New rules issued by the Consumer Financial Protection Bureau went into effect on January 10, 2014. Those rules include detailed guidelines for submitting and responding to qualified written requests under RESPA.
There are two types of qualified written requests: notices of a servicing error and requests for information. The rules vary for each type of request. We will review the key provisions for error requests in Part One and key provisions for information requests in Part Two.
Requesting Resolution of a Servicing Error
Loan servicers make mistakes. Lots of them. Under RESPA, borrowers have a right to request that a servicer investigate and correct any servicing error at no charge to the borrower. If the servicer fails to comply with the requirements, the servicer may be liable to the borrower for actual and statutory damages, attorney fees, and costs.
To trigger the servicer’s duties under RESPA, the borrower (or the borrower’s agent) must submit a written notice of the error. The notice must include the borrower’s name and loan number, and must describe an error relating to servicing of the loan. If the servicer has designated an address for receiving error notices, the borrower must send the notice to the designated address. Simply noting the error on a payment coupon will not trigger the servicer’s duties.
Under the new rules, an error “relating to the servicing of a mortgage loan” expressly includes each of the following:
- Failing to accept a payment
- Failing to apply a payment
- Failing to credit a payment on the date the servicer received payment
- Failing to pay property taxes or insurance or refund an escrow balance
- Charging a fee without a reasonable basis
- Failing to provide an accurate payoff amount on request
- Failing to provide accurate information about loss mitigation options and foreclosure
- Failing to timely and accurately transfer information as part of a servicing transfer
- Prematurely making the first notice or filing required to foreclose
- Moving for a judgment of foreclosure or conducting a foreclosure sale in violation of the dual-tracking rules
Errors relating to loan origination, underwriting, a sale or securitization of the loan, or the decision to transfer servicing are not related to servicing and do not trigger the servicer’s obligations under the rules.
Duties Triggered by Receipt of an Error Notice
When a servicer receives a proper notice of error, the notice triggers three immediate obligations on the part of the servicer.
First, the servicer must send written acknowledgement of the notice to the borrower within 5 business days.
Second, if the error concerns a payment, the servicer must refrain from reporting any adverse information about the payment to any credit reporting agency for 60 days.
Third, the servicer must conduct a reasonable investigation into the error and send a written response to the borrower.
Investigating and Responding to an Error Notice
The servicer must conduct a reasonable investigation after receiving the notice. The servicer can ask the borrower for documentation of the error, but the servicer must timely conduct the investigation and correct any discovered errors even if the borrower fails to respond.
If the servicer finds an error, including a different error not identified by the borrower, the servicer must correct the error and send notice of the correction to the borrower. The notice must include the effective date of the correction and contact information in case the borrower needs further assistance.
If the servicer determines that no error was made, the servicer must send a written notice stating that no error occurred and explaining the reasons for the servicer’s determination. The notice also must inform the borrower of his right to request any documents the servicer relied on, including information about how to request the documents and contact information for further assistance.
If the notice described multiple errors, the servicer may send separate responses for each error or respond in a single notice.
Deadlines for Responding to Error Notices
The most significant changes the new rules make are to deadlines for responding to error notices. The new deadlines depend on the type of error the borrower asserts.
If the servicer failed to provide an accurate payoff statement, then the servicer has 7 business days to investigate and respond.
If the servicer violated the loss mitigation rules by prematurely commencing foreclosure, moving for a judgment of foreclosure, or conducting a sale, then the servicer must respond to the notice within 30 business days but no later than one day before the foreclosure sale. [For an overview of loss mitigation rules, see Loss Mitigation Under the New Mortgage Servicing Rules.]
There is one exception. If a servicer receives an error notice within 7 days of the foreclosure sale, the servicer is obligated only to make a good faith attempt to respond (either orally or in writing) and to either correct the error or state that no error occurred.
For all other errors, a servicer has 30 days to investigate and respond and may extend the time by another 15 business days by notifying the borrower in writing of the reasons for the extension.
Requesting Documents When the Error Is Denied
When a servicer determines that no error was made, the borrower has a right to request documents that the servicer actually relied on in making the determination. The servicer must provide the documents at no charge to the borrower within 15 business days after receiving the borrower’s request for the documents.
Unfortunately, the rule has a significant loophole. A servicer may refuse to provide documents that the servicer believes are confidential, proprietary, or privileged. It remains to be seen if servicers will take an unreasonably broad view of what documents are confidential or proprietary.
Circumstances Excusing Compliance
The rules do not require servicers to complete the full error resolution process in every case. If the servicer reasonably determines that any of the following circumstances exist, the servicer is required to notify the borrower of its determination within 5 business days but is not required to investigate the error or otherwise comply with the rules.
If the borrower submits notice of an error that the servicer previously investigated without providing any “new and material information” about the error, the servicer is not required to investigate. “New and material information” means
information that was not reviewed by the servicer in connection with investigating a prior notice of the same error and is reasonably likely to change the servicer’s prior determination about the error.
If the borrower submits an “overbroad” error notice, no investigation is required. A notice is “overbroad” if “the servicer cannot reasonably determine from the notice of error the specific error that the borrower asserts has occurred on a borrower’s account.” According to the CFPB, the following notices are overbroad:
- A notice that asserts errors regarding substantially all aspects of a mortgage loan.
- A notice that is in the form of a complaint, subpoena, or discovery request, and requires a response to each numbered paragraph.
- A notice that includes “voluminous tangential discussion” so that a servicer cannot reasonably identify any error that requires a response.
If the borrower submits an “untimely” error notice, no investigation is required. A notice is “untimely” if the notice is received more than one year after the loan was paid off or the servicer transferred servicing to another.
Although the new rules and interpretations provide additional guidance, qualified written requests seeking resolution of an error have not changed much with issuance of the new rules. Servicers must respond more quickly than before, but the essential requirements remain the same.
To learn more about qualified written requests seeking information from a servicer, please continue reading Part Two: Information Requests