Lesson. Generally, an assignee of a residential mortgage (a subsequent mortgagee) is not subject to liability under TILA, 15 U.S.C. § 1641(e)(1), for violations that occur after the loan has been made.
Vital facts. Plaintiff Borrower obtained a residential mortgage loan in 1997. Subsequently, the loan was assigned to other lenders. In 2012, Borrower filed a Chapter 13 bankruptcy case and, per the Plan, made regular monthly payments to the Trustee. In 2018, the Trustee filed a report (1) certifying the amounts received from Borrower and (2) stating that Borrower had completed the case. However, a discrepancy existed between the Trustee’s final report and its earlier report detailing the “final cure payment.” Specifically, the inconsistency involved two payments of $455.61 that Borrower did not make to the Trustee. Based upon this discrepancy, the subject lenders, through their loan servicers, considered the loan to be delinquent and charged a series of late fees. Borrower, on the other hand, claimed that he fully performed under the BK Plan and made all required payments.
Procedural history. Borrower filed a complaint against several lenders and servicers, asserting numerous claims related to the lenders’ and servicers’ continued assessment of fees, including attorney fees and late charges. As it relates to this post, Borrower asserted that the servicer acting on behalf of one of the lenders/mortgagees (Lender) violated TILA by failing to provide periodic billing statements and by failing to promptly credit payments to the loan. The Lender moved to dismiss the claim against it under Rule 12(b)(6).
Key rules. 15 U.S.C. 1639f requires that "[i]n connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall fail to credit a payment to the consumer's loan account as of the date of receipt . . . ."
“Section 1638(f) requires a creditor, assignee, or servicer with respect to any residential mortgage loan to send the obligor periodic statements containing information such as the remaining principal, the current interest rate, a description of late payment fees, and specific contact information through which the obligor can obtain more information about the mortgage”.
Borrower’s TILA claim depended upon the Lender being “a creditor who may be sued under Section 1640(a) or an assignee who may be sued under Section 1641(e)(1).”
A creditor is a person who both "regularly extends . . . consumer credit" and "is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement." 15 U.S.C. 1602(g).
Assignee liability under TILA “is much more limited than creditor liability.”
In the context of a mortgage loan transaction, an assignee is liable for conduct for which a creditor would be liable only if (1) "the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement" and (2) "the assignment to the assignee was voluntary." 15 U.S.C. 1641(e)(1). A violation is said to be "apparent on the face of the disclosure statement" where "(A) the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement; or (B) the disclosure statement does not use the terms or format required to be used by this subchapter." 15 U.S.C. 1641(e)(2).
TILA does not define “disclosure statement,” but case law provides that the statement refers to the mandatory “disclosure of certain terms and conditions of credit before consummation of a consumer credit transaction." The bottom line is that “an assignee of a mortgage is not subject to liability under TILA for violations that occur after the loan has been made.”
Holding. The district court granted the motion to dismiss. Borrower did not appeal.
Policy/rationale. In Crum, the Lender did not originate the loan. As such, the Lender could not be a “creditor” under TILA because it was not the person to whom the debt was “initially payable on the face of the” promissory note.
The Lender was thus an “assignee,” but as assignee the Lender was not liable for the alleged TILA violations because the nature of the violations “would never appear on the face of the disclosure statement” as Section 1641(e)(1) requires. “By definition, such noncompliance would occur after any pre-transaction disclosures. Hence, [the Lender] cannot be liable as an assignee under § 1641(e)(1) for alleged violations of §§ 1639f and 1638(f).
I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at firstname.lastname@example.org. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.