"Qualified Written Request" Under RESPA – No "Magic" Words, But the Right Questions Must be Asked

For the first time, the federal Court of Appeals for the Ninth Circuit recently opined on what constitutes a “qualified written request” under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Section 2605(e), in Medrano et al. v. Flagstar Bank, FSB et al., 2012 U.S. App. LEXIS 25274 (9th Cir. Dec. 11, 2012). While the Court held that there are no “magic” words in order for a written request to be deemed a Qualified Written Request (QWR) under RESPA, which would trigger a mortgage servicer’s obligation to respond, in Medrano, the Court sided with the mortgage servicer nonetheless because the borrower’s letters did not raise the appropriate issues necessary for the letters to become QWRs.

Section 2605(e) requires a mortgage loan servicer, upon receipt of a QWR from a borrower, to: (a) acknowledge the QWR within a certain number of days, and (b) make appropriate corrections or respond with a written explanation of clarification that includes specific certain information. 12 U.S.C. §§ 2605(e)(1)(A) & (e)(2). A QWR is defined in the statute as “a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that,”

(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and

(ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

Id. § 2605(e)(1)(B).  Failure to adhere to these requirements may subject the servicer to liability. Id. § 2605(f). 

In Medrano, the borrowers purchased a home, and entered into a home loan agreement, which was serviced by Flagstar. The borrowers’ monthly loan payment included installments of principal and interest, as well as escrow installments for property taxes and insurance. Subsequently, Flagstar notified the borrowers that their escrow account had insufficient funds, and required the borrowers to increase their monthly payment from $1,917.68 to $2,676.08. Flagstar also gave the borrowers an option to make a one-time lump payment to cover the deficiency. In challenging the increased installment amount, the borrowers’ lawyer sent three letters to Flagstar, including to Flagstar’s counsel, stating that the increase in payment was invalid because the borrowers’ broker previously advised them that their installments would not exceed $1,900 per month. The borrowers’ counsel demanded that Flagstar correct the loan account. Flagstar did not respond to the letters, nor did it make any changes to the borrowers’ account. The borrowers sued Flagstar alleging violations under state law and RESPA. The district court granted Flagstar’s motion to dismiss, and the Ninth Circuit affirmed.

The Court first noted that it never had a previous occasion to interpret Sction 2605(e). It then pointed out, however, that the Court of Appeals for the Seventh Circuit, in Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011), had previously considered the scope of Section 2605(e), which held that Section 2605(e) should be read broadly and that any “reasonably stated written request for account information can be a qualified written request.” (For a discussion of Catalan, see http://www.cfslbulletin.com/2011/01/14/any-reasonably-stated-written-request-for-account-information-can-be-qualified-written-request-under-respa/.) The Ninth Circuit followed the Seventh Circuit’s broad reading of Section 2605(e), holding that RESPA does not require any “’magic’ words” for a correspondence to be considered a QWR.

Nonetheless, the Ninth Circuit held that the borrowers’ correspondence did not meet the standards for a QWR because the borrowers’ three letters constituted “challenges to the terms of the loan and mortgage documents and are not disputes regarding Flagstar’s servicing of the loan.” Because the borrowers were challenging the amount of monthly payments that were due under their loan, the Court considered their correspondence as essentially a request for modification of the loan agreement, not a servicing issue, and should have been addressed to the borrowers’ lender. Therefore, the borrowers’ letters were not QWRs under RESPA, and Flagstar, as servicer, did not have an obligation to respond to the letters. 

While the Ninth Circuit acknowledged that Section 2605(e) should be interpreted to advance RESPA’s “broad remedial purpose,” the Court’s decision in Medrano attempts to balance the rights of borrowers and those of loan servicers which may be inundated with a large volume of inquiries and correspondences. It remains to be seen whether other appellate courts will agree with the Ninth Circuit’s holding if presented with the same or similar sets of circumstances.