A borrower who has been in and out of default since 2009 was recently warned by a Fifth Circuit Court of Appeals three-judge panel to stop filing RESPA claims to avoid foreclosure on his Texas home.
Plaintiff Michael Germain alleged Ocwen Loan Servicing violated RESPA Section 1024.41, which limits a mortgage servicer’s ability to conduct a foreclosure sale if a borrower submits a complete application more than 37 days before a foreclosure sale.
The case is Germain v. U.S. Bank National Association, as Trustee for Morgan Stanley Mortgage Loan Trust 2006-7, Mortgage Pass-Through Certificates, Series 2006-7, Ocwen Loan Servicing, LLC (U.S. Court of Appeals for the Fifth Circuit, No. 18-10508).
Germain argued the defendants repeatedly asked for loss mitigation applications knowing they would be denied. Germain – who made his last loan payment in 2014 - appealed to the circuit court for summary judgment after the U.S. District Court for the Northern District of Texas dismissed his claims.
The circuit court admonished the plaintiff while affirming the lower court’s ruling.
“The history of this case demonstrates beyond cavil that Germain has spent the last 10 years gaming the system through a series of applications for loan modification, a flawed bankruptcy filing, and the institution of this lawsuit,” Fifth Circuit Judge Jacques L. Wiener Jr. wrote. “Doing so has enabled him to achieve his one overarching goal: The prolonged occupancy of his residence with little or no payment on his mortgage debt. With the help of cunning counsel, Germain used the intended shield of RESPA, TDCA, and various state and federal laws as a sword to avoid (or at least minimize) his mortgage payments while continuing the decade-long occupancy of his encumbered house.
“Today’s termination of Germain’s abuse of the system is long overdue. We caution Germain, and his present and future counsel, if any, that further machinations to prolong this litigation or delay foreclosure proceedings could and likely will be met with sanctions.”
After becoming the loan servicer in July 2012, Ocwen wrote to Germain outlining his loan assistance options. His property was scheduled for foreclosure after the servicer did not receive a response.
The following month, Germain filed the first of four loss mitigation applications. Ocwen denied the initial request because the owner of the loan did not allow modification. Germain then made a “significant” payment that brought the loan out of default.
After going into default again, Ocwen again denied his request for loan modification, alerting him that he might be eligible for other options. Germain then filed for bankruptcy, and was put on a repayment plan.
In 2014, Ocwen informed Germain he was eligible for a short sale and other loss mitigation options. After he failed to take advantage of any of the options, the property was scheduled for foreclosure more than a year later.
Germain filed suit in state court to prevent the foreclosure, and the suit was moved to federal court.
In his fourth amended complaint, Germain sough actual, statutory and exemplary damages for alleged violations of RESPA and the Texas Debt Collection Act (TDCA).
The district court held that the defendants were required to comply with Section 1024.41(i) for only one loss mitigation application. The appellate panel agreed.
However, Germain claimed the holding was in error because it makes Section 1024.41, which became effective on Jan. 10, 2014, retroactive.
Wiener’s opinion acknowledged that although the Fifth Circuit has not addressed the retroactivity of the provision, the Sixth Circuit held in Campbell v. Nationstar Mortgage that the regulation’s requirements should not be applied to loss mitigation applications submitted before the effective date.
But the circuit court instead relied on its reasoning in Allen v. Wells Fargo Bank, N.A., which held that a servicer’s conduct prior to the effective date should count for application of Section 1024.41(i) because the Consumer Financial Protection Bureau (CFPB) did not intend to put limitations on duplicative requests.
“The apparent purpose of the regulation is not to make already compliant servicers repeat their compliance actions, but rather to bring noncompliant servicers into compliance,” Wiener wrote. “Section 1024.41 is a forward-looking provision, but it accounts for a servicer’s past actions by requiring only one compliance per requirement.”
The judge added that the servicer responded to Germain’s February 2014 loss mitigation application in writing notifying him of the reason for the loan modification denial and offering him short sale as an option.
“It would be absurd, and contrary to the provision regarding duplicative requests, to require repeated compliance with this requirement,” Wiener stated.