Breach of RESPA Broke up Their Marriage. . .wait, what?

An interesting case, Perron v. J.P. Morgan Chase Bank, N.A., No. 15-2206 (January 11, 2017) S.D. Ind., Indianapolis Div., recently decided by the Seventh Circuit Appeals Court, started out when the homeowners neglected to tell their mortgage servicer that they had switched their home insurance carrier. Since their mortgage servicer paid the insurance out of their escrow, their new insurer didn’t get paid. As a result, in 2011, the plaintiffs sent two letters to the bank accusing them of paying the wrong insurance company out of their escrow account.

Since Chase had not received any notice of the switch in insurance carriers, Chase, not surprisingly, paid the old insurance company. Chase told the plaintiffs that the old insurance company would send them a refund, and that they should send that refund on back to Chase so that Chase could replenish the homeowners’ escrow account. The old insurance company did send the refund, but the plaintiffs deposited it and kept it. They did not pay it back into the Chase escrow. As a result, to make up the shortage in the escrow account, the bank increased their monthly mortgage payment amount by approximately $67 per month. The plaintiffs refused to pay the increased amount, which eventually resulted in a default of the loan. The plaintiffs then sent Chase a letter demanding that Chase pay the shortage into their escrow account (as opposed to they, the homeowners, paying it). Chase responded with a full accounting of their loan and escrow.

Soon thereafter, the plaintiffs sued Chase. They claimed that Chase’s response violated RESPA (the Real Estate Settlement Procedures Act), and along with everything else, cost them their 25-year marriage. The district court found in favor of Chase. Upon appeal, the Seventh Circuit agreed with the District Court.

So what practical knowledge do we take away from this? Well, two things: 1) If you switch insurance companies and your bank pays your insurance, tell your bank right away. And 2) If your marriage falls apart as a result, don’t blame the bank.