FYI: CFPB's Integrated RESPA and TILA Disclosure Proposed Rule - Highlights

As widely reported, the CFPB recently issued a 1099-page proposed rule and request for comment to: 

 

(1) implement the Dodd-Frank Act's requirement that the CFPB combine and integrate certain disclosures that consumers must receive for most closed-end consumer credit transactions secured by real property under TILA and RESPA; and 

 

(2) adjust what is to be included and excluded from the finance charge and APR.

 

 

The full text of the proposed rule is available at:

http://files.consumerfinance.gov/f/201207_cfpb_proposed-rule_integrated-mortgage-disclosures.pdf 

 

Additional information, including graphical enhancements, is available at:

http://www.consumerfinance.gov/knowbeforeyouowe/

 

 

The proposed rule essentially provides for two new disclosure forms, to combine and replace those currently required under TILA and RESPA. 

 

LOAN ESTIMATE

 

The first new form ("Loan Estimate") would combine and replace the Good Faith Estimate (or "GFE") under RESPA, and the "early" or "initial" Truth in Lending disclosure under TILA.  The CFPB included various samples of completed Loan Estimate Forms for different types of loans (H-24(B)-(F)). 

 

The content of the proposed Loan Estimate is prescribed in section 1026.37 of the proposed rules.  Among other things, the lender must identify the services for which the consumer is permitted to shop, by providing a written list of available providers, and stating that the consumer may choose a different provider for the service.

 

The lender or mortgage broker would have to provide the Loan Estimate within 3 business days of "application"  Removing the "catch-all" provision from HUD's 2008 definition of "application," the proposed rule's new definition of "application" would provide for only 6 items of underwriting information, with an "application" essentially consisting of all six items.  The lender may rely on the mortgage broker to provide the Loan Estimate, but if so the lender remains liable.

 

The CFPB seeks comment  on whether the "business function test" or the more precise "federal holiday" rule should be used to define "business day."

 

Similar to existing requirements, no fees other than for credit reports would be permitted until the applicant receives the Loan Estimate and indicates s/he wishes to proceed.  Receipt of a credit report fee would not affect whether an "application" is received.

 

Prior to application, and lender or mortgage broker may provide a written estimate of all or part of the information contained in the Loan Estimate.  However, the pre-application estimate must contain specific disclaimer to prevent confusion with the Loan Estimate.  The CFPB provides model forms for such pre-application or "pre-loan" disclaimer disclosures (H-26(A) and (B)).  Such a disclaimer would not be required for advertisements.

 

Generally, and similar to current requirements under 12 CFR 3500.7, charges for the following services could not increase more than 10% above the total stated in the Loan Estimate:  "(1) the lender's charges for its own services; (2) charges for services provided by an affiliate; (3)  charges for services for which the lender does not permit the consumer to shop."

Exceptions to the fee increase restriction would among other things apply when: "(1) the consumer asks for a change; (2) the consumer chooses a service provider that was not selected by the lender; (3) information provided at application was inaccurate or becomes inaccurate; or (4) the Loan Estimate expires."

 

However, even when an exception applies, the lender would generally have to provide an updated Loan Estimate disclosure within three business days of learning of the increase, and no more than four days prior to closing.

 

 

CLOSING DISCLOSURE

 

The second new form ("Closing Disclosure") would combine and replace the Settlement Statement (HUD-1 or HUD-1a), and the revised "final" TILA disclosure form.  The CFPB included various samples of completed Closing Disclosure Forms for different types of loans and different types of scenarios (H-25(B)-(J)).   The content of the Closing Disclosures is prescribed in section 1026.38 of the proposed rules.

 

The lender would be required to provide the new Closing Disclosure at least three business days prior to closing.  If the disclosures are mailed, the consumer is presumed to have received the disclosures three business days after mailing.

 

If adjustments to the Closing Disclosure would be required, a new Closing Disclosure would have to be provided, and the applicant would also have to be provided with at least three days to review the revised Closing Disclosure.  The proposed rule provides some limited exceptions (e.g., relating to purchase money loans, and de minimis increases less than $100), and the CFPB requests comment on whether additional exceptions would be appropriate.

 

The CFPB also requests comment regarding who should be required to provide the Closing Disclosure.  One option suggested by the CFPB is that the lender be required to deliver the Closing Disclosure.  Alternatively, the CFPB proposes that the lender be allowed to rely on the settlement agent to deliver the Closing Disclosure, with the lender remaining liable. 

 

 

FINANCE CHARGES

 

The CFPB proposes to expand the fees and charges to be included in the finance charge, and requests comments and data regarding the potential effects of this proposal (not the least of which is the effect on state law high-cost-loan triggers). 

 

The proposed changes to scope of finance charges would apply to closed-end transactions secured by real property or a dwelling, and not just loans secured by real property.

 

Under the proposed rule, "a fee or charge is included in the finance charge if it is (1) 'payable directly or indirectly by the consumer' to whom credit is extended, and (2) 'imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.'"

 

However, the CFPB also notes that "the finance charge would continue to exclude fees or charges paid in comparable cash transactions," and the proposed rule would also "exclude from the finance charge late fees and similar default or delinquency charges, seller's points, amounts required to be paid into escrow accounts if the amounts would not otherwise be included in the finance charge, and premiums for property and liability insurance if certain conditions are met."

 

 

STATE LAW

 

The proposed rule provides that:  (1) "[a] State law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of the Federal law;  (2) [a] State law is contradictory if it requires the use of the same term to represent a different amount or a different meaning than the Federal law, or if it requires the use of a term different from that required in the Federal law to describe the same item; and  (3) "[a] creditor, State, or other interested party may request the Bureau to determine whether a State law requirement is inconsistent."

 

 

APPLICABILITY

 

The proposed rule also contains amending provisions to effect that the new provisions (other than the finance charge and APR provisions) would not apply to:

(1)  home equity lines of credit; or

(2)  reverse mortgages; or

(3)  loan secured by a mobile home or by a dwelling that is not attached to land; or

(4)  loans made by a creditor who makes five or fewer mortgages in a year (although the CFPB seeks comment on this threshold).

 

The CFPB notes that "[c]ertain types of loans that are currently subject to TILA but not RESPA (construction-only loans and loans secured by vacant land or 25 or more acres) would be subject to the proposed integrated disclosure requirements, whereas others (such as mobile home loans and other loans that are secured by a dwelling but not real property) would remain solely subject to the existing Regulation Z disclosure requirements." 

 

 

COMMENTS

 

Comments as to the proposed amendments to the changes to the calculation of the finance charge and APR, and the delay of the effective date for certain disclosures required under Dodd-Frank, are due on or before September 7, 2012.  As to all of the other proposed amendments, comments are due on or before November 6, 2012.

 

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: Oregon App Ct Holds MERS Cannot Initiate Non-Judicial Foreclosure

The Oregon Court of Appeals recently held that MERS did not have authority to initiate a non-judicial foreclosure under Oregon's Trust Deed Act, because MERS was not the party to whom the underlying repayment obligation was owed. 

 

A copy of the opinion is available at:

http://courts.oregon.gov/Publications/A147430.pdf.

 

Plaintiff ("Borrower") entered into a home loan agreement with a lender ("Lender"), executing a deed of trust that named Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary under the trust deed.   The promissory note indicated that Borrower would pay Lender the amounts specified therein.
 
Borrower eventually defaulted on the loan, and a successor trustee was appointed under the trust deed.  Borrower later received a notice of trustee's sale that identified MERS as Lender's nominee and as the beneficiary under the deed of trust with the power of sale.  Borrower allegedly contacted the trustee's agent, demanding among other things cancellation of the sale and a chain of title to the trust deed and note.  Although Borrower claimed that she never received a response to her communications, the trustee's sale was apparently rescheduled. 

 

In an effort to stop the trustee's sale, Borrower filed an action against the servicer of the loan ("Servicer"), MERS, and others (collectively "Defendants"), seeking declaratory and injunctive relief.  Borrower argued in part that, notwithstanding the trust deed's designation of MERS as the "beneficiary," MERS was not the true beneficiary under Oregon's non-judicial foreclosure law, as MERS was not entitled to receive payments on the underlying obligation.  Borrower also contended that Defendants had failed to provide evidence that they had any legal interest in the Note or trust deed in the form of recorded assignments that allowed them to foreclose.

 

Defendants moved for summary judgment, arguing that Servicer, as the note holder, and MERS, as the beneficiary, were entitled to foreclose the trust deed.  The trial court granted summary judgment in favor of Defendants, ruling that MERS was the beneficiary of the trust deed under Oregon's Trust Deed Act (OTDA) and that the statutory requirements for non-judicial foreclosure had been satisfied.

 

Borrower appealed.  The Court of Appeals reversed and remanded, ruling that MERS was not the true "beneficiary" under the deed of trust, and that there was a question as to whether Lender, as the true beneficiary, had satisfied the requirement to record the assignment of its interest in the trust deed.
 
As you may recall, the OTDA provides:  "As used in [the OTDA], unless the context requires otherwise:  . . . (1)'Beneficiary' means the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or the person's successor in interest. . . ."  ORS 86.705.

 

In addition, the OTDA specifies that a trust deed is "deemed to be a mortgage on real property" generally "subject to all laws relating to mortgages on real property." ORS 86.715.  The OTDA further provides that a trustee under a trust deed may undertake a non-judicial foreclosure if: (1) "the trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in the mortgage records in the counties in which the property described in the deed is situated"; (2) the grantor defaults; (3) the trustee or beneficiary has recorded a notice of default in the county clerk's office; and (4) no action has been instituted to recover the debt. See ORS 86.735(1)-(4).

 

Noting that one of the requirements for a non-judicial foreclosure is the recording of "any assignments of the trust deed by the trustee or the beneficiary," the Appellate Court focused on whether there had been an unrecorded assignment by the "beneficiary" under the trust deed. 

 

In so doing, the Court examined the OTDA's definition of the term "beneficiary" and ultimately concluded that the statutory phrase, "the person for whose benefit a trust deed is given" referred in this case to Lender, who was identified in the trust deed as the party to whom Borrower owed the obligation.
 
Thus identifying Lender as the "beneficiary" under the trust deed, the Appellate Court rejected Defendants' argument that the parties had contractually agreed that MERS would be the beneficiary under the trust deed.  The Court stated, "the fact that plaintiff 'contractually agreed that MERS was the beneficiary in its capacity as agent (nominee) for the lender, its successors and assigns' does not determine whether MERS is the beneficiary for purposes of the OTDA."

 

The Appellate Court also rejected Defendants' assertion that the OTDA allows the appointment of an agent of the beneficiary of record, such as MERS, in that the language in the OTDA itself expressly states that the statute's definitions apply "unless the context requires otherwise." See ORS 86-705.  Applying the historical treatment of mortgages to this case, the Court observed that "the underlying debt and the security for that debt were not separately transferrable; the party who benefited from the mortgage and the party to whom the obligation was owed were one and the same."  

 

Moreover, in noting that the OTDA distinguishes between a "beneficiary" and a "beneficiary of record," the Court pointed out that the beneficiary of a trust deed might not be reflected in the public records where the promissory note has been transferred by indorsement without a recorded assignment, in which case a non-judicial foreclosure would not be permissible, since the OTDA requires that "any assignments" be recorded. 

 

Accordingly, the Court of Appeals ruled that the trial court erred in granting summary judgment for the Defendants, because there was no evidence that Lender had recorded the assignment of its interest in the note to any of the Defendants.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: Ill App Ct Holds Alleged Technical Defect in Pre-Foreclosure Notice Would Not Invalidate Foreclosure

The Illinois Appellate Court, Second District, recently held that a pre-foreclosure notice sent pursuant to the Illinois Mortgage Foreclosure Law that supposedly incorrectly identified the mortgagee did not warrant vacating a foreclosure judgment, where the mortgagor received actual notice, suffered no prejudice, and all the substantive requirements were satisfied.
 
The Court also ruled that the mortgagor's petition to vacate was not subject to a "diligence" requirement, because mortgagor's claim derived from an alleged legal error rather than newly discovered facts, or improper service of process.

 

A copy of the opinion is available at: 

http://www.state.il.us/court/Opinions/AppellateCourt/2012/2ndDistrict/2110899.pdf.

 

Defendant borrower ("Borrower") defaulted on her home mortgage loan.  Consequently, the loan servicer ("Servicer") sent Borrower a so-called "grace period notice" ("Notice") pursuant to section 1502.5 of the Illinois Mortgage Foreclosure Law, which requires a "mortgagee" to mail a notice to a defaulted mortgagor about the existence of approved housing counseling prior to filing a foreclosure complaint.  The Servicer identified itself as the "mortgagee" in the Notice.

 

About a year after mailing the Notice, Servicer filed a foreclosure complaint against Borrower, identifying itself as the assignee of Mortgage Electronic Registration Systems, Inc. ("MERS").   Attached to the foreclosure complaint were copies of a "Corporate Assignment of Mortgage" from MERS to Servicer, and the Notice that Servicer had mailed to Borrower.  Borrower did not dispute having received the Notice. 
 
Servicer obtained a judgment of foreclosure against Borrower.  The property was later sold at a sheriff's sale.  The trial court approved the sale and granted Servicer's motion for an order of possession of the property.   
 
Borrower subsequently filed a petition under section 2-1401 of the Illinois Code of Civil Procedure ("Section 2-1401") to vacate the order approving the foreclosure sale and granting Servicer possession.  In her petition, Borrower argued that, because Servicer was not formally the assignee of the mortgage when it sent the Notice, the Notice was flawed and the foreclosure action and judgment against her were thus improper.

 

The trial court denied Borrower's motion to vacate based on Borrower's failure to act with sufficient diligence, noting among other things that Borrower had counsel in the bankruptcy proceeding, was present when the court approved the sale, and had been granted additional time in the property.

 

Borrower appealed, arguing that the trial court had erred in denying her motion to vacate, and arguing that she had been diligent and had a meritorious defense.  The Appellate Court affirmed, ruling in part that the technical error in the Notice did not compel dismissal of the foreclosure action.

 

As you may recall, section 15-1502.5 of the Illinois mortgage foreclosure statute provides that "(b) . . .[N]o mortgagee shall file a complaint to foreclose a mortgage secured by a residential real estate until the requirements of this Section have been satisfied.  (c) . . . [I]f a mortgage secured by residential real estate becomes delinquent by more than 30 days the mortgagee shall send via U.S. mail a notice advising the mortgagor that he or she may wish to seek approved housing counseling. . . (d) Until 30 days after mailing the notice provided for under subsection (c) of this Section, no legal action shall be instituted under [this statute]. . . ." 735 ILCS 5/15-1502.5(b),(c)(d).

 

In addition, Section 15-1502 provides for a further 30-day extension if the mortgagor gets approved housing counseling, and also prohibits a foreclosure action as long as the mortgagor is in compliance with any resulting sustainable loan workout agreement between the mortgagor and mortgagee.  735 ILCS 5/15-1502.5(e).

 

Noting the lack of specific standards for granting relief from judgments in section 2-1401, the Appellate Court determined that Borrower had presented no new facts or raised any errors of law apparent on the face of the record.   See 735 ILCS 5/2-1401. 

 

Following Illinois case law, the Appellate Court ruled that Borrower's petition to vacate, being based on an alleged error of law, was thus not subject to a diligence requirement.  See, e.g., Collins v. Collins, 14 Ill. 2d 178 (1958)(explaining that errors of law apparent from the record provided basis for relief from judgment);  Hanson v. De Kalb County State's Attorney's Office, 391 Ill. App. 3d 902 (2009)(ruling that relief was available under section 2-1401 when judgment was contrary to statutory provision).  Rephrasing Borrower's petition to be consistent with the type presented in Collins, the Court explained that Borrower's argument for vacating the judgment was that the Notice, which supposedly incorrectly identified Servicer as the mortgagee, was legally inconsistent with the entry of the foreclosure judgment.  

 

The Appellate Court ruled, however, that the alleged violation of section 1502.5 did not invalidate the foreclosure action.  In so ruling, the Court noted that, as required by the foreclosure statute, Servicer had alleged in its complaint that all notice requirements had been satisfied and that all grace and redemption periods had expired.  The Court also observed that Borrower had acknowledged receipt of the Notice, and that Servicer had plainly become the mortgagee prior to filing the foreclosure action, which Servicer filed almost a full year after mailing the Notice. 

 

Accordingly, the Appellate Court ruled that, because Borrower had suffered no prejudice as a result of the flawed Notice, and all substantive requirements had been met, the technical defect in the Notice supposedly misidentifying the mortgagee did not require vacating the judgment of foreclosure. 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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Our updates are available on the internet, in searchable format, at:
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FYI: Ill App Ct Rules on Pleading Requirements for Collecting on Credit Card Debts

The Illinois Appellate Court, Second District, recently held that a credit card debt purchaser's complaint failed to state a cause of action based on an unwritten credit card agreement, but that the trial court improperly dismissed the complaint with prejudice, because the trial court itself had expressed uncertainty as to pleading requirements.  The Appellate Court ruled that, on remand, the re-pleaded complaint must contain allegations or documents showing that the credit card agreement was communicated to the card holder, and that the card holder accepted those terms through use of the card or otherwise.
 
A copy of the opinion is available at:  http://www.state.il.us/court/Opinions/AppellateCourt/2012/2ndDistrict/2110904.pdf.

 

Plaintiff, a debt purchaser ("Debt Purchaser"), filed suit against a credit card holder ("Card Holder") to collect on an alleged credit card debt.    The Debt Purchaser ultimately filed a second amended complaint, seeking the unpaid principal, attorney fees, costs, and interest based on breach of an unwritten contract and benefit conferred. 
 
Attached to the second amended complaint were: (1) an affidavit signed by an agent of Debt Purchaser indicating  among other things that the original credit card issuer had made an offer of credit to Card Holder in the form of a credit card with terms and conditions governing the use of the card and that Card Holder accepted the credit offer by using the card; (2) a chain of title reflecting assignment of the debt; and (3) a copy of an undated Customer Agreement and Disclosure Statement ("Customer Agreement"), providing in part that the account holder promised to pay the total amount of purchases as well as any finance charges. 

 

Card Holder moved to dismiss, arguing that Debt Purchaser lacked standing, and failed to attach a copy of the written credit agreement to the complaint as required by the Illinois Code of Civil Procedure.  In response, Debt Purchaser argued that because it was pursuing a cause of action based on an unwritten contract, it was not necessary to attach any agreement to the complaint.
 
Eventually, after holding hearings in which the trial court expressed uncertainty as to the actual pleading requirements for the claims at issue, the lower court ruled that, although there was a potential cause of action in the case, Debt Purchaser had repeatedly failed to plead a proper cause of action based on an unwritten contract. 

 

Specifically, the lower court ruled that the generic Customer Agreement was not sufficient evidence of Card Holder's consent to comply with the terms in effect at the time of each use of the credit card, and that the complaint failed to allege that Card Holder had actually used the credit card and thus received benefits from it.   The trial court further ruled that, because the Debt Purchaser was not seeking to enforce a written agreement, attorney fees and interest were not recoverable. 
 
The trial court dismissed with prejudice.  Debt Purchaser appealed.  The Appellate Court reversed and remanded, allowing Debt Purchaser to re-plead in accordance with the parameters set forth in its opinion.

 

Although the Appellate Court agreed with the trial court that the complaint failed to state a cause of action, the Appellate Court concluded that dismissal with prejudice was unwarranted in light of the trial court's expressed uncertainty as to the specific pleading requirements in an action based on an unwritten credit card agreement.

 

In so ruling, the Appellate Court reviewed the elements of a breach-of-contract cause of action, observing that a complaint must include facts sufficient to indicate the terms of the contract, regardless of whether the alleged contract is written, oral, or unwritten.
 
In this case, the Court noted, the complaint failed to allege that there was a contract between the parties or that Debt Purchaser had performed under the contract.  The Appellate Court also pointed out that if the generic Customer Agreement attached to the complaint was intended to reflect the terms of the contract with Card Holder, Debt Purchaser had failed to plead that it applied to Card Holder's credit card account.

 

Moreover, the Appellate Court specified that, in order to plead that the generic Customer Agreement applied to Card Holder's account when Card holder used the card, the complaint must allege facts showing that the terms therein were communicated to Card holder and that Card Holder accepted those terms by subsequently using the card or otherwise.  See Garber v. Harris Trust & Savings Bank, 104 Ill. App. 3d 675 (1982)(concluding that a separate credit contract is created each time the credit card is used according to the terms of the cardholder agreement in effect at the time of such use).

 

Importantly, the Court also noted that to the extent Debt Purchaser sought to recover for charges incurred under different versions of the unwritten Customer Agreement, those terms, the communication of those terms to Card holder, and Card holder's subsequent use of the card must be pleaded for each version of the terms under which Debt Purchaser sought recovery.

 

Finally, the Appellate Court also disagreed with the trial court's conclusion that recovery of attorney fees or interest were precluded because a copy of a written agreement was not attached to the complaint.  Stressing that whichever terms are in effect at the time a credit card is used are the terms that determine the extent of recovery, and that such terms may include provisions for attorney fees or interest, the Court ruled that as long as the above pleading requirements are satisfied, a plaintiff may seek recovery of attorney fees or interest in accordance with those terms.

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
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FYI: 9th Cir Holds TILA's Loan Ownership Disclosure Provisions (15 USC 1641(f)) Apply Only to Servicer-Assignees

The U.S. Court of Appeals for the Ninth Circuit recently held that a loan servicer was not liable under the federal Truth in Lending Act for the servicer's alleged failure to respond to a borrower's request for the identification and contact information for the current loan owner, because 15 U.S.C. 1641(f) applies only to servicers that are also assignees of mortgage loans and the servicer in this case was not such an assignee.
 
A copy of the opinion is available at:  http://www.ca9.uscourts.gov/datastore/opinions/2012/07/12/09-16498.pdf.

 

Plaintiff ("Borrower") defaulted on a home mortgage refinancing loan that was secured by a deed of trust on Borrower's property.  The trust deed designated Mortgage Electronic Registration System, Inc. ("MERS") as the beneficiary under the trust deed and as lender's nominee.  The original lender was also the servicer ("Defendant Servicer") of the loan and continued to service the loan even after the loan had been sold on the secondary mortgage market and securitized. 
  
Following his default, Borrower contacted Defendant Servicer in writing, inquiring about a possible loan modification and requesting the name and address of the owner and holder of his loan.  Lender-Servicer allegedly never responded.

 

MERS later assigned its beneficial interest under the deed of trust to the trustee of the asset-backed securities trust, and non-judicial foreclosure proceedings ensued.    A foreclosure sale of the property was also scheduled.
 
In an effort to stop the foreclosure, Borrower filed suit in federal court against Defendant Servicer, MERS, and the owner of the loan, among others.  The complaint alleged in part that Defendant Servicer violated section 1641(f)(2) of the federal Truth in Lending Act, ("TILA") by failing to provide Borrower with the requested name of the holder of the loan.  Borrower also alleged various violations of Nevada law, including breach of contract, wrongful foreclosure, and breach of the covenant of good faith and fair dealing.  
 
Granting the defendants' motion to dismiss, the district court dismissed without leave to amend.  Borrower appealed.  The Ninth Circuit affirmed in part, vacated in part, and remanded.

 

As you may recall, Subsection 1641(f) of TILA provides:   "(1) . . . A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as an assignee of such obligation for purposes of this section unless the servicer is or was the owner of the obligation.  (2) A servicer . . . shall not be treated as the owner of the obligation for purposes of this section on the basis of an assignment of the obligation from the creditor or another assignee to the servicer solely for the administrative convenience of the servicer in servicing the obligation. Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation."  15 U.S.C. §1641(f).
 
Examining section 1641 as a whole and subsection (f)(2) in detail, the Ninth Circuit noted that section 1641 addresses only entities that are purchasers or assignees of mortgages.  See 15 U.S.C. § 1641(a)(a "civil action for a violation . . . may be maintained against any assignee . . . only if the violation . . . is apparent on the face of the disclosure statement, except where the assignment was involuntary. . . ."); 15 U.S.C § 1641(b)(relating to compliance by a "subsequent assignee of the original creditor"); 15 U.S.C §1641(c)("Any consumer who has the right to rescind a transaction . . . may rescind the transaction as against any assignee of the obligation"); and 15 U.S.C §1641(d)("[a]ny person who purchases or is otherwise assigned a mortgage . . . shall be subject to all claims and defenses with respect to that mortgage").  

 

In so doing, the Court stressed that although subsection 1641(f)(1) "sets out a general rule that a servicer must be the assignee-owner of the obligation to incur assignee liability," subsection 1641(f)(2) provides that servicers that are assigned ownership of a loan "solely for 'administrative convenience'" would not be liable as assignees for failure to respond to consumer inquiries.
 
Thus, the Ninth Circuit held that the Borrower was unable to assert a claim under section 1641(f)(2) against Defendant Servicer for failure to provide the requested information, because Defendant Servicer was not a servicer-assignee.  On the other hand, the Court noted that, had Defendant Servicer been assigned the loan from another company, Defendant Servicer would have been liable under section 1641(f) for failure to provide Borrower with the information he sought.
 
In addition, the Court concluded that because Borrower's claim accrued before implementation of the mandate requiring all servicers  to respond to requests for information, Defendant Servicer could not be held liable under subsection (f)(2) for failure to respond to the Borrower's requests. 

 

As for Borrower's various state law allegations, the Court noted that a claim for breach of the covenant of good faith and fair dealing required a showing that Defendant Servicer acted in an "arbitrary or unfair" way "to the disadvantage of" Borrower.  The Ninth Circuit thus ruled that, absent an express contractual provision to the contrary, Defendant Servicer's alleged failure to respond did not qualify as "arbitrary or unfair," and accordingly affirmed the district court's dismissal of that claim.  
 
The Court remanded Borrower's wrongful foreclosure and other claims for further consideration in light of the additional legal authority Borrower presented to support his arguments.  

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
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