February 2, 2011

QWR Basics

Simon Fleischmann

February 3, 2011

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Real Estate Settlement Procedures Act12 U.S.C. § 2601, et seq. (“RESPA”)

• Consumer protection statute, first passed in 1974

• Original purpose was to help consumers become better shoppers for settlement services, and eliminate kickbacks and referral fees that needlessly increase the cost of certain settlement services

• Also includes rules for servicers dealing with servicing transfers, escrow accounts, and borrower inquiries

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RESPA § 6“Duty of loan servicer to respond to borrower inquiries”

• Qualified Written Request (QWR):– Received from the borrower or an agent of the

borrower (other than notices on a payment coupon)– Relating to the servicing of the loan– Identifies the name and account of the borrower– “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” 12 U.S.C. § 2605(e)(1)(B)(ii)

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“Servicing” Defined

“The term ‘servicing’ means receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . ., and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan”– 12 U.S.C. § 2605(i)(3)

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QWRs Broadly Defined,Within Limits

• “Any reasonably stated request for account information can be a qualified written request.” Catalan v. GMAC Mortgage, Inc., No. 09-2182 (7th Cir. Jan. 10, 2011)– Broad language, but the court went on to find

several letters were not QWRs, questioning whether the letters “pertain to servicing,”“[request] information,” or state “a belief that the account is in error”

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Generic Internet Letters

• Long, burdensome, unreasonable demands regarding the validity of the loan and mortgage documents

• Do not relate to the status of the borrower’s account

• Do not pertain to servicing issues• Not a “reasonably stated request for

account information”

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Practice Tip

• It is safest to treat borrower inquiries as QWRs even if they may not meet the technical definition

• BUT - respond in a way that does not concede the applicability of RESPA

• Better to reserve all arguments and defenses, and let counsel sort out which ones should be raised if the dispute ends up in court

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Responding to QWRs

• Acknowledge: Provide a written response acknowledging receipt of the inquiry within 20 days (excluding weekends and holidays) unless the action requested is taken within that time– This a good time to clarify that you do not

agree that the inquiry is a QWR but that you will respond anyway

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Responding to QWRs (cont’d.)

• Action: Within 60 days (excluding weekends and holidays) after receiving a QWR, (A) make corrections, credit any penalties, and send written notification of corrective action; or (B) conduct an investigation and, if the account is correct, send a written statement of the reasons why the account is correct– Always include contact information for an

individual who may provide further assistance

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Protection of Credit Rating

• No reporting of any overdue payments for 60 days following the receipt of a QWR“relating to a dispute regarding the borrower’s payments”– Applies to payments that come due during the

60-day period and relating to the dispute raised in the QWR

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Penalties for Violations

• Individuals– Actual damages– Up to $1K for statutory damages for “pattern

and practice of non-compliance”• Class Actions

– Each class member entitled to the same relief as individuals

• LIMITED to lesser of: (i) $500K; or (ii) 1% of the net worth of the servicer

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Safe Harbor

• No liability for failure to comply if account error is corrected– within 60 days after the error is discovered– before the filing of a lawsuit and the receipt of

written notice from the borrower – servicer gives notice of the error and

corrective action– borrower is not responsible for any amount he

or she would not otherwise be required to pay

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New Requirements Under The Dodd-Frank Act

Background• On July 21, 2010, President Obama

signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

• Title XIV of which was entitled the “Mortgage Reform and Anti-Predatory Lending Act” (the “Mortgage Reform Act”)

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Dodd-Frank Act § 1463

• Dodd-Frank amends the QWR provisions of RESPA to reduce the time– (1) to acknowledge receipt of a QWR from 20

to five business days; and – (2) to act on the QWR from 60 to 30 business

days.• 15 day extension is permitted under certain

circumstances

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Dodd-Frank IncreasesPenalties for Violations

• Statutory damages increased to $2K—in cases of “pattern and practice of noncompliance”—per individual or class member

• Limitation on class relief increased to the lesser of (i) $1,000,000 or (ii) 1% of the servicer’s net worth

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Dodd-Frank Effective Date• Regulations implementing the new rules

are to be finalized by January 21, 2013 (18 months after the transfer of regulatory authority to the new Consumer Financial Protection Bureau), and take effect one year after that: January 21, 2014 at the latest

• If no new regulations, then the new rules take effect January 21, 2013