Interpretations of RESPA: A foreclosure sale “occurs” when scheduled, and one instance is never a pattern.

In Lage v. Ocwen Loan Servicing LLC, 2016 WL 5864507, Plaintiff-borrowers sued defendant loan servicer, alleging liability under the Real Estate Settlement Procedures Act (“RESPA”) for failure to evaluate the merits of their loss mitigation application within thirty days as required by 12 C.F.R. § 1024.41(c) and for inadequately responding to their notice of error as required by 12 C.F.R. § 1024.35(e). The district court granted summary judgment for the defendant-servicer on both claims. First, 12 C.F.R. § 1024.41 was not effective at the time the plaintiff-borrowers submitted their loss mitigation request. Second, proof of statutory or actual damages as required to sustain a claim under § 1024.35(e) was not shown. Reviewing de novo, the Eleventh Circuit affirmed the grant of summary judgment on both claims in a published per curiam opinion.

A loss mitigation application is a request by a borrower for alternatives to foreclosure. When a borrower submits a loss mitigation application at least 45 days before a foreclosure sale, the servicer must promptly review the application to determine whether it is complete. § 1024.41(b)(2). If it is incomplete, the servicer must provide the borrower an opportunity to supplement the application. But a servicer only has a duty to evaluate a complete loss mitigation application that it receives “more than 37 days before a foreclosure sale.” § 1024.41(c)(1). The first issue turned on the interpretation of “more than 37 days before a foreclosure sale.”

The foreclosure sale was scheduled to occur two days after the application became complete, but it was subsequently rescheduled, and actually occurred 46 days after completion of the application. Plaintiff-borrowers argued for measuring by the actual foreclosure date, citing the regulation’s reference to the date the foreclosure sale “occurs.” § 1024.41(b)(3). The Eleventh Circuit disagreed. It looked to the final clause of paragraph (b)(3) instructing to measure “as of the date a complete loss mitigation application is received.” § 1024.41(b)(3). Under this interpretation, the Eleventh Circuit did not need to decide the effect of the regulation’s effective date on the date of the application’s completion. Because the regulation was unambiguous, the Eleventh Circuit also saw no need to consider the Consumer Financial Protection Bureau’s interpretation, although it noted that the interpretations were consistent, and highlighted the Bureau’s underlying objective of not discouraging servicers from rescheduling foreclosure sales, which usually benefits borrowers.

On the plaintiff-borrowers’ second claim, they argued that they had proven sufficient evidence of statutory damages for their notice of error claim. Statutory damages are defined as “a pattern or practice of noncompliance with this section.” 12 U.S.C. § 2605(f)(1). The plaintiff-borrowers argued that a “pattern or practice” of the defendant-servicer’s inadequate notice could be inferred by the servicer’s use of a template to respond to errors. But the assumption was too much for the Eleventh Circuit. The borrowers had only pointed to one violation, which the court declared plainly insufficient to create a pattern or practice, without deciding how many violations are necessary to show a pattern. Thus, both of the plaintiff-borrowers’ arguments failed, and the Eleventh Circuit affirmed the district court’s grants of summary judgment to the defendant-servicer on both claims.

Posted by Keith Emanuel.

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