which they characterized as Qualified Written Requests (QWR) under section 2605(e) of RESPA. In affirming the district court’s decision that the letters did not constitute QWR’s, the 9th Circuit observed that under RESPA a response to a letter is required 1) if the borrower’s name and account are identified; 2) states the borrower’s belief why the account is in error; and 3) seeks ‘information relating to the servicing of [the] loan.’ The third requirement means that a servicer need not respond to all inquiries or complaints from the borrower, only those pertaining to servicing. Servicing under RESPA (§ 2605(i)(3)) is defined as receiving any scheduled periodic payments from a borrower . . . and making the payments of principal and interest and such other payments. It does not include transactions and circumstances surrounding the loan’s origination because such information would, by definition, precede the servicer’s role in servicing the account. Thus, letters challenging only the loan’s validity or its terms are not QWR’s that give rise to a duty to respond. The appellate court found none of the letters met the definition of a QWR. The first letter was a challenge to the loan’s validity and its terms, not servicing. The second letter, which demanded a revision of the loan documents to reflect the original terms, amounted to request for modification, which also did not concern the loan’s servicing. Finally, the third letter, which demanded that the payments be reduced, was also a challenge to the loan terms and not related to servicing. Accordingly, the district court’s dismissal was affirmed.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
