The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court’s finding that a servicer did not violate the federal Real Estate Settlement Procedures Act (RESPA) and Wis. Stat. § 224.77 because the borrower could not prove that the servicer’s alleged failure to completely respond to a “qualified written request” (QWR) caused any actual damages, notwithstanding the alleged attorney’s fees incurred in reviewing the servicer’s response and the borrower’s alleged emotional distress.
In so ruling, the Seventh Circuit held that “RESPA was not intended to give people who cannot pay their mortgages the means to engage in burdensome fishing expeditions in the hope of somehow passing the blame for their foreclosure onto the mortgage servicers in state court.”
The Seventh Circuit also held that the non-borrower spouse lacked standing to sue under RESPA and Wisconsin law.
A copy of the opinion in Moore v. Wells Fargo Bank, N.A. is available at: Link to Opinion.
As you may recall, RESPA imposes duties on a loan servicer that receives a QWR for information from a borrower. 12 U.S.C. § 2605(e).
Section 2605(e) requires the servicer to do one of the following three things no later than 30 business days after receiving a QWR from a borrower: (1) make appropriate corrections to the borrower’s account and provide written notice of the corrections to the borrower; (2) after investigating the borrower’s account, provide a written explanation as to why the servicer believes the account does not need correction; or (3) after investigating the borrower’s account, provide the requested information or explain in writing why the information cannot be obtained.
Wisconsin law provides similar protection under Wis. Stat. § 224.77, which prohibits mortgage brokers from engaging in a wide range of conduct, including anything that would “violate any provision of this subchapter” or any “federal or state statute.” Wis. Stat. § 224.77(1)(k).
Additionally, mortgage servicers must maintain the competence necessary to maintain their role as a servicer and may not engage in conduct “that constitutes improper, fraudulent, or dishonest dealing.” Wis. Stat. § 224.77(1)(m).
The plaintiffs, husband and wife, obtained an adjustable rate loan to purchase their home. The wife used an inheritance from her mother to help buy the house, but she was never named as a party to the title of the property, the mortgage, or the promissory note. The husband is the borrower on the loan.
The loan owner filed a foreclosure action but dismissed that first foreclosure action after a loan modification. The plaintiffs fell behind on the modified payments and the loan owner filed a second foreclosure action. On Nov. 13, 2012, the state court entered a judgment of foreclosure against the husband. He did not appeal the state court’s judgment of foreclosure.
The husband filed Chapter 13 bankruptcy to stop the sheriff’s sale. In June 2015, the parties entered into a modified payment agreement that required the husband to pay a lump sum of $9,000. When the husband failed to make this payment, the loan owner sought relief from automatic stay.
The husband responded by converting his Chapter 13 bankruptcy into a Chapter 7 bankruptcy. That triggered another automatic stay only 12 days before the scheduled sale. After the bankruptcy court entered a discharge for the Chapter 7 bankruptcy, the sheriff’s sale was rescheduled for Oct. 11, 2016.
On Aug. 15, 2016, nearly four years after the foreclosure judgment was entered and two months before the scheduled sale, the husband sent a letter to the servicer asking 22 wide-ranging questions about his account. His questions included the identities of the loan owner, details about how payments were applied throughout the duration of the loan, the creation of his escrow account, a list of charges and fees, and “an identification of each and every modification, forbearance, forgiveness, reinstatement, or other debt-relief or mortgage-relief type program” for which the borrower had “ever been considered” by “any servicer or lender.”
The servicer treated the letter as a QWR and said it would respond by Sept. 30, the last day to submit a response within the 30 business day deadline under section 2605(e).
On Sept. 28, two days before the servicer’s deadline to respond under RESPA, the plaintiffs filed a motion in state court titled “Defendant’s Counterclaim Maturing After Pleading” in an effort to reopen the 2012 foreclosure case, and a complaint in federal court alleging that the loan servicer violated RESPA and Wis. Stat. § 224.77 by failing to respond to the QWR.
On Sept. 30, the loan servicer provided its response to the QWR with 58 pages of attachments. The response addressed most of the questions but not all. The servicer did not address the question regarding every past modification and stated that the request was “too broad,” but invited the husband to provide further details about his request.
The state court dismissed the new counterclaims as untimely. The sheriff’s sale finally took place on Nov. 29, 2016. In a further effort to remain in his foreclosed home, the husband filed for bankruptcy again on Dec. 27, 2016.
In February 2018, the federal trial court granted the servicer’s motion for summary judgment. The court found that the husband had standing under both federal and state law (and assumed that the wife had standing under state law), but that the plaintiffs did not establish a violation of law or how any failures to respond to their questions caused them any harm.
This appeal followed.
The Seventh Circuit began its analysis by reviewing the wife’s standing to bring claims under RESPA and Wis. Stat. § 224.77.
The Seventh Circuit found that the wife lacked standing because she was not named on the property’s title or the mortgage or the note, she was not a party to any of the bankruptcies or the loan modification, and her discovery responses conceded that the servicer had no legal duty to her under RESPA. In the Seventh Circuit’s view, the wife could not satisfy the Spokeo requirements because she had no legal interest that could have been harmed by the servicer.
The wife argued that she had standing under Wisconsin law as a “person aggrieved.” Under Wisconsin law, “[a] person who is aggrieved by an act which is committed by a mortgage banker, mortgage loan originator, or mortgage broker in violation of [§ 224.77] may recover in a private action.” Wis. Stat. § 224.80(2).
The wife claimed that she was harmed by the servicer’s failure to respond to the QWR, because she used her inheritance to help purchase the home and would lose the house if the lender is allowed to sell it.
However, the Seventh Circuit explained that the Wisconsin Supreme Court had clarified that an aggrieved party under § 224.77 is “one having an interest” which is “injuriously affected” by the alleged violation. Liebovich v. Minn. Ins. Co., 310 Wis. 2d 751, 774 (Wis. 2008). Because the wife did not have any legal interest in the property or in the outcome of this proceeding, the Seventh Circuit held that the wife cannot bring a challenge under § 224.77.
The husband, however, easily satisfied the standing requirements. As the Seventh Circuit explained, he was a borrower on the loan and alleged injury from having to fight the foreclosure without the requested information.
The central issue on the appeal was whether the husband could recover damages under 12 U.S.C. § 2605(f) when the only harm alleged was that the response to his QWR did not contain information he wanted to help fight the foreclosure he had already lost in state court.
The Seventh Circuit noted that RESPA does not provide relief for mere procedural violations and borrowers bringing claims under RESPA must show actual injury.
The Seventh Circuit explained that even assuming some aspects of the servicer’s response were incomplete and may have violated RESPA, the husband did not provide any evidence to show that his alleged injuries — “out of pocket expenses and emotional distress” — were triggered by the servicer’s failure to comply with section 2605(e)(2).
Attorney’s fees to review the response could not be a cost incurred as a result of an alleged violation. As the Seventh Circuit explained, if attorney’s fees constitute actual damages under RESPA, this would render section 12 U.S.C. § 2605(f)(3) (prevailing plaintiffs can collect attorney fees) superfluous.
The Seventh Circuit acknowledged that the prospect of losing a home can be highly stressful, but determined that the husband’s testimony was not sufficient to show “emotional distress damages” triggered by any arguable RESPA violations. The sources of his stress were his inability to make timely payments and the sale and imminent eviction.
Finding that the husband had failed to provide evidence of actual injury, the Seventh Circuit stated that “RESPA was not intended to give people who cannot pay their mortgages the means to engage in burdensome fishing expeditions in the hope of somehow passing the blame for their foreclosure onto the mortgage servicers in state court.”
The husband also argued that the Rooker-Feldman doctrine did not bar his state law claims under § 224.77 because he was merely seeking damages rather than reconsideration of the state court foreclosure.
As you may recall, “[t]he Rooker-Feldman doctrine prevents lower federal courts from exercising jurisdiction over cases brought by state-court losers challenging state-court judgments rendered before the district court proceedings commenced.” Mains v. Citibank, N.A., 852 F.3d 669, 675 (7th Cir. 2017).
The Seventh Circuit rejected this argument, finding that the husband’s “assertion denies the substance of what he actually seeks in federal court.” To find in his favor, a federal court would be required to contradict directly the state court’s decisions by finding that the loan owner was not entitled to the final judgment of foreclosure. The Seventh Circuit concluded that the husband cannot relitigate the foreclosure through his state law claims.
The Seventh Court also rejected the claim that attorney’s fees constitute actual harm under § 224.77 for the same reasons under RESPA.
Accordingly, the Seventh Circuit affirmed the judgment dismissing the action as to the husband on the merits and as to the wife for lack of standing.