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Yepez v. Specialized Loan Servicing, LLC

United States District Court, N.D. Illinois, Eastern Division

June 27, 2019

JUAN YEPEZ and VERONICA YEPEZ, on behalf of the joint bankruptcy estate of Juan G. Yepez and Veronica Yepez, Plaintiffs,
v.
SPECIALIZED LOAN SERVICING, LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          HARRY D. LEINENWEBER, JUDGE UNITED STATES DISTRICT COURT.

         I. BACKGROUND

         Juan and Veronica Yepez (“Plaintiffs”) bring this proceeding against their former mortgage loan servicer, Specialized Loan Services, LLC (“SLS”). In 2013, Plaintiffs experienced financial difficulties that led them to seek relief pursuant to Chapter 13 of the U.S. Bankruptcy Code which allows individuals receiving regular income to obtain some relief while retaining their property. Their original Complaint did not acknowledge the bankruptcy, so Plaintiffs have amended their Complaint to declare that the action is now being brought on behalf of their joint bankruptcy estates.

         According to the Second Amended Complaint, Plaintiffs entered into a residential mortgage loan with Royal Savings Bank (“Royal”). The loan was secured by a mortgage on the Plaintiffs' home in Chicago, Illinois. Plaintiffs ran into financial difficulties in 2012, which caused their mortgage to go into a default status. On April 30, 2013, Royal commenced a foreclosure proceeding in the Circuit Court of Cook County, which has been stayed pending resolution of the bankruptcy. SLS began servicing Plaintiffs' loan in November 2015. On December 27, 2016, Plaintiffs, through their counsel, submitted a loss mitigation application. On January 3, 2017, SLS acknowledged receipt of the application but advised Plaintiffs that their application was “incomplete.” Plaintiffs were advised that they needed to submit documentation concerning some rental property that they apparently owned. Specifically, they were told that they needed to supply a “Mortgage Statement-OR-Rental Income/Lease Agreement and Mortgage Statement and Rental Income-Proof of Receipt.” On April 17, 2017, Plaintiffs' counsel sent the requested documents to SLS.

         Having heard nothing from SLS, Plaintiffs, through their counsel, on June 9, 2017, sent a written communication to SLS, labeled a “Notice of Error” pursuant to 12 C.F.R. § 1024.35 of Regulation X of the Real Estate Settlement Procedures Act, 12 U.S.C.A. § 2601 et seq. (“RESPA”), for failure to evaluate the loss mitigation options available to Plaintiffs as allegedly required by 12 C.F.R. § 1024.41(C)(1) within 30 days. On July 5, 2017, SLS responded to Plaintiffs reiterating its contention that the application was “incomplete, ” again stating that it lacked a “mortgage statement or rental income lease agreement and public assistance award letter or public assistance proof of receipt.” Therefore, it concluded that its processing of their application “was not in error.”

         On August 29, 2017, Plaintiffs, through their counsel, resent all the documents that they had previously provided to SLS on April 17th. The letter asked whether SLS needed anything further. Having received no response from SLS, On September 1, 2017, Plaintiffs sent a second Notice of Error to SLS. SLS failed to acknowledge or respond to the second Notice of Error. However, on September 5, 2017, SLS sent Plaintiffs a letter advising them that their request for loss mitigation had been denied because they “did not provide us with the documents we requested.” It did not describe what documents that it claimed were lacking.

         On September 19, 2017, after receiving the denial letter, Plaintiffs appealed the denial, demanding an independent review of their application. On September 20, 2017 and on September 22, 2017, SLS, through its agent, again advised Plaintiffs that their application was incomplete because, using nearly identical language, it lacked proper documentation including the requested “Mortgage Statement-OR-Rental Income/Lease Agreement and Mortgage Statement and Rental Income-Proof of Receipt.” Plaintiffs were given until October 25, 2017, to supply the “required documentation.” On October 28, 2017, Plaintiffs resubmitted the documentation that they had previously sent SLS. Nevertheless, SLS, on November 10, 2017, sent a second denial letter to Plaintiffs. The notice did not give a reason for the denial. On December 21, 2017, Plaintiffs sent a new Notice of Error to SLS for failing to use reasonable diligence in completing the borrower's loss mitigation application.

         On January 23, 2018, in response to the latest Notice of Error, SLS, for the first time, elaborated on what was allegedly missing: it requested a letter of explanation from Veronica Yepez as to the monthly mortgage payments on the two rental properties, it further questioned whether the rental properties were escrowed for taxes and insurance, it requested property taxes statements and homeowner's insurance declaration reflecting the annual premium, and an explanation why the property taxes bills on one of the rental properties were in someone else's name. Thus, in SLS's opinion the denial was not in error, because it had not received this information.

         The Plaintiffs claim that the failure on the part of SLS to respond on a timely basis has caused them to (1) “spend significant time gathering duplicative documents and filling out duplicative forms in completing their loss mitigation applications; (2) spend money on paper, postage and legal fees to compile and send such submissions to SLS; (3) incur legal fees and expenses to draft and mail notices of error via Certified U.S. Mail in attempting to seek SLS's compliance with their obligations under Regulation X, that is to ensure that Plaintiffs' loss mitigation application was properly reviewed for eligibility for all loss mitigations options available to them.” They also contend that SLS has denied them “the opportunity to have their loan properly considered alternatives to foreclosure and to put their financial house in order” and “to begin to rehabilitate their credit standing.” They further contend that as a result “they have been consumed by worry and frustration over the status of their loan.”

         Plaintiffs filed this suit on November 8, 2018, containing three separate claims for violation of the Real Estate Settlement Procedures Act (“RESPA”)-Counts I, II, and III; a claim of violation of the Fair Debt Collections Practices Act (“FDCPA”)-Count IV; and a claim for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”)-Count V. SLS has moved to dismiss all five counts.

         II. DISCUSSION

         A. Counts I, II, and III - RESPA

         Count I charges SLS with violating 12 CFR § 1024.41(b)(1) for failing to use reasonable diligence to complete Plaintiffs' loss mitigation application. Count II charges SLS with violating 12 CFR § 1024.35(b)(11) for failure reasonably to investigate and for failure to respond to notice of error in violation of 12 CFR § 1024.35(c)(1). Count III charges SLS with violating § 1024.35(d) for failure to acknowledge receipt of notices of error.

         RESPA is a consumer protection statute that regulates the real estate settlement process, including service of loans and requests for loan modifications. It provides a private cause of action for violation of its terms. § 2605(f). One of the duties imposed on lenders is the duty to respond to “Qualified Written Requests.” (“QWR”). 12 U.S.C.A. § 2605. A QWR gives the borrower an opportunity to obtain information from the lender and is to contain sufficient information to allow the lender to identify the borrower and what information is requested. Within 30 days the lender must conduct an investigation and provide the borrower with a written explanation containing the information requested or the name of an individual that can assist the borrower. § 2605(e). Under C.F.R. § 1024.35(a), “notices of error” are considered QWRs and vice versa, and under § 1024.35(b)(7) ...


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