9th Circuit Circular Logic: Medrano v Flagstar

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Editor’s Note: If a Court wants to come to a certain conclusion, it will, regardless of how it must twist the law or facts. In this case, the Court found that a letter that challenges the terms of the loan or the current loan receivable is not a qualified written request under RESPA.

The reasoning of the court is that a challenge or question about the real balance and real creditor and real terms of the deal is not related to servicing of the loan and therefore the requirement of an answer to a QWR is not required.

The Court should reconsider its ruling. Servicing of a loan account assumes that there is a loan account that the presumed subservicer has received authorization to service. The borrower gets notice often from companies they never heard of but they assume that the servicing function is properly authorized.

The “servicer” is used too generally as a term, which is part of the problem. The fact that there is a Master Servicer with information on ALL the transactions affecting the alleged loan receivable from inception to the present is completely overlooked by most litigants, trial judges an appellate courts.

The “servicer” they refer to is actually the subservicer whose authority could only come from appointment by the Master Servicer. But the Master Servicer could only have such power to appoint the subservicer if the loan was properly “securitized” meaning the original loan was properly documented with the right payee and the lien rights alleged in the recorded mortgage existed.

If the party asserts itself as the “Servicer” it is asserting its appointment by the Master Servicer who also has other information on the money trial. It should be required to answer a QWR and based upon current law, should be required to answer on behalf of all parties including the Master Servicer and the “trustee” of the loan pool claiming rights to the loan. If there are problems with the transfer of the loan compounding problems with origination of the loan, the borrower has a right to know that and the QWR is the appropriate vehicle for that.

The servicer cannot perform its duties unless it has the or can produce the necessary information about the identity of the real creditor, the transactions by which that party became a creditor and proof of payment or funding of the original loan and proof of payment for the assignments of the loan, along with an explanation of why the “Trustee” for the pool was not named in the original transaction or in a recorded assignment immediately after the “closing” of the loan transaction.

The 9th Circuit, ignoring the realities of the industry has chosen to accept the conclusion that the “servicer” is only the subservicer and that information requested in a QWR can only be required from the subservicer without any duty to provide the data that corroborates the monthly statement of principal and interest due. The new rule from the Federal Consumer Financial Board stating that all parties are subject to the Federal lending laws underscores and codifies industry practice and common sense.

The Court is ignoring the reality that the lender is the investor (pension funds etc.) and the borrower is the homeowner, and that all others are intermediaries subject to TILA, RESPA, Reg Z etc. The servicer appointed by the Master Servicer is a subservicer who can only provide a snapshot of a small slice of the financial transactions related to the subject loan and the pool claiming to own the loan.

They are avoiding the clear premise of the single transaction doctrine. If the investors did not advance money there would have been no loan. If the borrower had not accepted a loan, there would have been no loan. That is the essence of the single transaction doctrine.

Now they are opening the door to breaking down single transactions into component parts that can change the contractual terms by which the lenders loaned money and the borrower borrowed money.

It is the same as if you wrote a check to a store for payment of a TV or groceries and the intermediary banks and the financial data processors suddenly claimed that they each were part of the transaction and there had ownership rights to the TV or groceries. It is absurd. But if the question is one of payment they are ALL required to show their records of the transaction. This includes in our case the investment banker who is the one directing all movements of money and documents.

If the Court leaves this decision in its current form it is challenging the law of unintended consequences where no transaction is safe from claims by third party intermediaries. Even if Flagstar had no authority to service the account, which is likely, they were acting with apparent authority and must be considered an intermediary servicer for purposes of RESPA and a QWR.

PRACTICE TIP: When writing a QWR be more explicit about the connections between your questions, your suspicion of error as to amount due, payments due etc. Show that the amount being used as a balance due is incorrect or might be incorrect based upon your findings of fact. Challenge the right of the “servicer” to be the servicer and ask them who appointed them to that position.

9th Circuit Medrano v Flagstar on Qualified Written Request

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