The U.S. Court of Appeals for the Fifth Circuit recently affirmed the district court’s order granting summary judgment for a loan servicer and creditor, the defendants, holding that the loan servicer was not required to plead a certain servicing requirement as an affirmative defense, and that although the requirement was not retroactive, the provision accounts for a servicer’s past actions by requiring compliance only once.
The plaintiff in this case sued the defendants for alleged violations of certain servicing requirements under RESPA, implemented by Regulation X, and the Texas Debt Collection Act (TDCA), among other claims, in connection with the processing of his loss mitigation applications. 12 C.F.R. § 1024.41 generally requires a mortgage servicer to evaluate a borrower for all loss mitigation options available to the borrower and to provide a notice stating the servicer’s determination of such options, if any, upon receipt of a complete loss mitigation application. However, the rule also provides that a servicer is required to comply with these requirements only once for a single complete loss mitigation application for a borrower’s mortgage loan account. The regulation had an effective date of January 10, 2014, which was an important issue since the plaintiff had submitted several loss mitigation applications both before and after this effective date.
The district court found that the defendants: (i) were not required to plead the specific one-time compliance requirement as an affirmative defense; (ii) had complied with the requirements of 12 C.F.R. § 1024.41 over the life of the plaintiff’s loan; and (iii) were required to comply with the requirement at issue only once. Thus, the district court granted the defendants’ motion for summary judgment and dismissed all of the plaintiff’s claims.
On appeal, the plaintiff first argued that the district court erred in holding that the one-time compliance requirement was not an affirmative defense, which the 5th Circuit panel recognized as an issue of first impression for the court. However, the panel agreed with the district court’s determination that the defendants were not required to plead the specific requirement as an affirmative defense because the defendants’ use of the specific provision in their motion for summary judgment was a mere expansion of the denial in their answer which referenced 12 C.F.R. § 1024.41 generally.
Additionally, the plaintiff argued that the district court erred that defendants were only required to comply with the servicing regulation once because this holding would make 12 C.F.R. § 1024.41 retroactive. Following the 6th Circuit, the panel agreed the regulation should not be intended to apply retroactively. But the panel also stated that if a loan servicer complied with the requirement prior to the effective date, that compliance must be credited to the servicer because the servicer need only comply with the requirement once. Moreover, in this case, the panel found that the loan servicer had complied with the requirement even after the effective date when responding to the plaintiff’s third loss mitigation application submitted in February of 2014. Therefore, the panel held that the district court correctly ruled that the plaintiff failed to raise a genuine issue of material fact regarding the defendants’ compliance with the regulation and properly dismissed the RESPA claims.
Because the plaintiff’s allegations arising under the TDCA was based, in part, on allegations that the defendants violated RESPA, such TDCA claims were also dismissed, along with other remaining claims which were based on the underlying RESPA and TDCA claims.