April 24, 2009

Qualified Written Requests & HELOCs

Filed under: Qualified Written Request,RESPA

Hello Paul:

My mortgage is still with the original bank I borrowed from because they do not sell the loans and I have been trying to negotiate with them for 2 years now.

On the HUD website in regards to open ended mortgages, which is what I have, it says: “Both subordinate lien loans and open-end lines of credit (home equity loans) in first lien position are exempted from the loan servicing requirements”.

Does this preclude me from sending a qualified written request to my lender?

Tony

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Hello Tony,

The short answer is that servicers of HELOC’s are subject to the requirements of the RESPA’s Qualified Written Request. The long answer is Cortez v. Keystone Bank, Inc., No. 98-2457, 2000 WL 536666 (E.D. Pa. May 2, 2000) which reads (in part):

In count IV of their Complaint, plaintiffs allege that Keystone violated billing error provisions of RESPA by failing to respond timely to plaintiffs’ written requests to remedy the allegedly improper assessment of interest charges. Keystone asserts that RESPA is inapplicable to the home equity line of credit which is governed instead by the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq.

The principal purpose of RESPA is to protect home buyers from material nondisclosures in settlement statements and abusive practices in the settlement process. See Rawlings v. Dovenmuehle Mortgage, Inc., 64 F.Supp.2d 1156, 1165-66 (M.D.Ala.1999); Bieber v. Sovereign Bank, 1996 WL 278813, *5 (E.D.Pa. May 23, 1996). By its terms, however, RESPA applies not only to the actual settlement process but also to the “servicing” of any “federally related mortgage loan.” 12 U.S.C. § 2602(1). Under RESPA, the servicer of a “federally related mortgage loan,” which includes a loan secured by a “subordinate lien,” is required to provide a written response within twenty days of receiving a “qualified written request” for information about the servicing of such a loan unless the action requested is taken within that period. See 12 U.S.C. § 2605(e)(1). FN11

FN11. A federally-related mortgage loan “includes any loan (other than temporary financing such as a construction loan) which-

is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property.

12 U.S.C. § 2602(1) (emphasis added).A qualified written request is “written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that-

(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and

(ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

12 U.S.C. § 2605(e)(1)(B).

The term “servicing” means “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan” and “making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”

RESPA also requires the servicer to take corrective action within sixty days of receiving the request or to conduct an investigation and provide the borrower with a written explanation of the reasons for the action and the name and telephone number of an employee of the servicer to whom the borrower can direct any further inquiry on the matter. See 12 U.S.C. § 2605(e)(2). RESPA forbids a servicer from providing information regarding any overdue payment to any consumer reporting agency during the sixty day period. See 12 U.S.C. § 2605(e)(3).

RESPA explicitly provides for individual causes of action and allows for actual damages, as well as statutory damages upon a showing of a pattern or practice of noncompliance with the duty to respond to borrower inquiries. See 12 U.S.C. § 2605(f).

The inquiries sent by Mr. Cortez to Keystone Bank involved a line of credit secured by a “subordinate” lien on plaintiffs’ dwelling and thus involved a “federally related mortgage loan.” At least some of those inquiries clearly identified the borrower and account number and included a statement of the reasons why plaintiffs believed Keystone had erroneously applied their payments and assessed interest charges on the account. Such inquiries are “qualified written request[s].” Those inquiries involve the “servicing” of the loan as they relate to the manner in which Keystone applied payments of principal and interest received from plaintiffs.

Keystone correctly notes that HUD Regulation X exempts home equity lines of credit from RESPA coverage in certain situations. See 24 C.F.R. § 3500.6(a)(2) (exempting refinancing loans, closed-end loans secured by subordinate liens, reverse mortgages and non-purchase money loans from requirement that lender provide special information booklet); § 3500.7(f) (exempting open-end home equity lines of credit covered by TILA and Regulation Z from good faith estimate of settlement costs requirement); § 3500.8(a) (exempting open-end home equity lines of credit covered by TILA and Regulation Z from use of HUD settlement statement).

Unlike the statute, the borrower inquiry provision of Regulation X applies only to certain federally related mortgage loans secured by a first lien, which by definition excludes from its coverage “subordinate lien loans or open-end lines of credit (home equity plans) covered by the Truth in Lending Act and Regulation Z, including open-end lines of credit secured by a first lien.” 24 C.F.R. § 3500.21(a), (e).

TILA applies to open-end home equity lines of credit. See 15 U.S.C. §§ 1637a & 1647. The Fair Credit Billing Act, 15 U.S.C. § 1666 et seq. (“FCBA”), a sub-section of TILA, applies whenever a creditor provides an obligor with “a statement of the obligor’s account in connection with an extension of credit.” 15 U .S.C. § 1666(a). If the obligor believes that the statement contains a billing error which he wishes to contest, he must send to the creditor written notice of the amount of the error and the reasons he believes there is an error. See id. The FCBA imposes on the creditor a procedure to follow in response to notice of a billing error, including written acknowledgment that the notice has been received. See id. § 1666(a)(3)(A).

The language in Regulation X which exempts from coverage under RESPA home equity lines of credit covered by TILA and Regulation Z, however, directly conflicts with the language in RESPA which expressly extends a lender’s duties to borrower inquiries regarding the “servicing” of any “federally related mortgage loan.” 12 U.S.C. § 2605(e)(1)(A). Insofar as an agency regulation conflicts with the statute under which it was promulgated, the regulation is ineffective. See LaVallee Northside Civic Ass’n v. Virgin Islands Coastal Zone Management Comm’n, 866 F.2d 616, 623 (3d Cir.1989). The language in the borrower inquiry provision of RESPA clearly and unconditionally states that the provision applies to any “federally related mortgage loan” which RESPA unambiguously defines.

That TILA may apply to aspects of plaintiffs’ line of credit does not preclude application of RESPA. Both statutes are remedial in nature and both impose certain duties to respond to borrower complaints and other inquiries. See Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 502 (3d Cir.1998) (TILA is remedial statute); Rawlings v. Dovenmuehle Mortgage, Inc., 64 F.Supp.2d 1156, 1165-66 (M.D.Ala.1999) (holding RESPA to be remedial in nature and emphasizing 1990 enactment of borrower inquiry provision); Bieber v. Sovereign Bank, 1996 WL 278813, *5 (E.D.Pa. May 23, 1996) (RESPA is remedial statute). “When there are two federal statutes on the same subject, the rule is to give effect to both if possible.” Pittston Co. v. United States, 199 F.3d 694, 702-04 (4th Cir.1999). See also Bracciale v. City of Phila., 1997 WL 672263, *5 (E.D.Pa. Oct. 29, 1997).

The legislative histories of the statutes and amendments are silent as to how to reconcile the complaint resolution provisions of RESPA and TILA, and there is no case law on point.

The borrower inquiry provision in RESPA is slightly more restrictive in its time component than that in the billing error notice provision of TILA. See 12 U.S.C. 2605(e); 15 U.S.C. 1666(a). Both statutes provide for “actual” and statutory damages, as well as costs and attorney’s fees. See 12 U.S.C. 2605(f); 15 U.S.C. § 1640(a)(1), (a)(2)(A)(I), (a)(3), (g). The RESPA borrower inquiry provision applies not only to billing error inquiries but to any request for information relating to the servicing of a federally related mortgage loan, while the billing error notice provision of TILA applies only to billing errors. See 12 U.S.C. 2605(e); 15 U.S.C. 1666(a). RESPA, however, applies only to loans and lines of credit secured by liens on property, while TILA applies to a variety of consumer credit devices.

This last comparison suggests that, if anything, it is the RESPA complaint resolution provision which is more closely associated with the instant controversy. Congress amended RESPA in 1990 to add a borrower inquiry provision and in 1992 to extend its application to loans secured by subordinate liens despite the enactment of TILA and the FCBA many years earlier. Congress itself did not limit the amendments to transactions uncovered by TILA.

Both statutes are consumer protection statutes. That provisions of two statutes may be applicable in particular circumstances does not alone justify ignoring or recasting either. The remedial purposes of neither statute is frustrated by application of the RESPA borrower inquiry provision in the particular circumstances of this case.

Keystone argues that in any event there was no billing error and thus plaintiffs have failed to show any harm as a result of any failure to comply with RESPA.

As noted, there exists an issue as to whether Keystone properly assessed the interest charges in question. It follows that there is an issue as to whether Keystone failed within sixty days after receiving a qualified written request from Mr. Cortez to “make appropriate corrections.” 12 U.S.C. § 2605(e)(2). If so, Keystone would be liable for any resulting damages including any denial of credit because of the reporting of such charges as delinquent to credit reporting agencies. See 12 U.S.C. § 2605(f)(1)(A). Also, insofar as Keystone failed within twenty days to acknowledge in writing the receipt of a qualified written request from Mr. Cortez or within sixty days to provide plaintiffs with a written explanation or clarification of the reasons why Keystone believed the account to be correct, plaintiffs may recover any actual damages resulting from such failure. See 12 U.S.C. § 2605(e)(1)(A), (f)(1)(A).

Actual damages encompass compensation for any pecuniary loss including such things as time spent away from employment while preparing correspondence to the loan servicer, and expenses for preparing, photocopying and obtaining certified copies of correspondence. See Rawlings, 64 F.Supp.2d at 1164. Plaintiffs have presented competent evidence that their available credit was decreased by the amount of outstanding interest charges on the account during any given week and they were thus unable to earn interest on other accounts. Insofar as a denial of access to the full amount of the credit line resulted from an improper failure to correct the assessment of interest charges, this would constitute actual damages for which Keystone could be liable.

Plaintiffs have asserted a cognizable RESPA claim and it does not clearly appear from the record presented that they will be unable to sustain it. Keystone thus is not entitled to summary judgment on this claim.