The U.S. Court of Appeals for the Sixth Circuit recently addressed: (1) whether the Helping Families Save Their Homes Act of 2009 amendments to the Truth in Lending Act (TILA) created a private cause of action against a mere servicer that was not also a creditor; and (2) whether it was proper to dismiss a claim under the Real Estate Settlement Procedures Act (RESPA) where the Plaintiff poorly pled the causation of the alleged damages. The Sixth Circuit affirmed the district court's dismissal of the TILA claim, and reversed the lower court's dismissal of the RESPA claim.
In so ruling, the Sixth Circuit held that a mere servicer, that was not also a creditor, was not liable for violating 15 U.S.C. § 1641(f)(2) and affirmed the dismissal of the TILA claim. The Sixth Circuit also held that, viewing the complaint's alleged facts and all inferences therefrom in the Plaintiff's favor, the Plaintiff had sufficiently pled a causal link between the RESPA violation and the Plaintiff's damages.
A copy of the Court's opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/13a0332p-06.pdf
The borrower sent a purported "Qualified Written Request" (QWR) to the servicer. The QWR requested information relating to Plaintiff's loan, including the owner of the loan, disputed all late fees and other charges, noted that the servicer failed to provide a loan modification, and reiterated a prior request for a copy of the note. The borrower requested receipt of all documents and information with sixty days as required by RESPA. 12 U.S.C. § 2605(e). The servicer allegedly failed to provide all of the requested information and documentation within sixty days.
The complaint also alleged that the borrower made additional payments totaling approximately $574.89, over and above the regular scheduled payments due on the loan, which the servicer allegedly failed to credit to the principal balance. The borrower further alleged that the servicer received $221.21 for the borrower's account that was not credited to the principal balance. Instead, the borrower alleged that the servicer kept these payments for its benefit.
The servicer first identified the owner of the loan after the borrower field suit and responded to the servicer's motion for judgment on the pleadings. The district court granted the servicer's motion for judgment on the pleadings. The district court found that a mere servicer, that is not also a creditor, cannot be liable for violating 15 U.S.C. § 1641(f)(2). The district court also found that the borrower's RESPA claim failed because the complaint did not allege a sufficient link between the servicer's deficient response to the borrower's QWR and the alleged actual damages.
The Sixth Circuit began by addressing the TILA claim. As you may recall, Congress amended TILA's civil liability provision and liability of assignees provision as part of the Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, § 404(g), 123 Stat. 1632, 1658. The Helping Families Save Their Homes Act of 2009 amended TILA in two ways. First, it added subsection (g) to 15 U.S.C. § 1641, requiring that new loan owners notify the borrower of certain information about the assignment. Second, and directly at issue here, it added the phrase "subsection (f) or (g) of section 1641" to the civil liability provision, 15 U.S.C. § 1640. Subsection (f) exempts servicers from liability unless the servicer also is or was the creditor or assignee of the obligation. 15 U.S.C. § 1641(f).
The borrower argued that by adding to the civil liability provisions of 15 U.S.C. § 1640(a) a reference to the failure to meet a requirement under subsection (f) or (g) of 15 U.S.C. § 1641, Congress created a private cause of action for violation of those sections. In other words, according to the borrower, liability under TILA's civil liability provision does not depend on being a creditor. Further, the borrower argued that, because only servicers can violate 15 U.S.C. § 1641(f), Congress created a cause of action against servicers for failure to comply with 15 U.S.C. § 1641(f)(2), notwithstanding that the 15 U.S.C. § 1640 introductory language refers only to creditors. Congress, the borrower argued, would not have created civil liability against a creditor for violation of a provision under which the creditor has no obligation.
Whether a non-creditor servicer may be liable for an alleged 15 U.S.C. § 1641(f)(2) violation was a matter of first impression for the Sixth Circuit, but the court has twice held that a TILA action may not be maintained against a mere servicer.
The Sixth Circuit concluded that the district court properly dismissed the borrower's TILA claim because the servicer defendant was only a servicer of the loan, and TILA exempts servicers from liability unless the servicer was also a creditor or an assignee. In so ruling, the Sixth Circuit rejected the borrower's argument that Congress intended the Helping Families Save Their Homes Act 2009 amendments to impose liability on mere servicers. Had Congress wanted to make servicers liable for violations under 15 U.S.C. § 1641(f)(2), then it would have included the word servicer in 15 U.S.C. § 1640(a). This interpretation is consistent with TILA's purpose requiring creditors, not servicers, to provide borrowers with clear and accurate disclosures. The Sixth Circuit also observed that its holding was consistent with the majority of courts finding that servicers are not liable for TILA violations. The Sixth Circuit thus concluded that the district court did not err by holding that the servicer, as a mere servicer, cannot be liable for violating TILA, 15 U.S.C. § 1641(f)(2). Subsection (f) exempts servicers from liability unless the servicer also is or was the creditor of the obligation. 15 U.S.C. §1641(f)(2).
Turning to the question of the borrowers' RESPA claim, the Sixth Circuit evaluated whether the borrower had sufficiently alleged causation for damages stemming from the servicer's alleged RESPA violations. Viewing the alleged facts and inferences therefrom in the borrower's favor, the Sixth Circuit held that the district court's dismissal could not stand.
The complaint alleged that borrower suffered damages because the servicer deficiently responded to the QWR, continued to misapply payments of approximately $800, and that the borrower incurred actual pecuniary damages that included the amount of money the servicer converted, interest, and disgorgement interest.
The Sixth Circuit held that the borrower's complaint sufficiently plead damages caused by the servicer's RESPA violations. The complaint properly alleged that the borrower's alleged interest damages flowed from the servicer's supposed deficient response to the QWR, because any additional interest paid on the principal balance after the servicer supposedly deficiently responded to the QWR would flow from the deficient response. In addition, according to the Court, the costs the borrower incurred in preparing the QWR became actual damages after the servicer deficiently responded to the QWR. Additionally, the Court held that the borrower's allegation that the servicer engaged in a pattern or practice of non-compliance with RESPA's mortgage servicer provisions sufficiently plead statutory damages.
The Sixth Circuit held that RESPA claims should not be dismissed under the federal notice pleading rules, where all well pleading material allegations are taken as true, simply "on the basis of "inartfully pleaded" damages because viewing the complaint's allegations and, all inferences therefrom in the borrower's favor, the complaint sufficiently alleged damages stemming from a RESPA violation.
Accordingly, the Sixth Circuit affirmed the district court's dismissal of the TILA claim, reversed the district court's dismissal of the RESPA claim, and remanded the case for proceedings consistent with its ruling.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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