The United States District Court for the District of Maryland recently denied a mortgage servicer’s motion to dismiss a putative class action claim pursuant to the Real Estate Settlement Procedures Act (RESPA) § 2605(g), providing insight as to what is required to state a claim for statutory damages with respect to alleged mishandling of escrow accounts.

In Akkus v. Rocket Mortgage, LLC, several homeowners filed a three-count complaint against their mortgage servicer alleging mismanagement of their escrow accounts in violation of RESPA. The plaintiffs claim that Rocket Mortgage failed to pay property taxes from their escrow accounts in a timely manner, resulting in penalties assessed to their accounts and causing them emotional distress. The plaintiffs also allege Rocket Mortgage failed to properly respond to their qualified written requests (QWRs) for account information. Rocket Mortgage moved to dismiss the complaint in its entirety, and the district court denied the motion with respect to count I (escrow account violations), while dismissing counts II and III (QWR violations).

In count I, the plaintiffs alleged that Rocket Mortgage failed to timely pay property taxes from their escrow accounts, and that Rocket Mortgage had a pattern, practice or custom of failing to make necessary payments for the class of borrowers. Rocket Mortgage moved for a partial dismissal, asserting that the plaintiffs could not show the requisite pattern or practice necessary to recover statutory damages.

RESPA § 2605(g) requires loan servicers to make payments from the escrow account of any borrower for taxes, insurance premiums, and other charges in a timely manner as such payments become due. The plaintiffs may obtain actual damages for the servicer’s failure to comply with the law and may also seek statutory damages if a defendant has a “pattern or practice of noncompliance with this section.” The case law analyzing whether a plaintiff has established a “pattern or practice” is still developing, but federal district courts have held that one or two RESPA violations alone is insufficient.

The parties disputed the meaning of the phrase “pattern or practice of noncompliance with the requirements of this section.” The plaintiffs argued that the language broadly refers to all violations of § 2605 and thus they can show a pattern or practice of noncompliance related to any violation of § 2605, not simply escrow accounting violations. Rocket Mortgage argued in favor of a narrow interpretation of the statute, asserting that the plaintiffs must allege violations involving the same conduct from the same subsection of § 2605, i.e., the pattern or practice must be related to escrow account management.

District Court Judge George L. Russell, III disagreed with Rocket Mortgage, interpreting the phrase “a pattern or practice of noncompliance with this section” to require the plaintiffs to allege that the defendant routinely violated any RESPA section to plausibly state a claim for statutory damages pursuant to § 2605(g). The court found that the absence of the word “subsection” from the statute indicates that Congress did not intend to confine “pattern or practice” to a single RESPA subsection.

Our Take:

The decision by the Maryland district court was decided on the pleadings and predicated on statutory interpretation of Congressional intent. Courts are charged with interpreting consumer protection statutes such as RESPA broadly, which the district court did here.