What you need to know about QWR questions

The federal Court of Appeals for the 9th Circuit wrote on what constitutes a “qualified written request” under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Section 2605(e), in Medrano et al. v. Flagstar Bank, FSB (9th Cir. Dec. 11, 2012). That is to say, there are certain kinds of questions that are essential and set a QWR apart from challenges to loan terms.

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Section 2605(e) requires a mortgage loan servicer, upon receipt of a QWR from a borrower, to: (a) acknowledge the QWR within a certain number of days, and (b) make appropriate corrections or respond with a written explanation/clarification that includes specific certain information.  12 U.S.C. §§ 2605(e)(1)(A) & (e)(2). A QWR is defined in the statute as “a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that,

(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and

(ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

Id. § 2605(e)(1)(B). Failure to adhere to these requirements may subject the servicer to liability. Id. § 2605(f).

In Medrano, the lender, Flagstar, notified the borrowers that their escrow account had insufficient funds. Flagstar required the borrowers to increase their monthly payment from $1,917.68 to $2,676.08 or make a one-time lump payment to cover the deficiency.

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In challenging the increase, the borrowers’ lawyer sent three letters to Flagstar, including Flagstar’s counsel, saying that the payment increase was invalid because the borrowers’ broker had advised them that their payments would not exceed $1,900 per month. Borrowers’ counsel demanded that Flagstar make corrections. Flagstar did not respond, nor did it make any changes to the account. Thereafter borrowers sued Flagstar alleging violations under state law and RESPA. The district court granted Flagstar’s motion to dismiss, and the Ninth Circuit affirmed.

The 9th Circuit noted that it had no a previous occasion to interpret Sction 2605(e), but that the Court of Appeals for the Seventh Circuit, in Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011), had considered the scope of Section 2605(e), and had held that Section 2605(e) should be read broadly and that any “reasonably stated written request for account information can be a qualified written request.”

In Catalan the borrowers were supported by the court, holding that RESPA does not require any “’magic’ words” for a correspondence to be considered a QWR. Read discussion of case.

Be that as it may, the 9th Circuit held that the borrowers’ correspondence did not meet the standards for a QWR because the borrowers’ three letters constituted “challenges to the terms of the loan and mortgage documents and are not disputes regarding Flagstar’s servicing of the loan.”

Because the borrowers were challenging the amount of monthly payments that were due under their loan, the Court considered their correspondence as essentially a request for modification of the loan agreement, not a servicing issue, and should have been addressed to the borrowers’ lender. Therefore, the borrowers’ letters were not QWRs under RESPA, and that Flagstar, as servicer, did not have an obligation to respond to the letters.

While the 9th Circuit acknowledged that Section 2605(e) should be interpreted to advance RESPA’s “broad remedial purpose,” the Court’s decision in Medrano attempted to balance the rights of borrowers and those of loan servicers which may be inundated with a large volume of inquiries and correspondences.

It remains to be seen whether other appellate courts will agree with the Ninth Circuit’s holding if presented with the same or similar sets of circumstances.

FOLEY & LARDNER LLP posted an interesting and useful piece on QWRs, from which I took the above. Read in full.