respa: what is it?
I. PURPOSE OF THE RESPA & SECTION 2605
The Real Estate Settlement and Procedures Act (“RESPA”) is a consumer protection statute enacted by Congress to regulate the residential real estate industry by prohibiting unnecessarily high settlement charges and other abusive practices by mortgage servicers. “Mortgage Servicers” are the companies that manage your mortgage loan account by accepting payments, managing the escrow account (if applicable), and/or sending you statements every month. Section 2605 of the RESPA prohibits specific conduct of mortgage servicers and also imposes duties upon them.
II. QUALIFIED WRITTEN REQUEST – 12 U.S.C. § 2605(e)
Under 12 U.S.C. § 2605(e) of the Real Estate Settlement and Procedures Act, borrowers have the right to send out a written request for information and/or written dispute to their mortgage loan servicer regarding their mortgage loan account. This written request for information and/or dispute is called a “Qualified Written Request,” or “QWR,” and creates certain duties with which the mortgage servicer must comply. A proper Qualified Written Request (QWR) will be in writing, identify the borrower by name, address, and include the loan number and/or account number. The QWR should always describe the borrower’s account dispute in detail (if applicable) and request the following types of information: breakdown of the loan balance, including a detailed itemization and explanation of all fees and charges that are not principal or interest, a detailed escrow account statement, the current interest rate, the payoff amount, the identity and address of the current creditor, and any other information sought by the borrower. Additionally, the borrower should always date and sign the QWR and send the letter certified mail so that there is a record of receipt by the servicer. Be sure to send the QWR to the customer service department, dispute department, or Qualified Written Request department; whichever is designated on your account statement.
Once the servicer receives the Qualified Written Request, the duty to respond will arise for the servicer, which has twenty (20) business days to provide notice acknowledging receipt and sixty (60) business days to provide a detailed response and correct the error on the account (if applicable) or provide a statement as to why it believes the account is correct. If the account is disputed, the mortgage servicer must cease all negative credit reporting on the account for sixty (60) days while it conducts a reasonable investigation of the dispute.
III. PRIVATE RIGHT OF ACTION – 12 U.S.C. § 2605(f)
A failure by the mortgage servicer to comply with any of these QWR provisions (or violations by the servicer of any of the provisions outlined below) will subject the servicer to civil liability in a court of law. Section 2605 provides a Private Right of Action for violations of the QWR process that entitles the borrower to actual damages suffered by the borrower, attorney’s fees, costs of the lawsuit, and statutory damages up to $2,000.00 in the case of a pattern of violations by the servicer. “Actual damages” must be caused by the servicer’s violations and can include late fees, foreclosures fees and costs, mental anguish, time or lost wages, expenses, and other damages suffered by the borrower.
IV. SPECIFIC CONDUCT PROHIBITED – 12 U.S.C. § 2605(k)
Section 2605 of RESPA also prohibits specific conduct by mortgage servicers commonly associated with predatory lending. First, the RESPA prohibits mortgage servicers from “force-placing” hazard insurance on your mortgage loan account unless there is a reasonable basis to believe that your insurance policy has lapsed. “Force-place insurance” means insurance coverage obtained by the servicer because the borrower failed to maintain or renew the hazard insurance policy on the home. If your mortgage account has never had an “escrow account” and you have always paid your taxes and insurance directly to the government and insurer, then the mortgage servicer has likely violated this provision, as long as your policy and taxes are current. You must send the servicer written proof of insurance coverage via a policy number and/or insurance contact agent. After your proof has been provided, failure to remove the force-place insurance within 15 days constitutes a violation by the servicer.
Additionally, a mortgage servicer may not charge fees for responding to the QWR, must correct the account within sixty (60) business days, and must comply with any other obligation imposed by the Consumer Financial Protection Bureau by regulation.
A mortgage servicer committing any of the prohibited conduct of this provision triggers the same Private Right of Action as the QWR section above.
IV. NOTICE OF TRANSER OF SERVICING – 12 U.S.C. § 2605(a)-(d)
Section 2605 of the RESPA also requires mortgage servicers to provide certain types of notice to the borrower. First, the initial servicer of the loan at closing must provide notice, usually in the form of a Disclosure, to the borrower that the servicing of the loan may be assigned, sold, or transferred.
Second, each mortgage servicer must provide Notice of Transfer of Servicing if the servicer has assigned, sold, or transferred the servicing rights to your loan. This Notice of Transfer of Servicing must be provided not less than fifteen (15) days before the date of transfer by both the former servicer and the new servicer (absent special circumstances like bankruptcy of the servicer). Contents of the Notice must include the effective date of transfer, contact information for the new servicer, a point of contact to explain the transfer, the date upon which the old servicer will stop making payments and the new one will begin, and other servicing info. During the sixty (60) day period following a change in servicers, no late fees shall be applied if timely payments are made to the old servicer.
Failure to provide the Disclosure at closing or the Notice of Transfer of Servicing in accordance with these requirements will create the Private Right of Action for the borrower outlined above.