In a recent opinion issued by the United States District Court for the Western District of Washington ("the Court") in Storms v. Flagstar Bank, No. 2:22-cv-00650, LEXIS 93862 (W.D. Wash. May 30, 2023), the Court addressed the responsive obligations owed by a loan servicer under the federal Real Estate Settlement Procedures Act ("RESPA") and the types of damages a plaintiff is justified in pursuing for alleged RESPA violations.
Background
In 2005, Plaintiff Shawna Storms ("Plaintiff") and her then-husband Jon Storms ("Storms") purchased a home in Snohomish County, Washington ("the Property"). As part of their purchase, Plaintiff and Storms obtained a mortgage from Defendant Flagstar Bank ("Flagstar"). Plaintiff and Storms subsequently divorced in 2014, with Plaintiff retaining possession of the Property and assuming all mortgage payments.
In 2015, Plaintiff fell behind on the mortgage and applied for a loan modification with Flagstar, which was approved in January 2016. Plaintiff later entered into a second loan modification in December 2016. In early 2019, Plaintiff defaulted on the mortgage and sought a third loan modification in an attempt to save the Property from foreclosure. In August 2019, Flagstar granted Plaintiff's request for the third modification. Importantly, the paperwork accompanying this third modification contained a chart comparing the current terms of Plaintiff's loan and the modified terms, which provided as follows:
Plaintiff thereafter made timely payments from September 2019 through September 2020, and in October 2020, sought to obtain new financing through a different lender. While completing the financing application, Plaintiff – for the first time – reviewed her statements and discovered that they listed a deferred principal balance of $71,073.41 ("the Deferred Balance"). Plaintiff then contacted Flagstar, claiming that the Deferred Balance was not listed in the 2019 loan modification paperwork and requesting that it be removed, thereafter filing two "notice of error" letters with Flagstar regarding the issue. Flagstar responded by informing Plaintiff that it had found no errors in its loan modification paperwork, stating that its records indicated that the modification paperwork contained the above excerpted chart which Plaintiff had affixed her signature directly underneath.
In March 2022, Plaintiff brought suit against Flagstar, alleging that it had violated RESPA. A year later, in March 2023, Flagstar moved before the Court for summary judgment.
Summary Judgment
In ruling on summary judgment, the Court first observed that Plaintiff had alleged Flagstar violated RESPA by failing to properly investigate and respond to her allegations regarding the loan modification paperwork and her "notice of error" letters. In addressing this claim, the Court first explained that RESPA imposes an obligation upon loan servicers to investigate and reply to all borrower "qualified written requests" ("QWR") with a written explanation addressing the specific concerns raised therein within 30 days of receipt, with these servicer responses containing a statement of reasons indicating why the servicer agrees or disagrees with the borrower's contention.
As to Plaintiff's claims, the Court noted that Plaintiff had sent October 30, 2020 and January 7, 2021 letters which constituted QWRs necessitating Flagstar responses. The Court found no timeliness violations had occurred, as Flagstar had responded to both within 30 days – on November 19, 2020 and February 3, 2021, respectively. As to the substance of Flagstar's responses, Plaintiff contended that Flagstar had failed to adequately investigate and address her claims, as in response to her QWRs Flagstar had stated that the plain language of the 2019 loan modification required her to make the payments she now disputed. Specifically, Flagstar's response advised that it had "researched the error you reported and can confirm that there was no error in the processing of the Loan Modification. Our records indicate [an] Agreement was mailed . . . in which it outlines the $73,749.81."
Although Plaintiff disagreed that these were sufficiently detailed responses, the Court held otherwise, holding that "Plaintiff's disagreement with the servicer's determination does not create a claim under RESPA" and that Plaintiff could not manufacture a claim from what was her "simply fail[ing] to review her monthly itemized billing statements for a year." Indeed, Plaintiff ultimately could not overcome the fact that she had signed "directly below the chart explaining the terms of the loan modification and the amount of the deferred principal," as doing so "show[ed] that Plaintiff was aware, or should have been aware, of the existence of the deferred principal balance."
Finally, while Plaintiff's claim had failed for the above reasons, the Court also observed that Plaintiff had failed to satisfy the requirement of demonstrating she had suffered actual damages as a result of the alleged RESPA violations. Interestingly, the Court noted that while Plaintiff had claimed she suffered from "stress" due to the situation, she had never produced evidence that she had "sought medical care or incurred any costs associated with dealing with that stress," thereby indicating that although insufficiently established, she may have been capable of pursuing these types of damages.
The Court thereafter granted summary judgment in Flagstar's favor dismissing Plaintiff's claims.
Takeaways
This decision reaffirms that loan servicers are obligated to respond to QWRs in a timely manner, but demonstrates that a borrower's belief regarding the adequacy of the response provided has no bearing on the ultimate determination of the sufficiency or insufficiency of the response. It also demonstrates that a borrower may be capable of pursuing damages that are non-economic in nature under RESPA, contingent upon the provision of adequate proofs.
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