Jaime Medrano v. Flagstar Bank, Fsb , 704 F.3d 661 ( 2012 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JAIME MEDRANO and MARIBEL No. 11-55412
MEDRANO , husband and wife,
Plaintiffs-Appellants, D.C. No.
2:10-cv-07285-
v. JHN-PLA
FLAGSTAR BANK, FSB, a Federal
Savings Bank; EXODUS FINANCIAL OPINION
CORPORATION , a Nevada corporation
formerly known as Doe 1; JANE
FOWLER KELLEHER, formerly known
as Doe 2; STRATHAM MONTECITO
WEST , a California corporation;
STRATEGIC SALES AND MARKETING
GROUP, a California corporation;
JANIS KIM RANDAZZO , individually
and responsible managing officer of
Strategic Sales and Marketing
Group; FERNANDO CORDERO ,
individually and responsible
managing officer of Exodus
Financial Corporation; and DORA
SENAIDA CORDERO ,
Defendants-Appellees,
2 MEDRANO V . FLAGSTAR BANK
and
PROTOFUND MORTGAGE
CORPORATION , a California
corporation,
Defendant.
Appeal from the United States District Court
for the Central District of California
Jacqueline H. Nguyen, District Judge, Presiding
Argued and Submitted
November 6, 2012—Pasadena, California
Filed December 11, 2012
Before: Susan P. Graber, Sandra S. Ikuta,
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Graber
MEDRANO V . FLAGSTAR BANK 3
SUMMARY*
Real Estate Settlement Procedures Act
The panel affirmed the dismissal of a claim under the
Real Estate Settlement Procedures Act by borrowers seeking
damages for a mortgage-loan servicer’s failure to respond to
their inquiries.
Adopting the Seventh Circuit’s general approach, the
panel held that the borrowers’ letters challenging the monthly
payment due on their loan were not “qualified written
requests” triggering the servicer’s duty to respond under 12
U.S.C. § 2605 because the letters did not seek information
relating to the servicing of the loan, but rather challenged the
loan’s terms.
COUNSEL
Jerome Zamos, Law Offices of Jerome Zamos, Woodland
Hills, California, for Plaintiffs-Appellants.
Roland P. Reynolds and Frederick A. Haist, Palmer,
Lombardi & Donohue LLP, Los Angeles, California; Dale A.
Arakawa and Lisa P. Gruen, Ericksen Arbuthnot, Los
Angeles, California; and Carol L. Vallely, Law Office of
Carol L. Vallely, Verdugo City, California, for Defendants-
Appellees.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 MEDRANO V . FLAGSTAR BANK
OPINION
GRABER, Circuit Judge:
The Real Estate Settlement Procedures Act (“RESPA”)
provides an action for damages against mortgage-loan
servicers who fail to respond to certain types of inquiries
from borrowers. Plaintiffs Jaime and Maribel Medrano allege
that Defendant Flagstar Bank, FSB, the servicer of their home
loan, violated 12 U.S.C. § 2605 because it did not respond
adequately to three letters in which they challenged the
monthly payment due on their loan. The district court
granted Flagstar’s motion to dismiss the claim because a
servicer must receive a valid “qualified written request” to
incur the duty to respond under § 2605, and it determined that
the letters were not qualified written requests that triggered
that statutory duty. Reviewing de novo, Colony Cove Props.,
LLC v. City of Carson, 640 F.3d 948, 955 (9th Cir.), cert.
denied, 132 S. Ct. 456 (2011), we hold that the letters did not
trigger the statutory duty to respond and therefore affirm.1
In 2009, Plaintiffs entered into a home loan agreement
and purchased a house in Los Angeles County. The loan was
secured by a deed of trust and, at all times relevant to this
action, was serviced by Flagstar.
1
Before the district court, Plaintiffs also asserted other federal and state-
law claims. Plaintiffs asserted those claims against, in addition to
Flagstar, Defendants Exodus Financial Corporation, Jane Fowler Kelleher,
Stratham Montecito W est, Strategic Sales and Marketing Group, Janis
Kim Randazzo, Fernando Cordero, and Dora Senaida Cordero. We
address all claims under appeal except Plaintiffs’ § 2605 claim against
Flagstar in a memorandum disposition filed this date.
MEDRANO V . FLAGSTAR BANK 5
The loan documents provided for an escrow account into
which Plaintiffs would make monthly payments to cover
taxes, insurance, interest, and principal. In February 2010,
Flagstar notified Plaintiffs that the escrow account would
have insufficient funds over the following 12-month period
and that they would be required either to increase their
monthly payment from $1,917.68 to $2,676.08 or to
contribute a one-time lump sum of $4,938.53 to cover the
deficiency.
Plaintiffs retained a lawyer who, between March 19,
2010, and August 10, 2010, sent three letters disputing any
obligation to make the increased payments. The first letter,
which was sent to Flagstar directly, asserted, in relevant part,
that the loan documents did not “accurately reflect . . . the
proper payment schedule represented by the loan broker.”
The letter went on to explain that, when Plaintiffs bought the
house, the broker assured them that their maximum monthly
payments would not exceed $1,900. The letter demanded that
Flagstar “revise all documentation concerning the current
loan” to reflect the “original terms” of the agreement and
limit Plaintiffs’ monthly payments accordingly.
The second letter, which also was sent to Flagstar
directly, made similar claims. It also told Flagstar that
Plaintiffs would continue to make payments of only
$1,917.68, as allegedly agreed, and that they expected
Flagstar “to apply that amount in full satisfaction of their
obligation.”
The third letter went to Flagstar’s legal counsel. It
repeated the assertion that Flagstar’s demand for increased
payments was invalid, even though it was consistent with the
loan and mortgage documents, because Plaintiffs had been
6 MEDRANO V . FLAGSTAR BANK
advised when they purchased their home that their payments
would not exceed $1,900 per month.
Although Flagstar received Plaintiffs’ letters, it made no
changes to their account and—although the record is not clear
on this point—may have failed to respond at all.2
Plaintiffs commenced this action in California state court,
alleging that Flagstar violated state law. After Plaintiffs
added federal claims under RESPA, Flagstar removed the
action to federal court. The district court dismissed the
federal claims and remanded the action to the state court.
Plaintiffs timely appeal.
RESPA requires the servicer of a federally related
mortgage loan to provide a timely written response to
inquiries from borrowers regarding the servicing of their
loans. 12 U.S.C. § 2605(e)(1)(A), (e)(2). If the servicer fails
to respond properly to such a request, the statute entitles the
borrower to recover actual damages and, if there is a “pattern
or practice of noncompliance,” statutory damages of up to
$1,000. Id. § 2605(f). Here, Flagstar argues that, regardless
2
During oral argument, the parties disputed whether Flagstar had
responded to the letters. But because that issue was neither argued before
the district court nor raised in the parties’ appellate briefs, we do not
address it here. See O’Guinn v. Lovelock Corr. Ctr., 502 F.3d 1056, 1063
n.3 (9th Cir. 2007) (holding that arguments not raised before the district
court generally are waived); Greenwood v. FAA, 28 F.3d 971, 977 (9th
Cir. 1994) (“We review only issues which are argued specifically and
distinctly in a party’s opening brief.”). Instead, we assume, for purposes
of this appeal, that Flagstar’s responses, if any, were inadequate under
§ 2605.
MEDRANO V . FLAGSTAR BANK 7
of how it responded to Plaintiffs’ letters,3 it is not liable under
the statute because the letters were not qualified written
requests and therefore did not require a response.
To decide whether Plaintiffs’ letters triggered § 2605(e)’s
duty to respond, we begin by turning to the text of the statute,
as well as its object and policy, to discern congressional
intent. United States v. $493,850 in U.S. Currency, 518 F.3d
1159, 1166–67 (9th Cir. 2008). RESPA defines a “qualified
written request” as follows:
For purposes of this subsection, a
qualified written request shall be 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.
3
If subject to § 2605(e)’s duty to respond, Flagstar would have been
required to acknowledge receipt of the correspondence within 20 days
and, within 60 days, (1) to make appropriate corrections to the account, (2)
to explain why it believed the account to be correct, or (3) to explain why
the information requested was unavailable or could not be obtained.
12 U.S.C. § 2605(e)(1)(A), (e)(2).
8 MEDRANO V . FLAGSTAR BANK
12 U.S.C. § 2605(e)(1)(B). Under § 2605(e)(1)(A), a servicer
must respond to such a letter if it requests or challenges
“information relating to the servicing of such loan.” Id.
§ 2605(e)(1)(A), (e)(2).
Congress intended RESPA to serve consumer-protection
purposes. The statute’s first section, which is entitled
“Congressional findings and purpose,” expresses Congress’
determination that “significant reforms in the real estate
settlement process are needed to insure that consumers
throughout the Nation are provided with greater and more
timely information on the nature and costs of the settlement
process and are protected from unnecessarily high settlement
charges caused by certain abusive practices.” Id. § 2601(a);
see also Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004,
1008–09 (9th Cir. 2002) (discussing the enactment and
congressional purpose of RESPA). Although the “settlement
process” targeted by the statute was originally limited to the
negotiation and execution of mortgage contracts, Greenpoint
Mortg. Funding, Inc. v. Herrera (In re Herrera), 422 B.R.
698, 711 (B.A.P. 9th Cir. 2010), aff’d sub nom. Home Funds
Direct v. Monroy (In re Monroy), 650 F.3d 1300, 1301 (9th
Cir. 2011) (order), the scope of the statute’s provisions was
expanded in 1990 to encompass loan servicing, Pub. L. No.
101-625, tit. IX, subtit. C, § 941, 104 Stat. 4405 (1990).
Accordingly, RESPA’s provisions relating to loan servicing
procedures should be “construed liberally” to serve the
statute’s remedial purpose. Herrera, 422 B.R. at 711–12.
We have had no occasion to apply those principles to
interpretation of § 2605(e), and few other courts have done
so. In Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th
Cir. 2011), however, the Seventh Circuit recently considered
the scope of § 2605(e). Specifically, in deciding whether a
MEDRANO V . FLAGSTAR BANK 9
qualified written request must identify specific reasons for a
borrower’s belief that his or her account is in error, the court
held:
RESPA does not require any magic
language before a servicer must construe a
written communication from a borrower as a
qualified written request and respond
accordingly. The language of the provision is
broad and clear. To be a qualified written
request, a written correspondence must
reasonably identify the borrower and account
and must “include 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.” 12 U.S.C. § 2605(e)(1)(B)
(emphasis added). Any reasonably stated
written request for account information can be
a qualified written request. To the extent that
a borrower is able to provide reasons for a
belief that the account is in error, the borrower
should provide them, but any request for
information made with sufficient detail is
enough under RESPA to be a qualified written
request and thus to trigger the servicer’s
obligations to respond.
Catalan, 629 F.3d at 687. We agree and adopt the Seventh
Circuit’s general approach to defining what qualifies as a
qualified written request that will trigger § 2605(e)’s duty to
respond. The statute does not explicitly require any “magic”
words, and an interpretation according to which it did so
10 MEDRANO V . FLAGSTAR BANK
implicitly would be inconsistent with Congress’ intent that
the statute serve a broad remedial purpose. Instead, under
§ 2605(e), a borrower’s written inquiry requires a response as
long as it (1) reasonably identifies the borrower’s name and
account, (2) either states the borrower’s “reasons for the
belief . . . that the account is in error” or “provides sufficient
detail to the servicer regarding other information sought by
the borrower,” and (3) seeks “information relating to the
servicing of [the] loan.” 12 U.S.C. § 2605(e)(1)(A)–(B).4
Nonetheless, the third of those requirements—that the
letter must request information relating to servicing—ensures
that the statutory duty to respond does not arise with respect
to all inquiries or complaints from borrowers to servicers.
RESPA defines the term “servicing” to encompass only
“receiving any scheduled periodic payments from a borrower
pursuant to the terms of any loan, including amounts for
escrow accounts . . . , and making the payments of principal
and interest and such other payments.” Id. § 2605(i)(3).
“Servicing,” so defined, does not include the transactions and
circumstances surrounding a loan’s origination—facts that
would be relevant to a challenge to the validity of an
underlying debt or the terms of a loan agreement. Such
4
The district court, like many courts that have addressed the issue,
conflated the statutory analysis by declaring that the letters were not
qualified written requests because they did not request information
relating to servicing. Section 2605(e)(1)(B), which defines what is a
qualified written request, does not refer to “information relating to . . .
servicing.” Instead, that requirement derives from § 2605(e)(1)(A), which
requires, as conditions for triggering the duty to respond, both (1) that the
letter is a qualified written request and (2) that it requests information
relating to servicing. Although this distinction may be meaningless in
most cases, we clarify that this opinion concerns the interpretation of
§ 2605(e)(1)(A).
MEDRANO V . FLAGSTAR BANK 11
events precede the servicer’s role in receiving the borrower’s
payments and making payments to the borrower’s creditors.
Perhaps for that reason, Congress drafted the statute so as not
to include those matters.
The statute thus distinguishes between letters that relate
to borrowers’ disputes regarding servicing, on the one hand,
and those regarding the borrower’s contractual relationship
with the lender, on the other. That distinction makes sense
because only servicers of loans are subject to § 2605(e)’s duty
to respond—and they are unlikely to have information
regarding those loans’ originations. In summary, we hold
that letters challenging only a loan’s validity or its terms are
not qualified written requests that give rise to a duty to
respond under § 2605(e).5
Turning to Plaintiffs’ letters in this case, it is clear that
they constitute challenges to the terms of the loan and
5
Our holding is consistent with the decisions of many district courts that
have addressed the issue. See, e.g., Menashe v. Bank of N.Y., 850 F. Supp.
2d 1120, 1130 (D. Haw. 2012) (noting that requests regarding the validity
of loan and mortgage documents are not qualified written requests);
Jensen v. Quality Loan Serv. Corp, 702 F. Supp. 2d 1183, 1196 (E.D. Cal.
2010) (dismissing a § 2605(e) claim for failure to allege that inquiries
related to servicing); Rivera v. BAC Home Loans Servicing, L.P., 756 F.
Supp. 2d 1193, 1199 (N.D. Cal. 2010) (same); Sipe v. Countrywide Bank,
690 F. Supp. 2d 1141, 1154 (E.D. Cal. 2010) (holding that a demand for
rescission of the loan agreement does not relate to servicing under
§ 2605(e)); Consumer Solutions REO, LLC. v. Hillery, 658 F. Supp. 2d
1002, 1014 (N.D. Cal. 2009) (holding that a qualified written request must
address the servicing of the loan, and not its validity); Champlaie v. BAC
Home Loans Servicing, LP, 706 F. Supp. 2d 1029, 1043 (E.D. Cal. 2009)
(same); Keen v. Am. Home Mortg. Servicing, Inc., 664 F. Supp. 2d 1086,
1097 (E.D. Cal. 2009) (same); MorEquity, Inc. v. Naeem, 118 F. Supp. 2d
885, 901 (N.D. Ill. 2000) (same).
12 MEDRANO V . FLAGSTAR BANK
mortgage documents and are not disputes regarding Flagstar’s
servicing of the loan. The first letter states that the loan
documents did not “accurately reflect . . . the proper payment
schedule represented by the loan broker.” That assertion
amounts to an allegation of fraud or mistake during the
closing of the loan and the drafting of the relevant
documentation. Thus, it concerns only the loan’s validity and
terms, not its servicing. Likewise, in the second letter,
Plaintiffs demanded that Flagstar “revise all documentation
concerning the current loan” to reflect the “original terms” of
the agreement. A request for modification of a loan
agreement, like one for rescission, does not concern the
loan’s servicing.6 Finally, the sole request in the third letter
is that Plaintiffs’ monthly payment be reduced because they
were told, when they purchased their home, that those
payments would not exceed $1,900. Again, that demand is a
challenge to the terms of the loan and mortgage documents,
premised on an assertion that the existing documents do not
accurately reflect the true agreement between Plaintiffs and
the originating lender. Because the letter requests
modification of those documents, it is not related to servicing.
In sum, because Plaintiffs’ letters to Flagstar challenged
the terms of their loan and requested modification of various
loan and mortgage documents, they were not qualified written
requests relating to the servicing of Plaintiffs’ loan. Because
12 U.S.C. § 2605 does not require a servicer to respond to
6
Some borrowers mistakenly may request modification or challenge a
loan’s validity or terms when they identify a problem in a servicer’s
accounting. As we have made clear, RESPA does not require magic
words, and such letters may trigger a duty to respond under § 2605(e).
Here, the letters were drafted by counsel; we therefore assume that they
mean what they say.
MEDRANO V . FLAGSTAR BANK 13
such requests, the district court correctly dismissed Plaintiffs’
claim.
AFFIRMED.