7th Circuit Holds Actual Damages Must be Connected to the RESPA Servicing Claim

The U.S. Court of Appeals for the Seventh Circuit held in Linderman v. U.S. Bank National Association that a borrower must demonstrate actual damages to plausibly state a claim for violations of RESPA’s servicing regulations.

In this case, the borrower alleged that the servicer’s lack of response to her qualified written request aggravated her mental well-being and led to the breakdown of her marriage. In 2013, the borrower left her home due to family conflict, quit paying her mortgage, and the house was eventually abandoned.  Due to the property being vandalized multiple times, the insurance company sent money to the servicer for repairs. The borrower hired a contractor using some of the repair money held by the servicer in escrow, but the contractor abandoned the job before completing the work. The borrower never hired a replacement contractor, but she did send a letter to the servicer on September 5, 2015, asking about the status of the loan and about the insurance money being held in escrow. The servicer responded on September 25, 2015, but the borrower claimed she never received it.

The district court assumed the borrower’s letter met the RESPA definition of qualified written request and that the servicer must ensure that its response is received by the borrower. However, the district court found that the borrower’s non-receipt of the servicer’s response could not have caused or aggravated any of the borrower’s injuries. While the Court of Appeals had reservations on the district court’s assumptions specifically whether a servicer must ensure that its response is received, the Court of Appeals affirmed the district court’s decision that the borrower did not suffer any actual damages connected to her non-receipt of the servicer’s response.  The Court of Appeals concluded that the borrower suffered emotional injury due to the ongoing foreclosure and need for money for repairs rather than the servicer’s failure to respond to her letter.  Moreover the Court of Appeals determined that the breakdown of the borrower’s marriage was outside the scope of RESPA, and suggested that state contract law would have been a more appropriate route to obtain a remedy.