Drafting Your Complaint to Survive a Motion to Dismiss

Sarah Mancini John Rao

National Consumer Law Center

Jane Williams ) v. ) ABC Loan ) Servicing, LLC )

Motion to Dismiss

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Overview • Elements of a claim under RESPA, TILA • Pleading damages (actual, statutory) • Avoiding common defenses

• Designated address • Duplicative application

• Including the right parties

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Elements: all RESPA servicing claims • Federally related mortgage loan:

• loan secured by a lien on residential real property upon which there is or will be 1-4 unit occupancy

• loan was made by a federally-insured depository lender or lender regulated by an agency of federal govt.

• Defendant is a servicer • Violation • Damages

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Elements: RFI/NOE violations • RFI/NOE was mailed to designated address • RFI/NOE contained borrower’s name and account number (or

sufficient information to ID the borrower) • RFI related to the servicing of the loan; NOE related to

mortgage loan • NOE included reasons for belief to the extent applicable that

account was in error or RFI included sufficient detail to notify the servicer of the information sought

• AND: • Servicer failed to:

• respond or correct the error within 30 business days (or state need for an extension of time); or

• conduct a reasonable investigation • Borrower has suffered actual damages caused by the violation

and entitled to statutory damages, if applicable 4

Failure to conduct reasonable investigation • Wilson v. Bank of Am., 48 F. Supp. 3d 787, 804 (E.D. Pa. 2014)

(“The addition of the word ‘reasonable’ seemingly imposes a substantive obligation that is not satisfied by the mere procedural completion of some investigation followed by a written statement of reasons.”).

• Renfroe v. Nationstar Mortgage, LLC, 2016 WL 2754461, at *3-4 (11th Cir. May 12, 2016) (servicer’s response letter did not contain specific factual details or an explanation of its determination, and simply stated: “[T]he above-mentioned loan and related documents were reviewed and found to comply with all state and federal guidelines that regulate them.... [W]e did review the account, and all transactions appear to be correct from our records review.”). 5

Failure to conduct reasonable investigation • Multiple contradictory responses contradict a servicer’s claim that there

was “no error” • Guccione v. JPMorgan Chase Bank, 2015 WL 1968114 (N.D. Cal. May 1, 2015)

(servicer’s response that there was no error with escrow account contradicted by three documents sent to the borrowers each stating that a different escrow amount was owed)

• Wilson v. Bank of Am., 48 F. Supp. 3d 787 (E.D. Pa. 2014) (plaintiff sufficiently alleged that servicer did not conduct a reasonable investigation of her notices of error where the servicer sent her responses with contradictory explanations for why she was not given a permanent loan modification).

• Sending of a form letter or boilerplate language suggests no reasonable investigation was done • Lage v. Ocwen Loan Servicing LLC, 2015 WL 7294854, at *13 (S.D. Fla. Nov. 19,

2015) (“The sending of a template or form letter which fails to substantively address concerns raised by the borrower's inquiry does not satisfy the servicer's obligations under Regulation X's error resolution procedures.”)

• Marais v. Chase Home Fin., LLC, 24 F.Supp.3d 712, 723–24 (S.D. Ohio 2014) (“form letter with no individualized features” did not satisfy servicer's duty under § 2605).

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Elements: Failure to Comply with Loss Mitigation Rules • Borrower made an application [x] days before a foreclosure sale date AND: • Servicer failed to send a sufficient notice within 5 business days (if

application was received at least 45 days before foreclosure date); or • Servicer failed to exercise reasonable diligence in getting to a

complete application; or • Servicer failed to evaluate and issue a decision within 30 days of

complete application; or • Servicer failed to review for all options within 30 days of complete

app; or • Servicer failed to issue a written denial letter giving the specific

reason for the denial; or • Servicer failed to give requisite time period to accept a mod offer; or • Servicer failed to honor appeal rights (app. > 90 days), AND • Borrower has suffered actual damages caused by the violation and

entitled to statutory damages, if applicable 7

Elements: Dual Tracking • Servicer made the “first notice or filing” before the loan

reached 120 days delinquent; or • Servicer made the “first notice or filing” when a complete

application or facially complete application was still under review (no written decision was yet provided); or

• Servicer proceeded with a foreclosure sale when a complete application or facially complete application was still under review (no written decision was yet provided) AND the application was complete or facially complete more than 37 days before the foreclosure sale; or

• Servicer proceeded with a foreclosure sale when a loss mitigation decision was in the midst of a valid appeal

• Borrower has suffered actual damages caused by the violation and entitled to statutory damages, if applicable

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Dual Tracking Decisions • Estrada v. Caliber Home Loans, Inc., 2016 WL 1237343 (C.D. Cal. Mar.

25, 2016) • complaint sufficiently alleged that servicer violated § 1024.41(f)(2) by

recording a notice of default on the borrower’s property after receiving a facially complete application, which servicer was required to treat as complete

• Bennett v. Bank of Am., N.A., 2016 WL 2610238 (M.D. Fla. May 6, 2016) • refusing to dismiss § 1024.41(g) claim where complaint alleged that

servicer proceeded with motion for summary judgment and obtained a foreclosure judgment after receiving a facially complete application

• Gresham v. Wells Fargo Bank, 2016 WL 1127717 (5th Cir. Mar. 21, 2016) • affirming dismissal of RESPA dual tracking claim where plaintiff did not

plead or offer any evidence that he submitted a complete loss mitigation application more than 37 days before the foreclosure sale 9

Elements: TILA servicing claims • Loan secured by consumer’s principal dwelling; • Claim against creditor; servicer? AND: • Servicer failed to provide an accurate payoff quote within 7

business days; or • Servicer failed to promptly credit a complete (PITI) payment;

or • Servicer guilty of “pyramiding” late fees; or • Servicer failed to send periodic mortgage statements

(remember exception for borrower in an active bankruptcy case or whose liability on the mortgage was discharged in bankruptcy)

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Pleading a RESPA Violation: Damages! • Unlike a claim under TILA, damages are a necessary element

of a RESPA claim! • Must allege EITHER actual damages or a pattern and practice

of wrongdoing to support statutory damages • Must allege causal connection between actual damages and

RESPA violation • Some courts suggest actual damages are always required

(statutory damages are “additional”) • Renfroe v. NationStar Mortgage, __ F.3d __, 2016 WL

2754461 (11th Cir. 2016)

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Pleading a RESPA Violation: Damages! • Damages and costs. Whoever fails to comply with any

provision of this section shall be liable to the borrower for each such failure in the following amounts : . . .

• (1)(A) any actual damages to the borrower as a result of the failure; and

• (B) any additional damages, as the court may allow, in the case of a pattern or practice of noncompliance with the requirements of this section, in an amount not to exceed $2,000.

• 12 U.S.C. § 2605(f)

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RESPA Damages Actual Damages: • Costs of preparing NOE/RFI (postage, copies, travel, lost time)

• Sending follow-up NOE/RFI avoids argument that pre-violation letter costs are not actual damages

• Foreclosure costs, late fees • Improper accrual of unpaid interest • Costs in preparing and updating loss mitigation application that

was ignored by servicer • Loss of home through avoidable foreclosure (can you allege that

client was actually eligible for a modification?) • Attorney fees (not for bringing action but to rectify or respond to

servicer non-compliance) • Credit damage

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RESPA Damages Actual Damages, cont. • Non-conclusory emotional harm allegations satisfy actual

damages • Spokeo v. Robins, __ S. Ct. __, 2016 WL 2842447 (May 16, 2016) • See allegations in:

• Catalan v. GMAC Mtge., 62 F.3d 676, 696 (7th Cir. 2011) • Marquette v. Bank of America, N.A. , 2015 WL 461852 * 14 (S.D.

Cal. Feb. 4, 2015) • McMillen v. Resurgent Capital Services, L.P., 2014 WL 3341337 (S.D.

Ohio July 8, 2014)

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RESPA Damages

Statutory Damages • 12 U.S.C. § 2605(f)(2) • Must show “pattern and practice” • $2,000 per violation (not $2,000 total)

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RESPA Damages Pattern & Practice Allegations: • Can be multiple RESPA violations as to the same borrower • Can be evident from Defendant’s conduct in one interaction (i.e.,

use of a form letter that shows this is Def’s common practice) • Sources of pattern evidence for your complaint:

• Pacer & Westlaw search for other complaints • CFPB complaint database • News articles • Listservs

• Renfroe (11th Cir.): “d]isclosing the identities of other borrowers, the dates of the letters, and the specifics of their inquiries is not a prerequisite to pleading statutory damages….”

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Common defenses & arguments in 12(b)(6) motions

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RFI/NOE not sent to designated address • Citation for designated address • Where do I find the servicer’s designated address?

• Written notice designating the specific address • Statements or coupon books • Website • Early intervention or loss mitigation notices that include contact

information for assistance • Remember to check back – they change them periodically

• Servicer has burden to prove proper written notice of designated address was provided to the borrower • Check that statements offered by servicer were contemporaneous

• Can I argue that it doesn’t matter, so long as the servicer received it and treated it like a QWR? 18

No Litigation Exception Servicer must respond to RFI/NOE even during pending litigation • Lucero v. Cenlar FSB, 2015 WL 5024047 (W.D. Wash. Aug. 25, 2015)

(borrowers are not precluded from utilizing §§ 1024.35 and 1024.36 after litigation has been initiated); Moore v. Caliber Home Loans, Inc., 2015 WL 5162482, at *7 (S.D. Ohio Sept. 3, 2015) (“Nothing in these statutory provisions excuses a loan servicer from fulfilling its obligations thereunder, including the availability of discovery in litigation or a prior response to a CFPB complaint”); Chatman v. Fairbanks Capital Corp., 2002 U.S. Dist. LEXIS 10945 (N.D. Ill. June 13, 2002) (court rejected servicer’s argument that plaintiff’s qualified written request was “litigation strategy” and that information requested was subject to Federal Rules of Civil Procedure); In re Figard, 382 B.R. 695 (Bankr. W.D. Pa. 2008) (servicer compliance with qualified written request required even though borrower could obtain information under discovery provisions of Bankruptcy Rules)

• CFPB commentary relating to overbroad requests does not preclude borrowers from utilizing §§ 1024.35 and 1024.36 simply because litigation has been initiated

• Should not “supplant civil discovery” (Section-by-Section Analysis) 19

Duplicative or Overbroad Notice of Error • New exclusion from liability effective Jan. 10, 2014 • Servicer is not required to comply with the response

requirements if the servicer reasonably determines that the asserted error is substantially the same as an error previously asserted by the borrower for which the servicer has previously complied, unless the borrower provides new and material information to support the asserted error

• Reg. X, 12 C.F.R. § 1024.35(g)(1)(i).

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Duplicative or Overbroad Notice of Error • A notice of error cannot be duplicative if the servicer did not

previously comply with the acknowledgement and response requirements of sections 1024.35(d) and 1024.35(e) with respect to the prior notice • Lucero v. Cenlar, 2014 WL 4925489 (W.D. Wash. Sept. 30, 2014).

• Can an NOE be duplicative based on a prior NOE sent to a prior servicer?

• By referring to a notice of error that “the servicer” has previously complied with, section 1024.35(g)(1)(i) arguably does not apply in this situation, because the transferee servicer is not “the servicer” who responded to the prior notice of error.

• However, one court has concluded that it can be duplicative, but only if the transferor servicer has properly responded to the prior notice of error • Nunez v. J.P. Morgan Chase Bank, 2015 WL 1638242 (M.D. Fla. Apr.

13, 2015) 21

Duplicative or Overbroad Notice of Error • A servicer may also refuse to comply with an overbroad notice

of error • A notice of error is overbroad if the servicer cannot

reasonably determine from the notice the specific error that the borrower asserts has occurred on the account

• A servicer is nevertheless required to comply with an otherwise overbroad notice of error to the extent that the servicer can reasonably identify some valid assertion of an error within the notice • Reg. X, 12 C.F.R. § 1024.35(g)(1)(ii). See Lucero v. Cenlar FSB,

2015 WL 5024047 (W.D. Wash. Aug. 25, 2015)

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Duplicative or Overbroad Notice of Error Examples of overly broad from the Official Interpretation: • Assertions of errors regarding substantially all aspects of a

mortgage loan, including errors relating to all aspects of mortgage origination, mortgage servicing, and foreclosure, as well as errors relating to the crediting of substantially every borrower payment and escrow account transaction;

• Assertions of errors in the form of a judicial action complaint, subpoena, or discovery request that purports to require servicers to respond to each numbered paragraph; and

• Assertions of errors in a form that is not reasonably understandable or is included with voluminous tangential discussion or requests for information, such that a servicer cannot reasonably identify from the notice of error any error for which § 1024.35 requires a response. • Official Interpretations to Reg. X, ¶ 35(g)(1)(ii)-1 23

Duplicative Application Anticipate the issue! Possible arguments to make: • Prior app was before effective date of the rules

• Billings v. Seterus, Inc., 2016 WL 1055753 (W.D. Mich. Mar. 17, 2016); Bennett v. Bank of Am., N.A., 126 F. Supp. 3d 871, 884 (E.D. Ky. 2015) (servicer never complied with the requirements of section 1024.41 in evaluating borrowers’ earlier applications submitted before effective date).

• Prior app was submitted to a different servicer • See Official Interpretations to Reg. X, ¶ 41(i)-1.

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Duplicative App, cont’d Possible arguments, continued: • Prior app was never complete or not treated as complete

• Thomas v. Wells Fargo Bank, N.A., 2016 WL 1701878, at *4 (S.D. Cal. Apr. 28, 2016) (“It would be absurd to find that a borrower sending a ‘renewed’ set of materials at the request of a loan servicer renders that borrower's initial loss modification request duplicative, and hence allows the servicer to escape the reach of Regulation X”).

• Servicer didn't comply with rules on prior complete app • Houle v. Green Tree Servicing, L.L.C., 2015 WL 1867526, at *3

(E.D. Mich. Apr. 23, 2015) (duplicative request rule applies if a completed application is “properly processed and considered”).

• Exclusion applies only to § 1024.41 – servicer must still respond to NOE/RFI related to duplicative app

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Duplicative App Decisions • Issue should not be resolved on MTD

• Amarchand v. CitiMortgage, Inc., 2016 WL 1031303 (M.D. Fla. Mar. 9, 2016) (refusing to dismiss complaint on a Rule 12(b)(6) motion and noting that issue is better raised as an affirmative defense and in a dispositive motion).

• Better to plead the facts that show that this exception does not apply; some courts will dismiss a complaint for failure to do so • Parker v. Midwest Loan Servs., Inc., 2016 WL 1242440, (E.D. Mich.

Mar. 30, 2016).

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Contractual right to notice and opportunity to cure • The Fannie Mae/Freddie Mac Single-Family Uniform

Instrument contains a provision (Section 20) that neither the borrower nor lender may “commence, join, or be joined to any judicial action (as either an individual litigant or the member of a class)” against the other party alleging that the party “breached any provision of, or any duty owed by reason of,” the mortgage or deed of trust, without first giving the other party notice of the breach and a reasonable period to take corrective action.

• Argument rejected by Wynkoop v. Wells Fargo Home Mortg., Inc., 2011 WL 2078005, at *2 (S.D. Fla. May 26, 2011).

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Including the right parties • Servicer • Prior servicer(s)? • Creditor?

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Including the right parties Vicarious liability imputed to creditor for servicer’s conduct? • In Rouleau v. US Bank, 2015 WL 1757104, at *7 (D.N.H. Apr. 17,

2015), the court held that because RESPA is “a statute that provides a remedy for a defendant’s breach of a duty created by and defined in the statute,” it creates “‘a species of tort liability.’” … “‘when Congress creates a tort action, it legislates against a legal background of ordinary tort-related vicarious liability rules,’ and consequently, that its statutorily-created torts ‘incorporate those rules,’” citing Meyer v. Holley, 537 U.S. 280, 285 (2003).

• But see Bennett v. Nationstar Mortgage, LLC, 2015 WL 5294321 (S.D. Ala. Sept. 8, 2015) (rejecting Rouleau reasoning as to vicarious liability),

• LaGrant v. U.S. Bank, 2015 WL 1208967 (E.D. Va. Mar 16, 2015) (dismissing RESPA claim brought against owner of the loan)

• McAndrew v. Deutsche Bank Nat’l Trust Co., 977 F. Supp. 2d 440 (M.D. Pa. 2013) (same).

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