The borrowers in The Bank of New York Mellon v. Brozek, No. 2019AP1736 (July 16, 2020), counterclaimed that the foreclosing bank breached the implied duty of good faith and fair dealing in connection with its servicer’s handling of the borrowers’ multiple loan modification applications. The borrowers also sued the servicer alleging violations of RESPA. The appellate court affirmed the trial court’s ruling, finding no implied duty of good faith and fair dealing in the loan instruments regarding loan modifications and finding no evidence of actual damages to support the purported RESPA violations.
The borrowers stopped making payments on the loan in March 2012. Between March 2014 and April 2017, they submitted numerous applications for loan modification. The servicer rejected all but the last application because the borrowers did not provide all the requested documents. Each denial was accompanied by a statement that “should you be able to provide the documentation at a later date, please submit it immediately so that we can continue to review your request.” In March 2017, the borrowers finally submitted a complete loan modification request. The servicer offered the borrowers a trial plan with modified payments which the borrowers rejected.
The bank then foreclosed and the borrowers counterclaimed alleging the bank breached the implied duty of good faith and fair dealing in the servicer’s handling of the borrowers’ multiple applications for loss mitigation. The borrowers also sued the servicer under RESPA for its handling of the loss mitigation applications. The trial court allowed the foreclosure and granted summary judgement for the bank and the servicer.
The appellate court affirmed. With regard to the implied duty of good faith and fair dealing counterclaim against the bank, the borrowers argued that the servicer “delay[ed] the process” and “wrongfully deny[ed]” the borrowers’ applications by imposing artificial due dates on when documents had to be received. The appellate court acknowledged that the general duty of good faith and fair dealing existed in mortgage loan agreements, but not to the extent of preventing one party from receiving the fruits of the contract. Here, the court found that no provision of the loan agreement supported a duty of good faith and fair dealing with respect to loan modifications. Rather, it agreed with the trial court that the borrowers and the bank contracted that the loan would be repaid in full and the loan agreement specifically allowed the bank to default for non-payment. Nothing in the note or mortgage requires the bank to consider a loan modification or gives the borrowers a contractual right to any particular process for applying for one.
With respect to RESPA claims against the servicer, the trial court found the borrowers “at least set forth specific facts” sufficient to create a factual dispute as to whether the servicer violated RESPA. But it ultimately ruled that the claim failed because the borrowers did not present evidence of actual damages. The borrowers argued they suffered actual damages in the form of attorney fees for the services of the attorney who assisted with the numerous loan modification applications. However, attorney’s fees are not cognizable damages under RESPA noting that (1) fees for such legal assistance do not constitute a cost caused by the servicer’s alleged violation of RESPA, and (2) even if the attorney fees were directly attributable to the servicer’s alleged RESPA violations, they are addressed in another section of the statute so cannot be costs under RESPA.Download Related Document