Key RESPA Provisions and ViolationsRESPA is implemented through Regulation X (12 C.F.R. Part 1024). Here’s a breakdown:
- Section 6: Loan Servicing Transfer Disclosures (12 U.S.C. § 2605; Reg X §§ 1024.21)
- Requirements: When a mortgage loan is transferred to a new servicer (e.g., the entity collecting payments), both the old and new servicer must provide notices.
- Goodbye Letter (from transferor): Sent at least 15 days before the transfer, including the effective date, new servicer’s contact info, and how to reach them.
- Hello Letter (from transferee): Sent within 15 days after transfer, confirming the change and providing payment instructions.
- Borrowers must be notified of assignments, sales, or transfers of servicing rights.
- Common Violations:
- Failure to send timely or accurate notices, leading to borrower confusion (e.g., payments sent to the wrong entity, triggering default notices).
- In foreclosure contexts: If servicing transfers during distress, lack of notice can exacerbate issues like misapplied payments.
- Consequences: Borrowers can recover actual damages (e.g., fees from misdirected payments) and up to $2,000 statutory damages if a pattern/practice is shown. Example: In Renfroe v. Nationstar Mortgage, LLC (9th Cir. 2016), courts upheld claims where transfers caused escrow errors.
- Requirements: When a mortgage loan is transferred to a new servicer (e.g., the entity collecting payments), both the old and new servicer must provide notices.
- Section 8: Prohibition on Kickbacks and Unearned Fees (12 U.S.C. § 2607; Reg X §§ 1024.14)
- Requirements: Prohibits giving/receiving any fee, kickback, or “thing of value” for referrals of settlement services (e.g., title insurance, appraisals). Also bans requiring use of a specific title company unless a bona fide business reason exists.
- Fees must be for actual services rendered and reasonably related to the value provided.
- Affiliated Business Arrangements (ABAs): Allowed if disclosed properly (e.g., via an Affiliated Business Disclosure form) and the consumer isn’t required to use the affiliate.
- Common Violations:
- Undisclosed kickbacks between lenders and brokers (e.g., yield spread premiums paid to brokers for steering borrowers to higher-rate loans).
- Requiring borrowers to use affiliated providers without disclosure, inflating costs (e.g., overcharged title fees).
- In mortgage disputes: Allegations that servicers or Fannie Mae affiliates received unearned fees during securitization or foreclosure sales.
- Consequences: Private lawsuits for 3x the amount of the charged service, plus fees. Class actions are common; e.g., CFPB settlements like the $1.2 billion against Wells Fargo (2018) for referral schemes. No private right for minor disclosure errors alone—must show referral/kickback.
- Requirements: Prohibits giving/receiving any fee, kickback, or “thing of value” for referrals of settlement services (e.g., title insurance, appraisals). Also bans requiring use of a specific title company unless a bona fide business reason exists.
- Section 9: Limits on Escrow Deposits (12 U.S.C. § 2609; Reg X § 1024.17) – No Private Right of Action
- Requirements: Limits advance deposits in escrow accounts for taxes/insurance to 1/12th of annual disbursements plus a 2-month cushion. Servicers must provide annual escrow statements analyzing the account.
- Common Violations:
- Over-escrowing (demanding excessive deposits), leading to higher monthly payments or shortages exploited in defaults.
- Failure to conduct annual analysis or refund surpluses (> $50 must be returned within 30 days).
- Note: Violations here can’t be sued privately (only CFPB enforcement), but can support state law claims or show predatory practices in broader suits.
- Section 10: Qualified Written Requests (QWRs) and Requests for Information (RFIs) (12 U.S.C. § 2605(e); Reg X §§ 1024.35–1024.36)
- Requirements: Borrowers can send a QWR (or newer “Notice of Error” under Reg X) to servicers questioning account errors, requesting info (e.g., payment history, loan ownership), or disputing charges.
- Servicer must acknowledge within 5 business days.
- Respond substantively within 30 days (or 45 for older QWRs), correcting errors, providing info, or explaining why not.
- For errors (e.g., misapplied payments): Investigate and fix; can’t foreclose until resolved if it affects validity.
- Common Violations (Most Litigated in Foreclosure Cases):
- Ignoring or inadequately responding to QWRs/RFIs (e.g., boilerplate responses without investigation).
- Continuing foreclosure during an open dispute, violating the “dual tracking” ban (related under Reg X § 1024.41).
- Failing to provide loan documents, like note ownership proofs in securitized mortgages (common against Fannie Mae, claiming “show me the note”).
- Consequences: Actual damages (e.g., credit damage from unreported disputes, foreclosure costs), statutory damages up to $2,000 for patterns, emotional distress in some circuits. Example: In Medrano v. Flagstar Bank (9th Cir. 2014), inadequate QWR response led to liability. CFPB fines can reach millions (e.g., $100 million against Citi in 2015).
- Requirements: Borrowers can send a QWR (or newer “Notice of Error” under Reg X) to servicers questioning account errors, requesting info (e.g., payment history, loan ownership), or disputing charges.
- Section 12: Initial Escrow Statements and Disclosures at Closing (12 U.S.C. § 2603–2604; Reg X § 1024.7–8)
- Requirements: Good Faith Estimate (GFE) and HUD-1/Closing Disclosure must itemize costs accurately. Initial escrow statement due within 45 days of settlement.
- Common Violations:
- Inaccurate estimates leading to surprise fees.
- Note: Overlaps with TILA (Truth in Lending Act); merged into TRID rules post-2015.
- Loss Mitigation and Foreclosure Protections (Reg X § 1024.38–41, added post-2008 crisis via Dodd-Frank)
- Requirements: Servicers must maintain policies for handling delinquencies, provide early intervention (live contact by day 36 of delinquency), and evaluate complete loss mitigation applications (e.g., modifications) before foreclosing.
- Complete application: Review within 30 days; can’t foreclose if submitted >37 days before sale.
- No “dual tracking”: Can’t advance foreclosure while evaluating options.
- Common Violations:
- Denying modifications without evaluation or notice of appeal rights.
- Proceeding to foreclosure sale despite pending applications—huge in cases like yours involving Fannie Mae (as servicer or owner).
- Consequences: Injunctions to halt sales, damages for wrongful foreclosure. Courts award fees; e.g., CFPB’s $2 billion in relief from enforcement actions since 2013.
- Requirements: Servicers must maintain policies for handling delinquencies, provide early intervention (live contact by day 36 of delinquency), and evaluate complete loss mitigation applications (e.g., modifications) before foreclosing.
Proving a RESPA Violation
- Elements: (1) Defendant is a covered servicer/provider; (2) Specific provision breached; (3) Causation and damages (actual harm required, except for statutory in patterns).
- Defenses: Good faith compliance, no damages, or statute of limitations.
- Evidence: QWR copies, response letters, payment records, foreclosure notices.
- In Court: Often paired with state claims (e.g., California’s HBOR mirrors RESPA). Federal courts dismiss if no plausible harm (per Twombly/Iqbal pleading standards).