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Sixth Cir. Holds Non-Borrower Mortgagor might not Sue Under RESPA

Home” Mortgage Banking Foreclosure Law” RESPA” 6th Cir. Holds Non-Borrower Mortgagor Could Not Sue Under RESPA

The U.S. Court of Appeals for the Sixth Circuit recently affirmed termination of a property owner’s claims under the federal Real Estate Settlement Procedures Act (RESPA), where the house owner plaintiff only signed the mortgage, however not the note evidencing the loan.

The Sixth Circuit’s holding reinforced that a plaintiff who does not have personal obligations under the loan arrangement is not a “debtor,” and thus can not assert claims under RESPA, which extends causes of action just to “customers.”

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

Couple customers got a loan protected by a home loan on their new home. Both customers executed the home loan, but only the husband executed the promissory note evidencing the loan. As is customary, the mortgage specifically supplied that anybody “who co-signs this [home mortgage] however does not perform the [note]- i.e., the partner – “is not personally bound to pay the amounts secured by this [home mortgage]”

The debtors later separated and the other half took title to the home. The hubby passed away soon thereafter. Although she was not an obligor on the note, the better half continued to make payments in an effort to keep the home, however eventually fell behind in her payments. After her loss mitigation efforts with the mortgage’s loan servicer failed, the home was foreclosed upon and offered to a third-party purchaser.

The better half submitted match versus the servicer and third-party buyer, raising claims under various 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 failing to properly examine her demands for mortgage help before it foreclosed on her home.

The high court dismissed the spouse’s RESPA claims versus the servicer, concluding that she was not a “debtor” since she was never personally obligated under the loan, and therefore can not specify a reason for action under RESPA. 12 U.S.C. § 2605(f) (“Whoever stops working to abide by any provision of this area will be accountable to the borrower …”). The immediate appeal followed.

On appeal, the sole question presented to the Sixth Circuit was whether the partner had a reason for action under RESPA, having only co-signed the mortgage, and not likewise the note evidencing the loan.

In to a concern of whether she has “statutory” or “prudential” standing, the appellate court noted that decision of whether a plaintiff has a reason for action is a “straightforward concern of statutory analysis.” Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014 ).

As RESPA just licenses “borrowers” to sue, the Sixth Circuit was entrusted with figuring out whether the wife was a “customer” – a term not defined under the statute, and which the court needs to provide its regular significance. 12 U.S.C. 2605(f); Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 (2012 ).

The Sixth Circuit at first reiterated the distinction between a loan and a mortgage: “under a loan, the lender gives you cash now, and you guarantee to pay it back later. A home mortgage is a different document that supplies additional assurance to the lender that you will pay them back-if you do not, the loan provider can take your home.”

Noting that coexisting dictionaries are beneficial to interpret the words of a statute, the Sixth Circuit mentioned meanings of the term from editions of basic English and legal dictionaries published around the relevant times RESPA and area 2605 were enacted (1974 and 1990, respectively), all of which highlighted that a “borrower” is personally obligated on a loan.

Using the context of the term’s usage in the statute as another tool of analysis also showed “borrower” to repeatedly describe a relationship with a loan provider under terms of a loan, supplying additional proof that a “debtor” must be personally obliged on a loan, despite whether they signed a home loan or own a home, and only a “customer” can take legal action against under RESPA.

The Sixth Circuit found the other half’s arguments unconvincing.

First, the other half relied on the liberal building and construction canon to argue that a “remedial statute” like RESPA must be “interpreted broadly to effectuate its function.” While noting that the liberal building canon had been conjured up in prior RESPA cases, here, the other half’s reliance upon it was postulated on two mistaken ideas: (1) that statutes have a particular function and (2) that Congress wants statutes to extend as far as possible in service of that function.

Instead, the Court acknowledged that statutes have numerous completing purposes, which Congress balances by negotiating and crafting statutory text, and courts must not expand the text on the idea that “Congress ‘should 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 mentioned useful and genuine tools of interpretation to define “borrower” and broadening the term to include the other half would not be “broadly construing” RESPA, however rewording it. As such, the wife’s efforts to use the liberal construction canon were rejected.

Next, the better half proffered that recent guidelines 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 mortgage … is transferred from a debtor.” 12 C.F.R. § 1024.30. Although the other half seems to fulfill this meaning because her (former) other half moved his interest in the residential or commercial property to her after their divorce, she acknowledges that these policies do not use to her directly because they became effective in April 2018, after the events that caused her lawsuit. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.

Because the text of the statute is clear and the other half’s argument relied solely upon these secondary CFPB regulations (Regulation X and 12 C.F.R. 1026, Regulation Z), the Sixth Circuit declined this argument as well. Cf. Pereira v. Sessions, 138 S.