In response to the Great Recession of 2009 that was caused in large part by the collapse of the American housing market, Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) in July 2010. One of the most important provisions of the legislation shifted oversight of two existing statutes, The Real Estate Settlement Procedure Act (RESPA) and the Truth in Lending Act (TILA) from the Federal Trade Commission, which had failed to implement and/or enforce the laws, to the Consumer Financial Protection Bureau (CFPB).
The CFPB immediately undertook the task of creating a comprehensive regulatory structure for mortgage loan servicers. At the same time, state attorneys general and the U.S. Department of Justice negotiated a detailed consent decree with the mortgage loan industry now known as the National Mortgage Settlement. Th e settlement established rules for resolving complaints, applying payments and established a strict protocol for the ways in which servicers may underwrite and process applications for loan modifications.
Nearly three years have passed since the CFPB imposed the new regulations, which included implementation and enforcement of RESPA and TILA. Th e approach of this landmark pro-consumer action’s third anniversary is significant because claims filed under RESPA are subject to a three-year statute of limitations, which means some borrowers with viable claims are about to lose the opportunity to seek justice and receive financial compensation under the act. As a result, thousands of legitimate claims may never be pursued, enabling big banks, mortgage lenders and servicers to avoid responsibility for their illegal and unethical behavior.
Along with REPSA’s statute of limitations, borrowers seeking to enforce their rights under the National Mortgage Settlement face another challenge: the consent order specific prohibition against the filing of private rights of action.
However, there is good news for borrowers and their lawyers because the CFPB developed new regulations that permit private rights of action to enforce statutory penalties and recover attorney fees. Th e new regulations, known as Regulation X to RESPA and Regulation Z to TILA, took effect Jan. 10, 2014. Their creation represents a major victory for borrowers who were – and are now – being abused by servicers.
The implantation of the new rules, however, was only half the battle. Knowing how to use them effectively is just as important. Here are some of the key lessons I have learned in the course of litigating more than 70 Regulation X and Z cases over the past three years:
- We’ve only scratched the surface on identifying and bringing viable claims. Th e vast majority of borrowers who have legitimate claims and their attorneys still don’t know that a private right of action exists.
- Borrowers who are paying or who want to pay their mortgage have the strongest claims under the regulations.
- Because servicers have attempted to comply with the regulations on the cheap, the process that provides an opportunity for them to resolve errors before a suit is filed is oft en ineffective. Th at means litigation is oft en the only available remedy.
- The information that can be obtained through the newly enhanced “request for information” process can be of immense help to lawyers representing clients in bankruptcy, foreclosure actions or loan modifications.
- These lawsuits need to be pled with great particularity much of which can come from the servicer itself through the RFI and notice of error (NOE) process. Th e notice of error process typically results in automated responses that do not relate to the alleged problems.
- There is no injunctive relief available under the regulations.
- Th e regulations can become more powerful when combined with state law contract and tort claims and/or claims filed under State Unfair and Deceptive Practices Acts. Th ese state statutes oft en include additional statutory and punitive damage claims that may provide for injunctive relief.
- While claims arising from events that occurred before Jan. 10, 2014 are not viable, acts committed prior to that date can be used to establish a mortgage loan servicer’s patterns and practices. Once established, those factors can be quite powerful and convincing when presented to a jury.
- While the rule that a borrower gets only one bite at the apple can make it easy for courts to dispose of claims brought under the regulations, it is important to note that transferring servicing rights creates a new apple that’s ripe for a bite.
- Claims brought solely on the basis of technical violations or statutory damages are simply not viable. Actual damages make the difference between winning and losing.
- Courts are currently wrestling with abstention, estoppel, Rooker Feldman and claim preclusion issues.
- Mortgage loan servicers have real trouble implementing loan modifications and keep borrowers in default for far longer than the anticipated three-month trial period creates solid claims for damages.
- Claims under RESPA and TILA are much more likely to arise when servicing rights are transferred from one company to another. Marc Dann