Servicing

RESPA ruling in Florida works in favor of loan servicer

Benefits of the decision may be short-lived

A U.S. District Judge for the Middle District of Florida concluded that the Real Estate Settlement Procedures Act (RESPA) does not require a loan servicer to provide information when a borrower asks for verification of a loan. After reaching that conclusion, the judge granted a motion to dismiss the case requested by defendants Bank of America (BAC) and Mortgage Electronic Registration Systems.

However, such a ruling may be short lived as the mortgage finance environment gets a facelift at the start of the new year.

The case came down under a cause of action under RESPA and while there were Qualified Written Requests, these cases may have a different ruling after the servicing rules become effective, explained an industry lawyer.

In August 2005, the plaintiffs purchased a condominium located in Florida for roughly $400,000. To finance the property, both obtained a $240,000 loan from MLD Mortgage and executed a promissory note in favor of the company, which gave it a first mortgage on the property.

Within a month of closing, the homeowners were directed to make all payments to Countrywide Home Loans.

The plaintiffs Brian Smith and Jonathan Calianos alleged that they provided Bank of America with at least six Qualified Written Requests for loan verification, but the mega bank’s responses to these requests failed under the order.

On the other hand, Bank of America alleged that its obligations under RESPA were not triggered because the requests related to the validity of the debt rather than a servicing issue.

The court has not addressed the issue of whether RESPA requires a loan servicer to provide information concerning loan validity, “but courts that have addressed the issue almost unanimously hold that RESPA does not require a loan officer to do so,” according to the suit.

Overall, the lack of communication and processing of information has been an issue in the servicing environment for quite some time.

 As the new structure takes place in 2014, the proposed rules will provide an enhanced information request mechanism, the industry lawyer concluded.  

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