The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a RESPA and FDCPA action against a mortgage servicer, determining that a motion to reschedule a previously set foreclosure sale is not a violation of Regulation X’s rule that generally prohibits a motion for foreclosure “order of sale” after a borrower has submitted a complete loss mitigation application in certain circumstances.
The prior holder of the plaintiff-borrower’s mortgage filed for foreclosure after the borrower became delinquent in making her mortgage payments, ultimately resulting in an order of foreclosure sale. Before the final foreclosure sale took place, the borrower’s loan was transferred to another mortgage servicer, which approved the borrower’s request for a trial loan modification plan. Because the previously issued order of sale had set a foreclosure sale during what became the plaintiff’s six-month trial loan modification period, the mortgage servicer filed a motion to cancel and reschedule the sale so it would not be held unless the plaintiff failed to comply with her loan modification plan during the trial period. The borrower filed suit alleging that the mortgage servicer’s motion to reschedule the foreclosure sale—as opposed to canceling it altogether—violated RESPA, Regulation X (§ 1024.41(g)), and the FDCPA because that motion was itself a motion for order of foreclosure sale. The district court disagreed, concluding that RESPA and Regulation X do not “prohibit a request for a foreclosure sale to be rescheduled while the borrower is engaged in a modification plan where the foreclosure judgment and order of sale were entered before the commencement of the modification plan.”
The Eleventh Circuit panel reasoned that based on its textual analysis of the phrase “order of sale,” (from the relevant section of Regulation X), it cannot view “a motion to simply reschedule a foreclosure sale that was previously set in accordance with an already-existing order of sale as the same thing as a motion for order of sale itself.” The court drew the distinction between a motion for order of sale, which is a “substantive and dispositive motion that seeks authorization from a court to conduct a foreclosure sale at all,” and a motion to reschedule a foreclosure sale under an already-existing order of sale, which is a “non-substantive, housekeeping-type motion that does no more than seek permission to change the date of sale that the court has previously ordered.” Further, the appellate court argued that the borrower’s interpretation of the prohibition was inconsistent with RESPA’s consumer-protection purposes and would deter loan servicers from offering loss-mitigation options and helping delinquent borrowers complete loss-mitigation applications, if a foreclosure sale has already been scheduled. Given that the foreclosure judgment and order of sale occurred before the borrower submitted her completed loss mitigation application at issue, the court noted that the mortgage servicer subsequently was prohibited by Regulation X only from conducting the actual sale, which it did not do. Finally, the court rejected the borrower’s argument that the servicer should have cancelled the sale by noting that Regulation X prohibits only the filing of dispositive motions, not non-dispositive motions, in this context and that the servicer’s suspension of foreclosing proceedings when moving to reschedule is consistent with the CFPB’s statement in the preamble to the rule that, “[i]t is already standard industry practice for a servicer to suspend a foreclosure sale during any period where a borrower is making payments pursuant to the terms of a trial loan modification.” Overall, the court indicated that the servicer’s actions leading to the outcome at issue “is consistent with how the CFPB intended Regulation X to operate.” The court, therefore, agreed with the district court that the borrower failed to state a claim for violation of Regulation X or the FDCPA (a claim which was based on a Regulation X violation as well), and affirmed the district court’s dismissal of the action.