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Home" Mortgage Banking Foreclosure Law" RESPA" 6th Cir. Holds Non-Borrower Mortgagor Could Not Sue Under RESPA
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The U.S. Court of Appeals for the Sixth Circuit just recently affirmed termination of a property owner's claims under the federal Real Estate Settlement Procedures Act (RESPA), where the property owner plaintiff only signed the home mortgage, however not the note evidencing the loan.
homes.com
The Sixth Circuit's holding strengthened that a complainant who does not have individual obligations under the loan contract is not a "customer," and therefore can not assert claims under RESPA, which extends reasons for action just to "borrowers."

A copy of the opinion in Keen v. Helson is available at: Link to Opinion.

Couple debtors got a loan protected by a home loan on their brand-new home. Both customers carried out the home loan, but only the other half carried out the promissory note evidencing the loan. As is traditional, the mortgage expressly supplied that anyone "who co-signs this [home mortgage] but does not execute the [note]- i.e., the other half - "is not personally obligated to pay the amounts secured by this [mortgage]"

The debtors later on divorced and the better half took title to the house. The hubby died soon thereafter. Although she was not an obligor on the note, the spouse continued to make payments in an effort to keep the home, but ultimately fell behind in her payments. After her loss mitigation efforts with the mortgage's loan servicer stopped working, the home was foreclosed upon and sold to a third-party purchaser.

The other half submitted suit versus the servicer and third-party buyer, raising claims under numerous federal and state laws, including a claim versus the servicer under RESPA, 12 U.S.C. § 2601, et seq., and its carrying out guideline ("Regulation X"), 12 C.F.R. § 1024, et seq., for purportedly stopping working to properly review her ask for home loan assistance before it foreclosed on her home.

The high court dismissed the partner's RESPA declares against the servicer, concluding that she was not a "debtor" due to the fact that she was never ever personally obliged under the loan, and hence can not mention a reason for action under RESPA. 12 U.S.C. § 2605(f) ("Whoever fails to comply with any arrangement of this section shall be accountable to the borrower ..."). The immediate appeal followed.

On appeal, the sole concern provided to the Sixth Circuit was whether the wife had a reason for action under RESPA, having just co-signed the home mortgage, and not likewise the note evidencing the loan.

In contrast to a question of whether she has "statutory" or "prudential" standing, the appellate court kept in mind that decision of whether a plaintiff has a cause of action is a "straightforward concern of statutory interpretation." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014 ).

As RESPA only authorizes "debtors" to take legal action against, the Sixth Circuit was tasked with determining whether the better half was a "customer" - a term not specified under the statute, and which the court must offer its regular significance. 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 lending institution offers you money now, and you guarantee to pay it back later on. A mortgage is a different file that offers extra assurance to the lending institution that you will pay them back-if you do not, the lender can take your home."

Noting that coexisting dictionaries work to translate the words of a statute, the Sixth Circuit mentioned definitions of the term from editions of basic English and legal dictionaries released around the relevant times RESPA and area 2605 were enacted (1974 and 1990, respectively), all of which highlighted that a "borrower" is personally obliged on a loan.

Using the context of the term's use in the statute as another tool of interpretation likewise revealed "debtor" to consistently describe a relationship with a loan provider under terms of a loan, offering extra proof that a "customer" must be personally obliged on a loan, no matter whether they signed a mortgage or own a home, and just a "customer" can take legal action against under RESPA.

The Sixth Circuit discovered the wife's arguments unconvincing.

First, the other half depended on the canon to argue that a "restorative statute" like RESPA must be "construed broadly to effectuate its purpose." While keeping in mind that the liberal construction canon had been conjured up in prior RESPA cases, here, the partner's reliance upon it was premised on 2 mistaken concepts: (1) that statutes have a singular function and (2) that Congress wants statutes to extend as far as possible in service of that purpose.

Instead, the Court acknowledged that statutes have lots of competing functions, which Congress balances by working out and crafting statutory text, and courts should not expand the text on the notion that "Congress 'should have planned something wider.'" 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 left out). In this case, the Sixth Circuit pointed out helpful and genuine tools of analysis to define "customer" and broadening the term to include the partner would not be "broadly interpreting" RESPA, however rewording it. As such, the better half's attempts to apply the liberal building and construction canon were rejected.

Next, the partner proffered that recent regulations from the Consumer Financial Protection Bureau define "borrower" in § 2605(f) to include "followers in interest"-i.e., "a person to whom an ownership interest in a residential or commercial property securing a home loan ... is transferred from a customer." 12 C.F.R. § 1024.30. Although the partner appears to fulfill this meaning since her (previous) spouse transferred his interest in the residential or commercial property to her after their divorce, she acknowledges that these policies do not apply to her directly because they became efficient in April 2018, after the occasions that caused her claim. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.

Because the text of the statute is clear and the spouse's argument relied exclusively upon these ancillary CFPB policies (Regulation X and 12 C.F.R. 1026, Regulation Z), the Sixth Circuit rejected this argument also. Cf. Pereira v. Sessions, 138 S.