The Real Estate Settlement Procedures Act commonly known as RESPA, and passed into law in 1974, was designed to protect mortgage consumers, i.e. homebuyers and sellers, in the transactions of real estate. Our Boston bankruptcy clients frequently ask about how the foreclosures on their Boston homes could, or should, proceed. Sometimes they report that the foreclosures are being transacted improperly. In two noteworthy cases, one in Florida and one in Pennsylvania, consumers effectively “foreclosed” on their banks, using RESPA rules.
The Florida case took place in Collier County, Florida. A couple bought a house, for cash, from Bank of America, based in North Carolina. The sale was as a result of a foreclosure so the title would have been up to date. Nevertheless, the bank’s lawyers, after selling the house to the new owners, filed a foreclosure action in Collier County. The homeowners hired an attorney and fought back. They proved not only that they owned the house and that there was no mortgage, but that the foreclosure was illegal. They won their attorney fees in the amount of $2,500.
The bank, however, refused to pay. Thus, the homeowners foreclosed on the bank! That is, they hired the deputy sheriffs to go and seize bank assets such as computers, desks, chairs, etc. Fortunately, the “foreclosure” did not last long – Bank of America woke up, paid all of the damages, and apologized. This was clearly a case in which neither the bank, nor its lawyers, even bothered to look at the documentation before filing the foreclosure. They compounded their error by neglecting the case and their duties following the lawsuit.
In the second case, a famous Goth music promoter in Philadelphia, Pennsylvania, Patrick Rodgers, bought a house for $180,000. For some reason, in July 2010, he was asked to take out a $1m insurance policy on his home by his mortgage lender, Wells Fargo. He sent a letter, called a Qualified Written Request (QRW) and, after receiving no response, he followed the rules for RESPA and, receiving no response, filed suit in his local small claims court. He did not need a lawyer for this court.
He won a judgment for $1,000 plus costs. Like its sister bank, Bank of America, Wells Fargo ignored its customer and neglected to pay the judgment. Like the homeowners in Florida, Mr. Rodgers hired the local Deputy Sheriffs to levy on the bank. When he posted the notice of sale, the local media picked up the story. Of course, when Wells Fargo woke up, they settled the case.
While the above cases have a happy ending, the reason is because the consumers aggressively pursued the mortgage lenders’ neglect. They serve to illustrate that RESPA can work for consumers. The RESPA law goes beyond simply requiring the necessary cost disclosures for real estate closings. It protects consumers thereafter. It’s not too great a leap to look at the new Consumer Financial Protection Bureau as another federal regulatory agency that can and will protect financial consumers. And its not any further of a leap to see why consumer advocates, such as Elizabeth Warren, are needed.