The U.S. Court of Appeals for the Eleventh Circuit recently held that, under the federal Real Estate Settlement Procedures Act, a mortgage loan servicer had no duty to evaluate a borrowers’ loss mitigation application submitted two days before the foreclosure sale, even though the sale was continued, affirming the district court’s grant of summary judgment in the servicer’s favor.

The Court also held that the borrowers had to present evidence that they suffered actual damages or were entitled to statutory damages in support of their claim based on the servicer’s supposedly inadequate response to their “notice of error” under RESPA in order to survive summary judgment, but failed to do so.

A copy of the opinion Lage, et al. v. Ocwen Loan Servicing LLC is available at: Link to Opinion.

The borrowers took out a loan secured by a mortgage on their residence in Boynton Beach, Florida, but defaulted three years later.

The loan servicer filed a foreclosure action and while the case was pending, servicing of the loan was transferred to a successor servicer. The state court entered a final judgment of foreclosure and the sale was scheduled for Jan. 29, 2014.

The borrowers faxed a loss mitigation application and accompanying financial records to the successor servicer on Jan. 8, 2014, three weeks before the foreclosure sale.

The parties communicated back and forth for two weeks and on Jan. 24, 2014, the servicer told the borrowers that it would evaluate their application once they submitted an additional paystub, which the borrowers provided on Jan. 27, 2014.

The successor servicer cancelled the foreclosure sale originally scheduled on Jan. 28, 2014 and rescheduled it for March 14, 2015. Three days later, on Jan. 31, 2014, the servicer asked for two more paystubs and thereafter, on two occasions, told the borrowers it needed more information to evaluate their application.

The borrowers submitted all of the information and documents requested on March 7, 2015. The successor servicer denied their application two days later as untimely because the foreclosure sale was scheduled to take place one week later, on March 14, 2015.

The foreclosure sale went forward, but the borrowers remained in occupancy for several months, during which time they sent a notice of error to the successor servicer asserting that it violated Regulation X (implementing RESPA) by not evaluating their application within 30 days as required under 12 U.S.C. § 1024.41 and by supposedly needlessly delaying and drawing out the process, then denying the application based on the delay it caused.

The successor servicer timely responded to the notice of error with a generic letter that did not specifically address the borrowers’ concerns.

The borrowers sued in federal district court, alleging that the successor servicer supposedly violated Regulation X and RESPA by failing to evaluate the loss mitigation application on its merits within 30 days as required by 12 C.F.R. § 1024.41(c), and also that the servicer allegedly failed to respond properly to their notice error in violation of 12 C.F.R. § 1024.35(e).

The successor servicer moved for summary judgment and the district court granted the motion, finding that the servicer had no duty to evaluate the borrowers’ loss mitigation application because § 1024.41 was not in effect when the borrowers submitted their application dated Jan. 8, 2014.

Because there was no duty to evaluate, the district court concluded that there was no liability under § 1024.41 as a matter of law. The district court also concluded on the notice of error claim that while the borrowers had shown a violation, they failed to show any actual or statutory damages as required by § 1024.35(e). The borrowers appealed.

On appeal, the Eleventh Circuit first reasoned that it did not need to decide whether a servicer must comply with § 1024.41 when an application was initially submitted before § 1024.41’s effective date but became complete after the effective date because, even assuming that § 1024.41 applies to such an application, the application was untimely. “At the time the borrowers submitted their application, the foreclosure sale was scheduled to occur within 37 days.”

Next, the Eleventh Circuit rejected the borrowers’ argument that the district court erred by finding that the borrowers did not provide sufficient evidence that they suffered statutory damages on their notice of error claim because “RESPA requires proof of a pattern or practice to invoke statutory damages and the Borrowers submitted evidence of only one potential violation—[the servicer’s] failure to respond sufficiently” to the notice of error.

As to the loss mitigation claim, the Court explained that “[a]lthough Regulation X requires a servicer to evaluate a loss mitigation application within 30 days, this duty is only triggered when the borrower submits a ‘complete loss mitigation application more than 37 days before a foreclosure sale. 12 C.F.R. § 1024.41(c)(1).’”

Because the borrowers submitted their complete application just two days before the foreclosure sale as originally scheduled, the servicer had no duty to evaluate.

Citing subsection 1024.41(b)(3) of Regulation X, the Eleventh Circuit further reasoned that “[t]o determine the date of the foreclosure sale, Regulation X directs us to use the date on which the foreclosure sale was scheduled when the borrower submitted her completed application….”

The Court concluded that “[b]ecause we determine timeliness based on the scheduled date of the foreclosure sale as of the date the Borrowers’ complete application was received, it is irrelevant to our timeliness analysis that [the servicer] subsequently rescheduled the foreclosure sale for a later date.”

The Eleventh Circuit rejected the borrowers’ argument that “because § 1024.41 discusses when the foreclosure sale ‘occurs,’ the relevant date for measuring timeliness is the date the foreclosure sale actually transpires” because “this interpretation is inconsistent with the final clause of paragraph (b)(3), which plainly states that we must measure the proximity between the date of the foreclosure sale and the receipt of the complete loss mitigation application ‘as of the date a complete loss mitigation application is received.’” Adopting the borrowers’ interpretation “would render this phrase in the regulation meaningless.”

Because the Court found that paragraph (b)(3) was unambiguous, it explained that it did not need to consider the Consumer Financial Protection Bureau’s interpretation of the regulation. The Court held that its interpretation nonetheless was consistent with the CFPB’s interpretation when it adopted the regulation. “The Bureau thus made clear that an untimely application should not become timely simply because the servicer rescheduled a foreclosure sale.”

Because the borrowers’ loss mitigation application was not timely, the Eleventh Circuit concluded that the district court did not err in granting summary judgment to the servicer on the borrowers’ loss mitigation claim.

In addition, because the borrowers could not show any actual damages absent a duty on the part of the servicer to evaluate their complete application, the Court then turned to whether the borrowers “presented evidence of a pattern or practice of RESPA noncompliance to support an award of statutory damages” and concluded they had not done so.

Citing its ruling in Renfroe v. Nationstar Mortg., LLC, which held that two RESPA violations were insufficient, the Court reasoned that “[a]lthough ‘RESPA pattern-or-practice damages are not clearly defined by this Court’s precedent,’… we can safely say that one RESPA violation, standing alone, does not constitute a pattern or practice.”

Finally, the Court rejected the borrowers’ argument that sending a form template in response to the borrowers’ notice of error showed a pattern or practice of providing insufficient responses to notices of error sent by other borrowers, finding that “[s]imply using a template to respond to a notice of error does not violate RESPA” and the borrowers “presented no evidence from which we can infer that [the servicer] had a pattern or practice of issuing form letters that were unresponsive to borrowers’ notices of error.”

Because the borrowers could not present sufficient evidence of a pattern or practice, the Eleventh Circuit concluded that the trial court did not err in entering summary judgment in the successor servicer’s favor on the notice of error claim.

Accordingly, the trial court’s judgment was affirmed in all respects in favor of the mortgage servicer.