In 2014, the Consumer Financial Protection Bureau (CFPB) promulgated a number of mortgage servicing rules, including rules governing loss mitigation procedures. These rules can be found at 12 C.F.R. §§ 1024.39 through 1024.41, which are a part of Regulation X, the implementing regulation for the Real Estate Settlement Procedures Act (RESPA). Among other things, the loss mitigation rules require mortgage servicers to comply with strict timelines regarding loss mitigation efforts. These timelines apply even in the face of a servicing transfer. For instance, if a loan is transferred to a new servicer while loss mitigation efforts are underway, and the application was complete before the loan was transferred, then the new servicer has thirty days to issue a decision on the application. Lawsuits based on perceived violations of these rules continue to be filed in the aftermath of the market downturn. However, plaintiffs cannot manufacture a cause of action under RESPA, and a court will dismiss a RESPA claim where plaintiffs lack standing, either because they have no cognizable injuries or because they are not borrowers. Such was the case in Ocampo v. Carrington Mortgage Services, -- F.Supp. 3d --, 2017 WL 6610803 (S.D. Fla. Dec. 27, 2017).
In 2007, the plaintiff borrower purchased real property in Doral, Florida by executing a note and mortgage in favor of a mortgage lender. Plaintiff subsequently transferred his ownership interest in the property to a third party by quit claim deed. The note and mortgage went into default and the mortgage lender initiated a foreclosure action against the current owner and the plaintiff who was the borrower under the note. The lender later dismissed plaintiff from the foreclosure action. Plaintiff filed for bankruptcy a year later and obtained a discharge on his personal indebtedness under the note. Shortly thereafter, a judgment of foreclosure was entered against the property. Plaintiff then filed a second bankruptcy, during which the bankruptcy court referred plaintiff and the mortgage servicer to mediation and the requested modification was denied. Plaintiff then filed suit alleging several violations of RESPA, including failure to timely respond to plaintiff's application for modification.
The U.S. District Court for the Southern District of Florida dismissed plaintiff's claims on two bases. First, the Court held that it lacked subject matter jurisdiction because plaintiff did not have Article III standing given that he was never entitled to a mortgage modification. As noted by the Court, "when Plaintiff initiated loan modification proceedings, he no longer had an ownership interest in the Property or any obligation under the Note... [thus], his request was an impossibility. Therefore, his 'injuries' are conjectural, and quite frankly, a legal fiction." The Court went on to describe plaintiff's loan modification proceedings as "frivolous." The Court further found that even if plaintiff had Article III standing, he did not have statutory standing because he was no longer a borrower. Under RESPA, only a borrower may bring a claim, and even though RESPA does not define borrower, courts have consistently held that "a borrower is someone who either signed the note or who is otherwise obligated under the mortgage." Here, plaintiff lost his status as a borrower when the bankruptcy court discharged his debt.