- Fannie Mae Mortgage Loan Servicer Falls Within Truth-in-Lending Act Safe Harbor Provision
- November 26, 2012 | Authors: David M. Gettings; John C. Lynch; Jason E. Manning
- Law Firms: Troutman Sanders LLP - Virginia Beach Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Virginia Beach Office
When conducting foreclosures on behalf of Fannie Mae, it is common for Fannie Mae servicers to receive an assignment of the mortgage and/or the underlying loan so that the servicer can foreclose on Fannie’s Mae’s behalf. In fact, the Fannie Mae Servicing Guidelines often require such an assignment. Although there are various business and legal reasons for this type of assignment, the assignment can create potential liability for the servicer under the Truth-in-Lending Act. Under a relatively recent amendment to TILA, an entity that acquires a mortgage loan must notify the borrower of that transfer within 30 days. If the borrower is not notified, he or she may be entitled to actual and statutory damages.
In Valrie v. Nationstar Mortgage, LLC, MERS executed an “Assignment of Deed of Trust,” transferring to the servicer “all rights, title, interest, and liens owned or held by [MERS] in the herein after described land by virtue of said indebtedness herein conveyed and assigned.” According to the court, it was undisputed that the purpose of this assignment was to permit the servicer to conduct a foreclosure in its own name on behalf of Fannie Mae - as required by Fannie Mae’s Servicing Guidelines. The Plaintiff brought a class action against the servicer, claiming that this assignment transferred legal title over the mortgage loan to the servicer and, as a result, triggered in the servicer an obligation under TILA to provide the borrower with a notice of the transfer.
The court did not address whether the assignment for the purpose of foreclosure transferred any interest in the loan to the servicer. Instead, the court granted the servicer’s motion for summary judgment on the ground that the transfer fell within TILA’s “safe harbor” provision for servicers. According to TILA, a servicer is insulated from the obligation to notify the borrower of a transfer if that transfer is “solely for the administrative convenience of the servicer in servicing the obligation.” The court held that the assignment to the servicer qualified as an administrative convenience because it allowed the servicer to “perform the servicing duty of protecting Fannie Mae’s interest in its loans.”