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Federal

Mortgages; RESPA

Catalan v GMAC Mortg Corp, 629 F 3d 676 (7th Cir, 2011).

Facts:Saul Catalan and Mia Morris (buyers) purchased a house in June 2003 with a Federal Housing Agency mortgage loan from RBC Mortgage Company (RBC). The buyers' first loan payment was due August 1, 2003, but RBC incorrectly entered into their system July 1, 2003, as the first payment due date. By the time the buyers made their second payment, RBC had marked their account in default and increased their due payments amount. The buyers continued submitting their monthly payments and requested an explanation for the increase in the required payments. RBC failed to respond, but eventually began returning their payments.

In February 2004, RBC filed for foreclosure. The buyers provided checks to bring their account into compliance, but by August 2004, the buyers' May 2004 payment remained unpaid. RBC failed to provide the buyers with any account statement or notice of delinquency, but did not apply the buyers' August 2004 payment. Then, RBC transferred the buyers' account to GMAC Mortgage in September 2004. GMAC did not notify buyers of this transfer, so buyers sent their September 2004 payment to RBC, which forwarded it to GMAC.

GMAC began contacting buyers, informing them that their account was delinquent by five monthly payments and refusing to accept individual monthly payments as insufficient. In October 2004, buyers contacted the Department of Housing and Urban Development (HUD) detailing their ordeal. HUD contacted GMAC, which responded by saying that they had no information of any mishandling of the account by RBC and that buyers were delinquent in their payments. Buyers also sent letters to GMAC requesting all relevant information regarding their account. GMAC responded with several contradictory statements regarding their account and demanded $9,588 in delinquent payments and $255 in late fees.

On November 15, 2004, buyers sent GMAC a letter detailing their ordeal with RBC and requesting that further communications be made in writing for purposes of documentation. Buyers included a check for $11,186 for seven monthly payments. On November 25, 2004, GMAC commenced foreclosure proceedings and began reporting the loan to credit bureaus as delinquent. Buyers repeatedly requested in December 2004 that GMAC apply the $11,186 check to their loan, but GMAC returned it claiming it was insufficient to cover their delinquency. Subsequently, GMAC dismissed their foreclosure suit, but sent buyers another contradictory letter indicating that the account was turned over to outside counsel to seek foreclosure.

In early 2005, HUD intervened and requested that GMAC bring buyers' account current and stop reporting their loan as delinquent to credit agencies. GMAC eventually accepted a check for ten monthly payments, without any fees, and brought their account current. Afterward, buyers sued RBC and GMAC for violating the Real Estate Settlement Procedures Act (RESPA) and for gross negligence, breach of contract, and willful and wanton negligence. The district court dismissed their gross negligence claim as redundant of the willful and wanton negligence claim; it then granted GMAC summary judgment on the other claims, which plaintiffs appealed.

Holding:Affirmed in part, reversed and remanded in part. First, the court evaluated buyers' claim that GMAC violated RESPA. The district court refused to address the merits of buyers' claim because it determined that GMAC was protected by RESPA's "safe harbor" provision, obviating a transferee of a loan from liability if it notifies the borrower in writing within 60 days of discovering an error and makes necessary adjustments. The dispositive event in this case was the fact that GMAC never provided such written notice, so GMAC may not invoke the safe harbor provision.

Turning to the merits, the court weighed the Buyers' assertion that the letters they sent to GMAC were "qualified written requests" under RESPA, which would obligate GMAC to take one of three actions within 60 days: 1) make corrections to buyers' account and notify them of the corrections in writing; 2) investigate the account and inform buyers' in writing of why GMAC believed that the account was in order; or 3) provide requested information or notify buyers as to why certain requested information was unavailable. Such requests require no magic language, but "must reasonably identify the borrower and account and must" state the borrower's belief that the account is in error with sufficient detail.

The court weighed the buyers' letters, rejecting those that merely referred to "issues" or did not request information or state any dispute. However, two letters were qualified written requests, which stated specifically their intent to dispute the account and requested specific information while including a detailed explanation of their account's history within their understanding. One of these letters qualified even though it was technically sent to HUD and later forwarded to GMAC, as HUD was deemed an agent under the statute. Based on this analysis, the court reversed and remanded on this issue for the district court to determine whether GMAC was liable to the buyers for violating RESPA.

The court next reversed the district court's summary judgment on the issue of breach of contract. Buyers asserted that GMAC breached the mortgage-and-note contract by refusing to apply tendered payments. GMAC argued that it did not breach the contract on two grounds. First, it asserted that it had no timeframe by which it needed to apply the payments, so its initial refusal was not a breach of contract because it eventually applied all of the buyers' payments in 2005. Second, it asserted that the buyers breached the contract by refusing to tender an October 2004 payment, so they could not recover for breach. The court rejected GMAC's argument, stating that GMAC failed to apply the payments within a reasonable time, as implied where there is no time frame stated for contract performance. Furthermore, the buyers' alleged breach in October 2004 occurred after both RBC and GMAC repeatedly failed to provide buyers with timely information about their account. The court held that a trier of fact might excuse Buyers' alleged breach and nevertheless hold GMAC liable. Therefore, the court reversed summary judgment on breach of contract.

Next, the court affirmed summary judgment on the buyers' negligence claim, finding that the Moorman doctrine barred recovery in tort of purely economic damages by parties in a contractual relationship. Although plaintiffs attempted to assert that GMAC owed them a separate duty, the court found that any such duty arose only under the terms of the mortgage-and-note contract and that there was no separate fiduciary duty between the parties.

Finally, the court rejected an alternative justification for summary judgment on all counts by GMAC: that buyers could not show any competent evidence for damages to succeed on their claims. The court weighed the facts behind buyers' denial of credit applications and emotional distress and determined that likely-admissible evidence existed to prove damages. Therefore, this alternative argument failed.

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