The U.S. Court of Appeals for the Fifth Circuit recently upheld a District Court's decision to dismiss a suit for alleged violations of certain servicing requirements for loss mitigation under the Real Estate Settlement Procedures Act (RESPA).
In the case of Germain vs. US Bank and Ocwen Financial the district court had held that provision accounts for a servicer’s past actions by requiring compliance only once. Citing section 1024.41(d) (of Regulation X under RESPA) the District Court had dismissed the plaintiff's claims under RESPA holding that the defendants, "(1) were not required to plead § 1024.41(i) as an affirmative defense, (2) had complied with § 1024.41 over the life of Germain’s loan, and (3) were required to comply with each of the requirements of § 1024.41 only once.
§1024.41 requires mortgage servicers to evaluate a borrower for all loss mitigation options available and provide a notice stating their determination of such options, if any, upon receipt of a complete loss mitigation application. However, the rule also provides that a servicer is required to comply with these requirements only once for a single complete loss mitigation application for a borrower’s mortgage loan account.
In this particular case, the plaintiff had maintained that he was "prejudiced by the defendants' assertion of §1024.41(i) for the first time on summary judgment because he had already completed discovery without having received fair notice of that defense."
However the court ruled that the defendants had denied this allegation, insisting that they had complied with that section and had cited § 1024.41(i) to expand their denial and was therefore not an "affirmative defense." Additionally, the defendants had argued that "they could not have violated RESPA by failing to comply with § 1024.41 because they did, in fact, comply with that section." As a result of these arguments, the court said that it agreed with the district court's judgement that the defendants were not required to plead § 1024.41(i) as an affirmative defense.
As reported in DS News, federal district courts interpreting Regulation X have previously held that since a private right of action was specifically articulated in §1024.41, the lack of such specific language in the remaining sections must necessarily mean that no such private right existed. This interpretation and analysis of § 1024.41 has been an extremely important for mortgage servicers and financial services attorneys as it limits a private right of action to claims arising from §1024.41 therefore limiting potential damage exposure significantly and provide a convenient basis to request dismissal.
Click here to read the detailed ruling in this matter.