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Ninth Circuit Rules Letters Were Not Qualified Written Requests Under RESPA - Medrano v. Flagstar Bank et al.

December 19, 2012

Vincent Howard and our Temecula foreclosure defense lawyers were interested to see a case involving homeowners' challenge to their loan servicer's conduct. Though lenders themselves have gotten a lot of attention during the foreclosure crisis, loan servicers also have played a large role in the bad information and inadequate customer service that can lead to wrongful foreclosures. In Medrano v. Flagstar Bank et al., Jaime and Maribel Medrano alleged that Flagstar, their loan servicer, violated the Real Estate Settlement Procedures Act when it didn't respond adequately to three letters they sent challenging their monthly payment. RESPA requires a response to a "qualified written request," but the Los Angeles district court found that their letters were not qualified written requests. The Ninth Circuit agreed, saying the letters related not to loan servicing but to the actions of their original lender.

The Medranos bought a house in Los Angeles County in 2009. The loan documents required them to pay into an escrow account for property taxes and insurance, and in early 2010, Flagstar notified the Medranos that the escrow account was too low and they would need to pay about $750 more per month or make a lump payment of $4,938 to bring it back up. They retained a lawyer, who sent three letters disputing the obligation to make the extra payments, arguing that the Medranos had been assured by their loan broker that their payments would not exceed $1,900 a month. Flagstar received the letters but did not make changes; it is disputed whether the servicer even responded. The Medranos then filed suit in state court, but it was removed to district court after they added RESPA claims. The district court dismissed the RESPA claims and remanded, and the Medranos appealed.

The Ninth U.S. Circuit Court of Appeals ultimately agreed that there was no obligation under RESPA because the Medranos' letters were not "qualified written requests." The statute defines such a request, in relevant part, as any written correspondence that requests or challenges information related to the servicing of a loan. RESPA is intended to be construed liberally because it's a consumer protection law, the court said, and has been extended to loan servicing. Adopting a Seventh Circuit holding, the Ninth agreed that the duty to respond is triggered with no special language. However, it went on to hold that the Medranos' letters failed to meet that low standard because they were not related to the servicing of their loan. Under RESPA's definition of "servicing," this does not include circumstances surrounding the origination of the loan. Thus, the court said the Medranos' letters, which discussed a promise made to them at origination, did not require a response, and the district court was correct to dismiss.

Vincent Howard and our Irvine foreclosure defense attorneys wonder if a different court might have concluded that an increased payment to a loan servicer was indeed "related to the servicing of a loan." The Medranos' dispute did indeed relate to an alleged promise by their lender, and suing the lender may help them in the long run. (In addition, their state-court claims survive, at least according to this opinion, and may also help them.) However, while they wait for that dispute to be heard, they would still likely be forced to pay $750 extra a month. This is one of the problems with separating loan servicing from the lender itself. As we saw in 2009, another problem is that servicers have no incentive to help when borrowers need a forebearance, but are still the front-line customer service people. In our experience as San Bernardino foreclosure defense lawyers, that helps trap borrowers in very bad situations.

Based in Orange County, Howard Law, P.C., represents clients across California who are ready to fight an unfair and unreasonable foreclosure. To learn more about how Vincent Howard and our experienced legal team can help, send us a message through our website or call 1-800-872-5925.

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