- Eleventh Circuit Exempts Loan Servicers from Truth in Lending Act Disclosure Rules
- August 17, 2013
- Law Firm: Troutman Sanders LLP - Atlanta Office
On July 29, 2013, the United States Court of Appeals for the Eleventh Circuit affirmed a district court’s finding that a loan servicer’s role shielded it from Truth in Lending Act (“TILA”) disclosure requirements in Reed v. Chase Home Finance LLC, No. 12-15755.
In 2006, the Reeds refinanced a home mortgage loan (the “Loan”) with Pensacola Guarantee Mortgage (“Pensacola”). Mortgage Electronic Registration Systems, Inc. (“MERS”) was named in the Deed of Trust as nominee for the lender and the lender’s successors and assigns. After closing, Pensacola transferred ownership of the Loan to SunTrust Mortgage. Pensacola also transferred servicing of the Loan to SunTrust Mortgage, who then transferred servicing to Chase Home Finance LLC (“Chase”) in 2007. After the Reeds missed several mortgage payments, Chase sent them a notice of intent to foreclose. MERS subsequently executed an Assignment of Mortgage (“Assignment”) transferring to Chase “all right, title and interest of [MERS] in and to that certain Mortgage executed by [the Reeds].”
In their lawsuit, the Reeds claimed that Chase failed to comply with TILA disclosure requirements by failing to notify the Reeds that it had been assigned an interest in their mortgage. The district court granted summary judgment in favor of Chase. Under the safe harbor exception of 15 U.S.C. § 1641(f), the district court determined that Chase was exempt as a servicer of the loan from the § 1641(g) disclosure requirements. Section 1641(g) requires that a new creditor is required to notify a borrower within thirty days of any transfer or assignment of a mortgage loan to a third party. Section 1641(f) exempts servicers from the disclosure requirements when the assignment is made “solely for the administrative convenience of the servicer in servicing the obligation.” § 1641(f)(2).
The Eleventh Circuit agreed that the assignment was made solely for the administrative convenience of Chase in exercising its servicing obligations. Because TILA does not define “administrative convenience,” the Eleventh Circuit gave the words their ordinary meaning to conclude that “administrative convenience” means “that which allows performance of a managerial action or requirement.” Given that the purpose of the Assignment was to permit Chase to foreclose on the property and that Chase could not have foreclosed in the absence of the Assignment, the Assignment was an “administrative convenience” within the meaning of § 1641(f) because it allowed Chase to proceed to foreclosure, which was a requirement of loan servicing.
Reed is important in its affirmation that courts should not impose liability on loan servicers for declining to issue a notice of assignment to borrowers when loans are assigned for servicing purposes. The meaning ascribed to “administrative convenience” by the Eleventh Circuit could potentially encompass a variety of servicing tasks. The Reed decision follows other recent opinions from the Eleventh Circuit and courts in other jurisdictions in holding that servicers are exempt from disclosure requirements as assignees for administrative convenience under § 1641(f). See Giles v. Wells Fargo Bank, N.A., No. 12-15567, 2013 U.S. App. LEXIS 10404 (11th Cir. May 23, 2013) (unpublished) (affirming grant of summary judgment in favor of bank because bank fell within the “administrative convenience” exception); Schwitzer v. Wells Fargo Bank, N.A., No. 12-cv-1367, 2013 U.S. Dist. LEXIS 22094, at *11 (D. Colo. Feb. 19, 2013) (finding that the servicer was not liable for any deficiencies in disclosures under § 1641(g)). Financial institutions should be aware that the “administrative convenience” provision is an exception to the requirement to provide notice of transfer or assignment and continue to be vigilant for situations in which the exception does not apply.