The U.S. Court of Appeals for the Sixth Circuit ("Sixth Circuit") recently affirmed dismissal of a homeowner's claims under the federal Real Estate Settlement Procedures Act, 12 U.S.C. 2601, et seq. ("RESPA"), where the homeowner plaintiff only signed the mortgage, but not the note evidencing the loan.
The Sixth Circuit's holding reinforced that a plaintiff who does not have personal obligations under the loan agreement is not a "borrower," and thus cannot assert claims under RESPA, which extends causes of action only to "borrowers."
A copy of the opinion is available at: Link to Opinion
Husband and wife borrowers (collectively, "Borrowers") took out a loan secured by a mortgage on their new home ("Mortgage"). Both Borrowers executed the Mortgage, but only the husband ("Husband") executed the promissory note evidencing the loan (the "Note"). As is customary, the Mortgage expressly provided that anyone "who co-signs this [Mortgage] but does not execute the [Note]"— i.e., the wife ("Wife") — "is not personally obligated to pay the sums secured by this [Mortgage]."
The Borrowers later divorced and the Wife took title to the house. The Husband died shortly thereafter. Although she was not an obligor on the note, the Wife continued to make payments in an effort to keep the home, but eventually fell behind her payments. After her loss mitigation efforts with the Mortgage loan's loan servicer ("Servicer") failed, the home was foreclosed upon and sold to a third-party buyer.
The Wife filed suit against the Servicer and third-party buyer, raising claims under various federal and state laws, including a claim against the Servicer under the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. ("RESPA") and its implementing regulations, 12 C.F.R. § 1024, et seq. ("Regulation X") for purportedly failing to properly review her requests for mortgage assistance before it foreclosed on her home.
The trial court dismissed the Wife's RESPA claims against the Servicer, concluding that she was not a "borrower" because she was never personally obligated under the loan, and thus cannot state a cause of action under RESPA. 12 U.S.C. § 2605(f) ("Whoever fails to comply with any provision of this section shall be liable to the borrower . . . ."). The instant appeal followed.
On appeal, the sole question presented to the Sixth Circuit was whether the Wife had a cause of action under RESPA, having only co-signed the Mortgage, and not also the note evidencing the Loan.
In contrast to a question of whether she has "statutory" or "prudential" standing, the appellate court noted that determination of whether a plaintiff has a cause of action is a "straightforward question of statutory interpretation." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014).
As RESPA only authorizes "borrowers," to sue, the Sixth Circuit was tasked with determining whether the wife was a "borrower" — a term not defined under the statute, and which the court must give its ordinary meaning. 12 U.S.C. 2605(f); Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 (2012).
The Sixth Circuit initially reiterated the distinction between a loan and a mortgage: "under a loan, the lender gives you money now, and you promise to pay it back later. A mortgage is a separate document that provides extra assurance to the lender that you will pay them back—if you do not, the lender can take your house."
Noting that contemporaneous dictionaries are useful to interpret the words of a statute, the Sixth Circuit cited definitions of the term from editions of standard English and legal dictionaries published around the relevant times RESPA and section 2605 were enacted (1974 and 1990, respectively), all of which illustrated that a "borrower" is personally obligated on a loan.
Using the context of the term's use in the statute as another tool of interpretation also showed "borrower" to repeatedly refer to a relationship with a lender under terms of a loan, providing additional evidence that a "borrower" must be personally obligated on a loan, regardless of whether they signed a mortgage or own a home, and only a "borrower" can sue under RESPA.
The Sixth Circuit found the Wife's arguments unconvincing.
First, the Wife relied on the liberal construction canon to argue that a "remedial statute" like RESPA should be "construed broadly to effectuate its purpose." While noting that the liberal construction canon had been invoked in prior RESPA cases, here, the Wife's reliance upon it was premised on two mistaken ideas: (1) that statutes have a singular purpose and (2) that Congress wants statutes to extend as far as possible in service of that purpose.
Instead, the court acknowledged that statutes have many competing purposes, which Congress balances by negotiating and crafting statutory text, and court should not expand the text on the notion that "Congress 'must have intended something broader.'" Dir., Office of Workers' Comp. Programs, Dep't of Labor v. Newport News Shipbuilding & Dry Dock Co., 514 U.S. 122, 135–36 (1995); Michigan v. Bay Mills Indian Cmty., 572 U.S. 782, 794 (2014) (citation omitted). In this case, the Sixth Circuit cited helpful and legitimate tools of interpretation to define "borrower" and expanding the term to include the Wife would not be "broadly construing" RESPA, but rewriting it. As such, the Wife's attempts to apply the liberal construction canon were rejected.
Next, the Wife proffered that recent regulations from the Consumer Financial Protection Bureau define "borrower" in § 2605(f) to include "successors in interest"—i.e., "a person to whom an ownership interest in a property securing a mortgage loan . . . is transferred from a borrower." 12 C.F.R. § 1024.30. Although the Wife seems to meet this definition because her (former) Husband transferred his interest in the property to her after their divorce, she acknowledges that these regulations do not apply to her directly because they became effective in April 2018, after the events that led to her lawsuit. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.
Because the text of the statute is clear and the Wife's argument relied solely upon these ancillary CFPB regulations (Regulation X and 12 C.F.R. 1026, Regulation Z), the Sixth Circuit rejected this argument as well. Cf. Pereira v. Sessions, 138 S. Ct. 2105, 2113 (2018) (explaining that when the statute "supplie[s] a clear and unambiguous answer to the interpretive question at hand[,] . . . that is the end of the matter" (internal quotation marks and citation omitted)).
Lastly, the Wife argued that the court's interpretation would lead to RESPA violations going unremedied because no one in a "non-recourse" state — where the lender can only go after the home itself, and not seek deficiency judgment against a borrower's personal assets — would be able to sue under RESPA.
However, the Sixth Circuit noted that this argument misinterprets the trial court's holding, and clarified that its interpretation turns only on whether the would-be plaintiff is personally obligated to repay the loan, and whether or not state law permits lenders to recover personal assets is irrelevant.
Because the Wife was not personally obligated on the Loan, and thus, was not a "borrower" with standing to sue under RESPA, the trial court's dismissal of her RESPA claims against the Servicer was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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