By:  Diana M. Eng

On July 24, 2014, the Bankruptcy Court of the Southern District of New York issued an opinion and order ruling that the majority of a borrower’s claims against GMAC Mortgage LLC (GMAC) were barred by res judicata, but borrower could proceed with his claim for emotional distress for GMAC’s violation of the Real Estate Settlement Procedures Act (RESPA).  In re Residential Capital, LLC, et al., Case No. 12-12020 (MG) (Bankr. S.D.N.Y. July 24, 2014).  The Bankruptcy Court reasoned that given the remedial purpose of RESPA, the interpretation of “actual damages” under RESPA should be consumer-oriented to allow for emotional distress damages in appropriate cases.

Notably, however, Judge Glenn indicated that borrower “faces an uphill battle in demonstrating causation and damages” with respect to his emotional distress claim; these issues will be resolved in the course of litigating borrower’s claim.  The Bankruptcy Court also expressly reserved the ability to revisit the issue of recovery of non-economic harm for a RESPA violation before the borrower’s claim is fully resolved.

The resolution of borrower’s claim will be a decision of interest, as courts are divided on the issue of whether a plaintiff can recover non-economic damages from a loan servicer under RESPA.