Must a Servicer Review a Complete Loss Mit Application Where Sale Postponed? 11th Circuit Weighs In
On October 7, 2016, in Lage v. Ocwen Loan Servicing, Inc., the Eleventh Circuit Court of Appeals analyzed a mortgage servicer's duty to review a complete loss mitigation application received more than 37 days prior to a postponed foreclosure sale. In Lage, the borrowers defaulted on a mortgage secured by property in Florida, and as a result, the servicer filed a complaint for foreclosure. The state court subsequently entered a final judgement of foreclosure, and Ocwen scheduled the foreclosure sale for January 29, 2014.
On January 8, 2014, three weeks before the sale, the borrowers faxed Ocwen a loss mitigation application. On January 24th, at a mediation, Ocwen told the borrowers that once they submitted one additional pay stub, it would evaluate their application. The borrowers submitted the requested pay stub on January 27, 2014. On January 28th, the foreclosure sale scheduled for the 29th was canceled and re-scheduled for March 14, 2014. Over the next few weeks, Ocwen notified the borrowers that it needed additional information to review their application. On March 7th, Ocwen notified the borrowers that it had received all of the necessary information and on March 9th, Ocwen denied the application as untimely because the complete application was received just 7 days prior to the sale. Ocwen went forward with the March 14, 2014, foreclosure sale.
The borrowers remained in the home for several months after the foreclosure sale and sent Ocwen a Notice of Error (NOE) alleging that Ocwen violated Reg. X in reviewing their application. Ultimately, the borrowers sued Ocwen in federal court under RESPA for failing to review its application within 30 days as required by Reg. X, Section 1024.41(c)(1), and for an inadequate response to the borrowers' NOE.
The trial court granted summary judgment in favor of Ocwen and held that Ocwen had no duty to review the application because the borrowers submitted their application on January 8, 2014 and the regulation did not become effective until January 10, 2014. With respect to the inadequate response to the NOE claim, the trial court concluded that the borrowers failed to show, as required by RESPA, that they suffered actual damages or were entitled to statutory damages. The borrowers appealed.
The Eleventh Circuit found that it was unnecessary to evaluate whether the regulation's January 10, 2014 effective date applied to the borrowers' January 8, 2014 faxed application since the application was not submitted timely at the outset. Specifically, the borrowers completed their application too late to trigger Ocwen's duty to evaluate. The court reasoned that Section 1024.41 does require a servicer to review an application within 30 days of receiving a complete application; however, Section 1024.41(c)(1) provides that a servicer's duty to evaluate an application is only triggered if the servicer receives the complete application more than 37 days before the foreclosure sale.
For the sake of argument, the Court accepted the borrowers' claim that they delivered a complete application to Ocwen on January 27, 2014, which is the date they provided the additional pay stub as instructed by Ocwen at the mediation. Since Ocwen received the complete application just two days before the originally scheduled sale date, Ocwen's duty to review the application was not triggered. Because Ocwen's obligation to review was never triggered, it is irrelevant whether Ocwen completed its review within 30 days as required by Section 1024.41(c). The borrowers claimed that since subsection 1024.41(b)(3) discusses, in the context of determining borrower protections, when a foreclosure sale occurs, the appropriate method for counting the 37 days for purposes of a servicer's receipt of a complete application is when the foreclosure sale is actually conducted.
In considering this argument, the Court reviewed the CFPB's published Commentary and found that the CFPB rejected a proposal submitted during the comment period that would have afforded borrower protections (and expanded servicer obligations) if a foreclosure sale was postponed after a complete application was received. The CFPB recognized that if a borrower's late application could become timely due to a sale postponement, a servicer may be less willing to postpone a sale. A postponement of the foreclosure sale is, of course, extremely beneficial to a borrower. The CFPB did not want the burdensome evaluation requirements to entice servicers to move forward with a foreclosure sale in lieu of delaying a sale and assisting the borrower with foreclosure alternatives. For this reason, the Court held that the final rule published by the CFPB does not mandate that a servicer review a complete application that is received within 37 days of a foreclosure sale, even if that sale is postponed.
The Court also rejected the borrowers' claim that Ocwen's response to the NOE was inadequate. The Court found that to recover under RESPA, a borrower must prove either actual or statutory damages. Because the court ruled that Ocwen had no duty to review the loss mit application, the borrowers were precluded from recovering damages from a breach of a duty that did not exist. To recover statutory damages, the Court determined that RESPA required a borrower to show a pattern and practice of noncompliance. Since the borrowers only submitted evidence of one violation, their claim for statutory damages also failed.
Bottom Line: In those states comprising the Eleventh Circuit (Alabama, Georgia and Florida), a servicer is not legally required to review a loss mitigation application received within 37 days of a foreclosure sale even if the foreclosure sale is postponed to a later date.