CATALAN v. GMAC MORTGAGE CORP. (January 10, 2011)

Saul Catalan and Mia Morris bought a home in Matteson, Illinois in mid-2003. RBC Mortgage Company financed the purchase. Their first payment of $1,598 was due on August 1. Unfortunately, RBC's system showed a payment due on July 1, thus triggering an almost 2 year nightmare. By the time they made their first on-time payment, the RBC system consider them late. By the time they made their second on-time payment, RBC consider them in default and increased their monthly payment amount. Within months, RBC was returning their monthly checks uncashed. RBC filed for foreclosure in February of 2004 but transferred the mortgage toGMAC Mortgage in September. But nobody told the plaintiffs -- so they sent their September payment to RBC. In September, GMAC sent the plaintiffs an inaccurate account statement that showed them behind almost $8,000. GMAC also demanded proof of insurance coverage and then returned the September check (which it had received from RBC). The plaintiffs wrote a letter in October to the Department of Housing and Urban Development detailing the problems with RBC and GMAC and asking several questions about the servicing of their account. HUD sent the letter on to GMAC. Plaintiffs also wrote to GMAC directly on October 7 and October 15. Those letters sought information about the transfer of the loan and other information about the account. GMAC responded to the October 7 letter with information about the account. Then GMAC sent a letter telling them they were in default to the tune of almost $10,000. GMAC also responded to the letter it received from HUD. In November, the plaintiff sent over $11,000 to GMAC. They described the problems they had with RBC's servicing of the loan. They also made some demands regarding GMAC's future handling of their account. GMAC began foreclosure proceedings in November and began notifying the credit bureaus of the delinquency. Plaintiffs wrote several times in December, demanding that GMAC credit their $11,000 payment to the account. Instead of crediting the account, GMAC returned the check. In December, GMAC dismissed the foreclosure proceedings, returned the plaintiffs' December payment, and advised the plaintiffs that they were preparing for new foreclosure proceedings. Finally, in January of 2005, with HUD's help, the plaintiffs sent a check for almost $16,000 and GMAC brought their account current and stopped reporting it as delinquent. The plaintiff brought suit under the Real Estate Settlement Procedures Act (RESPA). They also brought state law claims for negligence and breach of contract. Judge Lindberg (N.D. Ill.) granted summary judgment to defendants. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook, Circuit Judge Hamilton, and District Judge Springmann affirmed in part and reversed in part. RESPA is a consumer protection statute dealing with the servicing of real estate loans, among other things. It requires lenders to notify borrowers when a loan is transferred and to respond promptly to written requests for information. It does include a "safe harbor" for a lender that discovers an error and, within 60 days and before suit is filed or a written notice from the borrower is received, it corrects the error and notifies the borrower. The Court first considered the safe harbor provision since the district court relied on it to find for the defendants. The Court disagreed with the district court. The safe harbor provision clearly requires notification to the borrower of the error. The record shows no such notice and GMAC does not even contend that one exists. Without the safe harbor, the Court proceeded to consider whether GMAC violated RESPA's requirement that they respond to requests for information. That requirement is only triggered by a "qualified written request," which is defined as written correspondence that either requests information or states a belief that an account is in error. The plaintiffs identified five letters that they claim met this test. The Court first rejected the GMAC's argument that the letters did not qualify because they did not contain sufficient reasons for plaintiffs belief that the account was an error. Then the Court addressed each of the five letters in turn. First, it found the October 6 letter to HUD to be a "qualified written request." It contained much detail and it requested specific information. The fact that it was not sent directly to GMAC does not change the result. The statute allows for a request to come from an agent of the borrower. Next, the Court concluded that three letters were not "qualified written request." Letters that simply enclosed payments, stated expectations, or requested processing of a check -- but did not request information or state a belief that the account was in error – did not trigger the response requirement. Finally, the Court found the December 17 letter, which disputed GMAC's attempt to collect and which requested specific information, was a "qualified written request." The Court remanded to the district court to consider whether GMAC satisfied its RESPA obligations with respect to the two letters that triggered a duty. The Court also instructed the district court to consider, on remand, the claims that GMAC violated RESPA by failing to notify the plaintiffs of the loan transfer. The Court also reversed and remanded with respect to the breach of contract claim. That claim is that GMAC breached the agreement when they refused to accept the September and November payments. The district court held that plaintiffs' intentional nonpayment in October was a breach. The Court identified several issues of material fact that precluded summary judgment. For example, was GMAC's delay in applying the payments reasonable or unreasonable and was plaintiffs' failure to pay justified by the earlier conduct of RBC and GMAC. The Court affirmed the dismissal of the negligence claim. The Illinois economic loss doctrine precludes tort recovery for economic losses caused by a breach of contract. Finally, the Court rejected the GMAC argument that summary judgment was appropriate even on the RESPA and breach of contract claims because the plaintiffs lacked evidence of damages. The Court agreed that actual damages are essential for both the RESPA and breach of contract claim. Taking the evidence in the light most favorable to the plaintiffs, the Court found sufficient disputed issues of fact with respect to damages arising out of the credit application denials and the plaintiffs' emotional distress to preclude summary judgment.