The Lawletter Vol 37 No 11
The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., imposes certain obligations upon the holder/owner of a mortgage (the mortgagee) as well as upon the servicer of the mortgage loan. Recently, in Kievman v. Federal National Mortgage Ass'n, No. 1:12-cv-22315-UU, 2012 WL 5378036 (S.D. Fla. Sept. 14, 2012), the court considered whether a mortgagee could be liable for the servicer's TILA violation.
In that case, the plaintiff-mortgagors alleged a violation of 15 U.S.C. § 1641(f)(2) and attempted to hold the mortgagee and the servicer liable for this violation. That statutory section, referring only to the servicer, provides:
Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation.
15 U.S.C. § 1641(f)(2). Moreover, § 1640 imposes liability for noncompliance with § 1641(f)(2):
[A]ny creditor who fails to comply with any requirement imposed under this part, including . . . subsection (f) or (g) of section 1641 of this title . . . with respect to any person is liable to such person[.]
Id. § 1640(a). Confusingly, although § 1641(f)(2) refers only to a servicer, § 1640(a) refers only to a creditor (the mortgagee). The plaintiffs emphasized this fact to argue that a creditor-mortgagee should be held liable for its servicer's violation of § 1641(f)(2). Rejecting this argument, the court stated:
This Court . . . declines to extend liability to obligation owners—be they creditors or assignees—for their servicers' failures to comply with § 1641(f)(2). The reference to "subsection (f)" in § 1640(a) is best explained by the fact that the owner of an obligation may sometimes act as the servicer of that obligation. The statute contemplates this scenario in the first paragraph of subsection (f), which reads: "A servicer of a consumer obligation . . . shall not be treated as an assignee of such obligation for the purposes of this section unless the servicer is or was the owner of the obligation." 15 U.S.C. § 1641(f)(1). In the case of an owner‑servicer, then, failure to comply with subsection (f) does subject it to liability. See Khan, 849 F.Supp.2d at 1382 n. 2 ("The Court notes that an entity that is both the servicer and lender on a loan would clearly be liable for damages."); Davis v. Greenpoint Mortg. Funding, Inc., No. 1:09-cv-2719, 2011 WL 707221 at *3 (N.D.Ga. Mar. 1, 2011) (noting that subsection (f)(1) "limits a servicer's liability to situations in which the servicer was once an assignee or owner of the loan"). But there is no question of vicarious liability for the servicer's violation if the servicer could not itself be held liable. See Holcomb, 2011 WL 5080324, at *7 ("[I]t remains unclear what liability would transfer given that [the servicer] itself bears no liability under the facts alleged.").
Kievman, 2012 WL 5378036, at *3. As the court logically pointed out, a mortgagee that services its own loan could be liable for a violation of § 1641(f)(2). "[T]his Court's interpretation recognizes that § 1640(a)'s reference to subsection (f) creates a private right of action against those obligees who might employ unfair practices in servicing their loans[.]" Id. at *4 (court's emphasis).
Thus, a mortgagee may very well not be liable under TILA for its servicer's violation of the Act. However, it should be noted that there is likely a division of authority on this issue. In fact, the same district responsible for the Kievman decision had previously held that a creditor-mortgagee could be held vicariously liable for damages under TILA for a loan servicer's failure to properly respond to a borrower's request for information about the loan owner under § 1641(f)(2). Khan v. Bank of N.Y. Mellon, 849 F. Supp. 2d 1377 (S.D. Fla. 2012).