Qualified Written Requests, RESPA and Mortgage Servicing

When you apply for a loan product, there are two parts: the servicing rights (meaning the right to collect payments) and the actual loan.

A lot of people think that when they get a loan, the lender collects the payments from them and holds the note for the life of the loan. As I’ve mentioned before, this is not necessarily the case. (See the blog post “Produce the Note” here.) These days, the note and the servicing rights are bought and sold. Both can be transferred many times over the life of the loan.

The Federal Trade Commission’s website has a lot of great information on the topic of mortgage servicing, much of which appears in this post. It was very well written and I didn’t think it necessary to rewrite it.

A mortgage servicer is responsible for collecting your monthly loan payments and crediting your account. A servicer also handles your escrow account, if you have one.

An escrow account is a fund held by your servicer into which you pay to cover charges such as taxes and insurance. These escrow payments typically are included as part of your mortgage payments. The servicer also pays your taxes and insurance as they become due during the year.

The Real Estate Settlement Procedures Act (RESPA), enforced by the Department of Housing and Urban Development, is the major law covering escrow accounts.

If your mortgage servicer administers an escrow account for you, the servicer is required to make escrow payments for taxes, insurance, and any other charges in a timely manner. Within 45 days of establishing the account, the servicer must give you a statement that clearly itemizes the estimated taxes, insurance premiums, and other anticipated charges to be paid over the next 12 months, and the expected dates and totals of those payments.

Under RESPA, the mortgage servicer also is required to give you a free annual statement that details the activity of your escrow account. This statement shows your account balance and reflects payments for your property taxes, homeowners insurance, and other charges.

If your loan is about to be sold, you generally get two notices: one from your current mortgage servicer; the other from the new servicer. Usually, your current servicer must notify you at least 15 days before the effective date of the transfer, unless you received a written transfer notice at settlement. The effective date is when the first mortgage payment is due at the new servicer’s address. The new servicer must notify you within 15 days after the transfer has occurred.

The notices must include:
• the name and address of the new servicer.
• the date the current servicer will stop accepting your mortgage payments.
• the date the new servicer will begin accepting your mortgage payments.
• toll-free or collect-call telephone numbers, for the current and new mortgage servicer, for information about the transfer.
• whether you can continue any optional insurance, such as credit life or disability insurance; what action, if any, you must take to maintain coverage; and whether the insurance terms will change.
• a statement that the transfer will not affect any terms or conditions of your mortgage, except those directly related to the servicing of the loan. For example, if your contract says you were allowed to pay property taxes and insurance premiums on your own, the new servicer cannot demand that you establish an escrow account.

There is a 60-day grace period after the transfer: during this time you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer. In addition, the fact that your new servicer may have received your payment late as a result cannot be reported to a credit bureau.

So, why should you be paying attention to the servicing letters you receive? To make sure the servicer is correctly crediting your payments and managing your account. Sometimes there are errors when the loans are transferred and you might get charged a late fee, or you might get charged for a fee for something else.

The point is, you should be paying attention to how your payments are credited to your account.  If you think there is a discrepancy, you should send a Qualified Written Request (“QWR”) under RESPA.

Qualified Written Requests are also being used to put lenders on notice that they are investigating their loans and looking for violations of TILA and RESPA. I honestly don’t think lenders pay much any attention to these QWR’s, so if you’re worried about tipping them off, I wouldn’t worry about that.

Many times when clients decide to get a loan audit, they realize that they don’t have the necessary paperwork from closing. You can use a QWR to request a copy of your closing documents if you don’t have them. However, be aware that lenders don’t typically respond within the twenty days required by law. In some cases, it could take several months for the lender to respond. This is important if you’re in foreclosure, so don’t wait until the last minute to send off this request.

Also, as it relates to the produce the note argument, you should be aware that the servicer is going to send you a copy of the same document you signed at closing, which may not reflect the true and current owner of the note. See the blog post about MERS here for more information on this issue.

They will also not send you copies of anything such as servicing agreements or documents that their lawyers don’t think they have to produce, so if you’re using a QWR thinking you’ll hit a goldmine of dirt on the lender, don’t count on it.

I’ve also heard a lot of laypeople say that you should file a lawsuit against the lender for missing the twenty day deadline. However, as I’ve said before, just because the law says they are required to do something within a set period of time doesn’t mean they do it, or that you can win a court case based on their violation of the law.

Here’s a sample qualified written request that you can use to request documents from your lender. You purpose could be to make sure they are crediting your payments correctly or because you need a copy of your closing documents or various other purposes related to the servicing of your mortgage.

[Date]

Via Certified Mail
 Return Receipt Requested

Lender Name and Address

 

Re: Homeowners:   
 Loan Number(s):   
 Property Address:   

Dear Sir or Madam:

This letter is a qualified written request (“QWR”) pursuant to the Real Estate Settlement and Procedures Act (“RESPA”), 12 U.S.C. §2605(e). I am hereby requesting information about the fees, costs and escrow accounting of the above-referenced loan.

The information I am requesting as part of this QWR is as follows:

 1. A copy of all documents executed by me at the closing of this transaction.
 2. The current interest rate.
3. The adjustment dates of each interest rate adjustment, with the corresponding adjustment amount.
4. The current holder of the mortgage/deed of trust, their mailing address for process of service, along with a current telephone number.
5. The current holder of the note, their mailing address for process of service, along with a current telephone number.
6. The date that the current holder acquired this mortgage and from whom it was acquired from.
7. The date your company began servicing the loan.
8. The previous servicer of the loan.
9. The monthly principal and interest payments, and monthly escrow payments received from the date of the loan’s closing to the date of this QWR.
10. A complete payment history, including how those payments were applied, including the amounts applied to principal, interest, escrow and other charges.
11. The total amount due of any unpaid principal, interest, escrow charges, and other charges due as of the date of this letter. Please separately and identify each amount due.
12. The total amount of principal paid on the account up to the date of this letter.
13. The payment dates, purposes of payment and recipient of any and all foreclosure fees and costs that have been charged to my account.
14. A breakdown of the current escrow charges showing how it is calculated and the reasons for any increase within the last twenty-four (24) months.
15. A breakdown of any shortage, deficiency or surplus in our escrow account over the past three years.
16. A breakdown of all charges accrued on the account since the date of closing, that includes, but is not limited by, late charges, appraisal fees, property inspection fees, forced placed insurance charges, legal fees and recoverable corporate advances.
17. A statement indicating which covenants of the mortgage and/or note authorize each charge.
18. Please provide a copy of all appraisals, property inspections and risk assessments completed for this account.
19. Please provide a copy of all trust agreements pertaining to this account.
20. Please provide a copy of all servicing agreements (master, sub-servicing, contingency, specialty and back-up) pertaining to this account.
21. Please provide a copy of all written loss-mitigation rules and work-out procedures for this account.
22. Please provide a copy of all manuals pertaining to the servicing of this account.
23. Please provide a copy of the LSAMS Transaction History Report for this account, and include a description of all fee codes.
24. If this account is registered with MERS, state its MIN number.
25. A statement indicating the amount to pay this loan off in full as of ____________________.

We hereby dispute all late fees, charges, inspection fees, property appraisal fees, forced placed insurance charges, legal fees and corporate advances charged to this account.

Additionally, I believe my account is in error for the following reasons:  _____________________________.

Pursuant to 12 U.S.C. §2605(e) you are hereby notified that placing any negative coding on my credit report before responding to this letter is a violation of RESPA and the FCRA. Your organization will be subject to civil liability if negative coding appears for this account before a response to this QWR is provided to me.

Please provide confirmation that you have received this QWR within twenty (20) days, as required under 12 U.S.C. § 2605(e). Thereafter, please respond to these questions within sixty (60) days of receipt of this letter, as also required by 12 U.S.C. § 2605(e).

Very truly yours,
Got questions or comments? Please post them below.

The MERS Database: Another Piece of the Mortgage Mess

The lending industry has created a nifty way for themselves to get out of properly recording the chain of assignment on your mortgage note. It’s called the Mortgage Electronic Registration Systems database (“MERS”).

MERS’ website says “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

So what’s wrong with this system? A couple of things, but the most disturbing thing about the MERS database is that the entire system is set up so that you, the homeowner, have very little information about the ownership of the Note to your property.

The MERS system completely lacks transparency. Because the database was created by the lenders, they are the only entities who have access to it. You can find out who the servicer of your mortgage is, but that’s all the information that is available to you as a homeowner.

The database is also problematic from a legal standpoint, because it completely circumvents the proper legal process that was already in place.

Ownership of the Note to your property should always be recorded at the recorder’s office in the county in which the property is located. However, when lenders began packaging mortgage loans into mortgage-backed securities, it was too much work and expense to properly record the transfer of ownership at the local county recorders offices, which is why the lending industry came up with this database. They could buy and sell mortgages and track the ever changing ownership of Notes and servicing rights within their own industry and without prying eyes to point out that what they were doing was really improper and illegal.

This is why the “produce the note” issue is so compelling: there is a very real possibility that the true owner of your Note cannot properly document or prove that they own the Note, because the chain of assignment was never properly recorded, or the original Note was lost or destroyed in the rush to package it up with other mortgages and sell them off.

When I audit a loan, I usually see that the Note and Deed of Trust are properly recorded at the county recorder’s office at closing, and there are typically no other documents that show any transfer of the Note.

Many times, the original owner of the Note is no longer in business. If the original lender doesn’t exist, who is receiving the payments on the loan? This usually points to a mortgage that has been pooled and placed into a mortgage-backed security. These were sold on the stock market and had many investors who owned a piece of these securities.

Another interesting issue I’ve seen with MERS relates to the issue of standing.

Typically, when a Note is initially recorded, it lists MERS as the beneficiary on the Deed of Trust. MERS’ alleged status as a “beneficiary” under the Deeds of Trusts is false, as demonstrated by its own website. 

MERS’ website also notes that “MERS remains the nominal mortgagee no matter how many times servicing is traded,” and that it is nothing more than a computer system designed by the mortgage industry (and capitalized by investors from the mortgage industry) to protect them from having to pay recording fees so that the entity that owns any mortgage loan is available. 

MERS’ entire business operation is premised on the wholesale and ever changing sale or transfer of “servicing rights.” MERS does not own the loans; rather they are acting as a “nominee” for whomever might or might not say that it owns the note at any given time.  Further, since MERS never obtains possession of the Promissory Note which secures the Deed of Trust, it cannot ever have the right to enforce the terms of the Deed of Trust, since that right is reserved to the owner and holder of the secured instrument, the Promissory Note. 

MERS’ also purports to appoint unidentified and unspecified persons as “officers” of MERS for the purpose of executing documents to effect transfers.

A corporation cannot create corporate officers for the purpose of foreclosing on your property. Under this premise, MERS is contending that anyone who works for a mortgage lender, servicing company, foreclosing trustee, title company, etc. can become an officer of MERS without providing it with notification, without getting its approval or taking actions in its name that affect the property rights and security interests of others.

There have recently been quite a few challenges to MERS’ standing and its right to foreclose, and many courts are finding that MERS cannot foreclose because they lack standing, because they don’t actually own the Note.

The big problem for homeowners comes back to who actually owns the Note on your property. Let’s say you are in foreclosure, but somehow manage to “self correct” and bring the arrearage current. You scrape for a couple of months and manage to catch up on your mortgage payments, and you think you’re safe because you’ve paid the past due amounts.

Then, a few months later, you find out that your property is in foreclosure again, because the party who collected your money a few months ago didn’t actually own the Note, and the true owner was never properly paid. What a nightmare! This could happen to you.

So what’s a homeowner to do? If you are in foreclosure, and you live in a judicial foreclosure state (meaning they have to actually file a lawsuit to take your home), you can file a motion to request that the foreclosing party produce the original note to prove they have standing. You’ll want to do some research on how to do this in the state where you live, because local court rules vary.

If you live in a non-judicial foreclosure state (meaning they can just take your home through a trustee’s sale), such as Arizona, it’s much harder to challenge the foreclosure because you have to sue the lender or file a temporary restraining order and make these legal challenges within the framework of that lawsuit. Many times, if the homeowner is losing their home, they don’t have the money to fight a lender, and finding a sympathetic attorney to help you is difficult.

Josh and I are still working on finding attorneys who will work with homeowners for a reasonable fee; e-mail us for more information.

Judges in Arizona are not particularly sympathetic to homeowners who are waiting until the last minute to ask them to stall a foreclosure, so you need to be more proactive. If you decide to sue the lender, you need to do it around the time you receive the Notice of Default or a few months before the actual foreclosure date. Otherwise, it just looks like you’re retaliating against the lender because they are foreclosing. Also, the judges in Arizona don’t get that the federal laws really do tie their hands. TILA says that you only need to find $35 in undisclosed finance charges if you’re in foreclosure, and the judges aren’t buying it.

I wish I had some better answers for the homeowners in non-judicial foreclosure states, but at this point, your best option is to get a loan audit and consider hiring an attorney who “gets it” to force the lender to modify your loan in exchange for your waiver of rights under TILA.

As always, I encourage you to contact your elected officials and let them know you’re mad as hell about what’s happening with the lending industry. Demand that they represent your interests as the taxpayers. Together, we can change the way things are done in this country.

Got questions about MERS, loan audits or anything else related to foreclosure? Send me an e-mail at Christine@desertedgelegal.com or post a question in our forum.