The U.S. Court of Appeals for the Eleventh Circuit recently ruled that where a mortgage loan servicer is granted assignment of a mortgage for the purposes of instituting foreclosure, the "safe harbor" exception of the federal Truth in Lending Act ("TILA") 15 U.S.C. § 1641(f) applies, such that the servicer is exempt from the § 1641(g) disclosure requirements relating to the transfer of ownership of the loan because the assignment is "solely for the administrative convenience of the servicer in servicing the obligation." 15 U.S.C. § 1641(f)(2).
In so ruling, the Eleventh Circuit affirmed the district court's grant of summary judgment in favor of the servicer, where the borrower alleged the servicer failed to comply with TILA's disclosure requirements.
A copy of the opinion is available at: http://www.ca11.uscourts.gov/opinions/ops/201215755.pdf
In November 2006, the borrowers refinanced their mortgage. After closing, ownership of the promissory note and servicing responsibilities were transferred. Ultimately, the defendant became the servicer of the mortgage loan in September 2007. Subsequently, the borrowers missed several mortgage payments.
On September 3, 2010, the servicer notified the borrower that it would foreclose. Four days later, an "assignment of Mortgage" (the Assignment) was executed, transferring the mortgage to the servicer.
The borrowers filed suit against the servicer, contending that the Assignment made the servicer the new owner of the debt, and therefore, this triggered the servicer's obligation under section 1641(g) to inform them that the servicer was the new owner of the debt. The servicer argued that it was assigned an interest in the mortgage in order that it could service the loan, and that the servicer could not have completed "a core servicing duty" without assignment of the mortgage. In sum, the servicer argued that the assignment was "solely for the administrative convenience of the servicer" within the meaning of section 1641(f), and therefore that there was no duty to inform the borrowers of the assignment.
The district court granted summary judgment in favor of the servicer, ruling that as servicer of the loan, the bank fell within the safe harbor provision, and was exempt from the disclosure requirements under section 1641(g). The borrowers appealed.
As you may recall, section 1641(g) provides in relevant part: "[N]ot later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer." 15 U.S.C. § 1641(g)(1). Section 1641(f)(2) provides that a servicer is exempt from these requirements when the assignment is "solely for the administrative convenience of the servicer in servicing the obligation."
The Eleventh Circuit began its analysis by first noting that TILA does not define the term "administrative convenience." As such, the Eleventh Circuit looked to the ordinary meaning of the term. United States v. Silvestri, 409 F.3d 1311, 1333 (11th Cir. 2005)("Courts must assume that Congress intended the ordinary meaning of the words it used." (quotation marks omitted)).
The word "convenience" is defined by Merriam-Webster as "fitness or suitability for performing an action or fulfilling a requirement." The word "administrative" connotes the act or process of managing or supervising. Id. Thus, the Eleventh Circuit ruled that the ordinary meaning of "administrative convenience" is that which allows performance of a managerial action or requirement.
Because it was undisputed that the purpose of the Assignment was to allow the servicer to foreclose on the borrowers' property and it was also undisputed that the servicer could not have foreclosed on the property without the Assignment, the Eleventh Circuit concluded that the Assignment was an ""administrative convenience" within the meaning of § 1641(f) because the Assignment allowed the servicer to perform foreclosure, a requirement of servicing the loan." Therefore, the Eleventh Circuit held that the servicer was not subject to § 1641(g)'s disclosure requirements.
Accordingly, the Eleventh Circuit affirmed the district court's ruling, granting summary judgment in the servicer's favor.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Chicago, Illinois 60602
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