RESPA & Regulation X Risks: Lessons from Gemma v. Freedom Mortgage

Lessons and Key Takeaways from Gemma v. Freedom Mortgage Corp., Case No. 3:26CV95 (E.D. Va. Aug. 10, 2026).

Introduction

What happens when a servicer conveys to a borrower varying and potentially conflicting updates about the same loss mitigation application?

According to a recent federal court decision, that inconsistency may be enough to keep a RESPA claim alive. In Gemma v. Freedom Mortgage Corp., the U.S. District Court for the Eastern District of Virginia highlighted an issue that lenders and servicers confront every day: ensuring borrower communications accurately reflect the status of loss mitigation reviews. While the Court dismissed some of the borrower's claims, it allowed a Regulation X claim to proceed based largely upon allegations that the servicer's communications created confusion regarding whether a loss mitigation application was complete.

On August 10, 2026, The Honorable Roderick C. Young of the U.S. District Court for the Eastern District of Virginia, Richmond Division, held in Gemma v. Freedom Mortgage Corp. that loan servicers and lenders must clearly and consistently communicate with borrowers to avoid litigation under RESPA and Regulation X.

Case Facts and Background Information

Can a borrower reasonably rely upon a servicer's statement that an application is complete?

Plaintiff, Samantha Gemma (“Gemma”), is a borrower on a Federal Housing Administration insured loan serviced by the Defendant, Freedom Mortgage Corp. (“Freedom”). This case turns upon adequacy of Freedom’s communications and conduct related to loss mitigation applications Gemma submitted to Freedom seeking forbearance of Gemma’s loan.

In August 2025, Gemma contacted Freedom regarding Freedom’s refusal to review Gemma’s eligibility for forbearance based upon financial hardship. Freedom subsequently ran an internal underwriting research request, and told Gemma, by phone on August 27, 2025, and in writing on November 11, 2025, that she did not qualify for forbearance because the loan was overdue by sixty-one (61) or more days. However, Freedom issued an informal forbearance for October and November 2025 without providing Gemma with an explanation or revocation of their earlier determination that she did not qualify.

In September 2025, Gemma submitted a loss mitigation application citing financial hardship. Freedom responded within a few days to say her application was “facially complete” and they would review her application. A few days later, Freedom issued a letter to Gemma approving a temporary forbearance plan. The letter described her loss mitigation application as “incomplete.” Freedom requested a telephone interview with Gemma to gather further information regarding her default to complete the application. Gemma participated in the telephone interview, answered the Freedom representative’s questions, and Freedom confirmed the application would proceed to the review stage. After the call, Freedom continued to issue notices to Gemma seeking the same information to complete her loss mitigation application. In response to these notices, Gemma provided the same answers she previously gave.

In December 2025, Freedom issued a loss mitigation decision letter that (i) denied Gemma forbearance; (ii) determined Gemma was not approved for a 30-Year Standalone Loan Modification or Standalone Partial Claim because she indicated she could not resume making payments; (iii) approved a Standalone Loan modification requiring trial payments but with a higher interest rate than Gemma previously paid; and (iv) did not evaluate two (2) retention solution programs potentially available to Gemma.

Between September and December 2025, Gemma submitted four (4) Notices of Error to Freedom alleging Freedom improperly handled her loss mitigation application. On January 13, 2026, she filed a warrant in debt against Freedom in Spotsylvania General District Court. The case was removed to federal court on February 5, 2026, and Gemma filed pro se her Amended Complaint on February 11, 2026.

The Borrower’s Claims

Gemma’s Amended Complaint alleged Freedom improperly handled her application, constituting a violation of RESPA and Regulation X. The Amended Complaint included three (3) counts:

Count I: Violation of RESPA for failure to properly respond to notices of error;

Count II: Violation of Regulation X for improper loss mitigation evaluation; and

Count III: Pattern or practice of noncompliance under 12 U.S.C. § 2605(f)(1)(B).

In response, Freedom filed a Motion to Dismiss the Amended Complaint pursuant to Rule 12(b)(6).

The District Court’s Decision

Count I: Violation of RESPA (12 U.S.C. § 2605(e) and 12 C.F.R. § 1024.35)

The Court’s analysis of Count I draws an important distinction between an actionable dispute regarding loan servicing and a non-actionable dispute regarding loan modifications. To state a claim under 12 U.S.C. § 2605(e) of RESPA, a plaintiff must allege they sent the defendant loan servicer a Qualified Written Request (“QWR”) to which the defendant loan servicer failed to adequately respond within the statutory period.

The Court drew an important distinction. Complaints about the handling of a loss mitigation application are not automatically treated as QWRs under RESPA. Because Gemma's allegations focused on the loan modification process rather than traditional servicing issues, Count I could not proceed.

In her Amended Complaint, Gemma alleged Freedom sent contradictory correspondence regarding her loss mitigation application and its response to her application was defective in several aspects. Because these grievances derived from Gemma’s loss mitigation application and did not relate to any loan servicing errors committed by Freedom, the Court dismissed Count I for failure to state a claim.

What if a servicer tells a borrower an application is complete but later requests additional information from the borrower?

Count II: Violation of Regulation X (12 C.F.R. § 1024.41)

Gemma alleged Freedom failed to evaluate her eligibility for all available loss mitigation programs, which is required by Regulation X, 12 C.F.R. § 1024.41(c). Freedom argued Gemma never received a “complete” loss mitigation application, so Freedom had no obligations under 12 C.F.R. § 1024.41(c). Freedom argued Gemma failed to allege facts as to her damages.

The Court found Freedom’s communications with Gemma, viewed in the light most favorably to Gemma, could have indicated to Gemma her application was actually complete and not just facially. The Court found Gemma’s allegations she suffered accrual of additional interest and default-related charges due to her prolonged delinquency, as caused by Freedom’s conduct, sufficiently stated a claim for damages under Regulation X. Freedom’s communications with Gemma led to the Court’s decision not to dismiss this Count because it was plausible Freedom represented to Gemma her loss mitigation application was fully complete.

Count III: Pattern or Practice of Noncompliance in Violation of 12 U.S.C.§ 2605(f)(1)(B)

Gemma alleged Freedom’s deficient responses, repetitive requests, and inconsistent loss mitigation decisions were indicative of a pattern or practice of noncompliance under RESPA. Because a plaintiff cannot plead a pattern of noncompliance based only upon their own experience with a loan servicer, the Court dismissed Count III for failure to state a claim.

Practical Action Items for Servicers to Increase Value

In light of Gemma, lenders and servicers should consider incorporating the following prudent best practices;
Reviewing loss mitigation acknowledgment letters;
Auditing templates for consistency across departments;
Evaluating whether call center scripts align with written communications;
Reviewing escalation procedures when an application previously deemed complete later requires additional information;
Training personnel on Regulation X requirements concerning loss mitigation reviews; and
Verifying that retention options are evaluated and documented when applicable.

Key Takeaways for Mortgage Lenders, Servicers, and Sub-Servicers and their Counsel

Gemma provides an important reminder to lenders and servicers alike to update responses and any templates to clearly communicate with borrowers. Freedom’s communications regarding Gemma’s application status allowed Count II (Regulation X) to survive the Motion to Dismiss. If Freedom had consistently represented to Gemma that her application was incomplete, Gemma would not have been able to argue that they told her the application was complete. Also, servicers should not include an “un-evaluated” status for retention solutions in their loss mitigation determination letters. Freedom marked two (2) retention solutions as “un-evaluated”, and the Court accepted that label as evidence that Freedom failed to evaluate the application for all available loss mitigation options. Revising and standardizing response procedures, like telephone scripts and response letter templates, will help ensure messaging is clear and consistent to borrowers.

The final takeaways for RESPA plaintiffs and defendants are that (i) the Fourth Circuit narrowly construes “servicing errors” for RESPA claims and will not consider disputes over loan modifications actionable under RESPA § 2605(e); and (ii) a plaintiff cannot allege a pattern or practice of noncompliance based solely upon their individual experience of alleged noncompliance. Attorneys should note that construing a loan modification claim as a servicing error for a RESPA claim will likely prove unsuccessful, as the Court generally looks to the root of the dispute and reads RESPA’s definition of QWR narrowly.

Please reach out to a member of K&C’s Consumer Finance Team with any questions about loss mitigation, Regulation X, RESPA, or any other consumer finance matters and how your template may be reviewed for statutory and regulatory compliance purposes.