A mortgage loan servicer that "almost perfectly complied" with its duty to reply to homeowners’ written request for information satisfied the Real Estate Settlement Procedures Act, the U.S. Court of Appeals for the Seventh Circuit has determined. In an opinion that made clear a belief the homeowners had caused their own problems, the court added that the homeowners had suffered no injury from J.P. Morgan Chase’s insignificant failures to comply with RESPA absolutely (Perron v. J.P. Morgan Chase Bank, N.A., Jan. 11, 2017, Sykes, D.).
The court opened its opinion by noting that the now-divorced homeowners are not unsophisticated individuals—the husband is a former IRS criminal investigator, while the wife is "an attorney who represents consumers fighting loan servicers."
A series of unfortunate events. The homeowners’ problems with Chase began when they changed insurance companies without telling the bank. Chase paid the insurance premium from the homeowners’ escrow account, but sent the money to the former insurance company. When it learned of the change, the bank paid the premium to the new company and told the homeowners that the former company would send them a refund, which they should endorse and forward to the bank so it could replenish the escrow account that had been depleted by the two payments.
However, the homeowners chose not to follow the bank’s instructions. Instead, said the court, they deposited the refund, resulting in an escrow account shortfall. When Chase increased the monthly mortgage payment for the next year to recover the shortfall, the homeowners chose not to pay the full amount. The court complained that they had not explained how they determined the reduced amount they decided to pay.
Ten months later, the homeowners made their own calculations and decided that, due to the double insurance premium payment, Chase was overcharging them—"apparently forgetting that they had received and pocketed the refund check," the court noted. They told Chase that they were going to reduce their next payment to correct what they deemed to be an error.
Chase received the reduced payment and, rather than crediting it to the mortgage obligation, put it in suspense. As a result,
- the mortgage went into default;
- the homeowners were removed from the bank’s electronic payment system; and
- the next payment was not made.
The request for information. The bank then sent the homeowners a notice explaining the amount needed to cure the now two-payment default. However, the homeowners responded with a request for information that complained about the duplicate insurance premium payment and demanded a refund, account information, and the identity of the company that received the erroneous insurance premium.
According to the court, Chase’s reply was missing two things: the identity of the insurance company and an explanation of why the insufficient monthly payment was held in suspense. However, the court noted, Chase had supplied that information in previous letters.
Chase ignored the homeowners’ second request for information, deeming it to be merely a duplicate of the first.
No RESPA violation. The homeowners’ first letter to Chase constituted a qualified written request under RESPA, the court said, and that triggered the bank’s duty as the loan servicer to respond. RESPA requires a servicer, on request, to provide certain described information, and Chase had supplied almost all of that information.
As for the two missing pieces, which the court said the homeowners previously had been given, the analysis came down to "no harm, no foul." RESPA allows a recovery for actual damages, and the homeowners could not show that they had suffered any actual damages when they already had the missing information, the court said. The homeowners "weren’t harmed by being in the dark because the lights were on the whole time," the court said.
Emotional distress. The homeowners did claim that the deterioration of their marriage and their eventual divorce constituted emotional distress that was recoverable under RESPA. While agreeing that emotional distress was compensable, the court rejected the idea that this could extend to the end of a marriage. This type of damage was "far too attenuated" to have been proximately caused by a RESPA violation.
Good faith and fair dealing. The homeowners also asserted that Chase had breached its duty of good faith and fair dealing. However, even if Indiana law would apply a duty of good faith to a mortgage servicing relationship, there had been no breach, the court said. Specifically, there was no support for the homeowners’ claim that the bank had agreed the payment held in suspense was to be accepted as a full monthly payment, and the bank had no duty to apply an escrow refund it had made to make up the difference.
In fact, the homeowners could themselves have used that escrow refund to bring their account up to date, the court observed. They chose not to do that, and the bank had no duty to do it for them.
The case is No. 15-2206.
Attorneys: Ryan R. Frasher (The Frasher Law Firm, P.C.) for Stephen H Perron. Christina M. Bruno (Bose McKinney & Evans, LLP) for J.P. Morgan Chase Bank N.A. f/k/a Chase Home Finance, LLC.
Companies: J.P. Morgan Chase Bank, N.A.
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