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 verified termination of a house 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 complainant who does not have personal obligations under the loan contract is not a "debtor," and thus can not assert claims under RESPA, which extends reasons for action only to "borrowers."

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

Couple borrowers got a loan secured by a home loan on their new home. Both customers executed the home loan, but just the partner carried out the promissory note evidencing the loan. As is customary, the home mortgage expressly supplied that anybody "who co-signs this [home loan] however does not execute the [note]- i.e., the better half - "is not personally obliged to pay the sums secured by this [mortgage]"

The borrowers later divorced and the better half took title to your home. The spouse passed away quickly thereafter. Although she was not an obligor on the note, the partner continued to make payments in an effort to keep the home, but eventually fell behind in her payments. After her loss mitigation efforts with the home loan's loan servicer failed, the home was foreclosed upon and sold to a third-party buyer.

The other half filed match versus the servicer and third-party buyer, raising claims under various federal and state laws, consisting of a claim versus the servicer under RESPA, 12 U.S.C. § 2601, et seq., and its implementing guideline ("Regulation X"), 12 C.F.R. § 1024, et seq., for purportedly failing to correctly examine her demands for mortgage help before it foreclosed on her home.

The high court dismissed the wife's RESPA declares versus the servicer, concluding that she was not a "debtor" because she was never ever personally bound under the loan, and therefore can not mention a cause of action under RESPA. 12 U.S.C. § 2605(f) ("Whoever fails to adhere to any provision of this area shall be responsible to the borrower ..."). The instant appeal followed.

On appeal, the sole question presented to the Sixth Circuit was whether the better half 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 reason for action is a "simple question of statutory interpretation." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014 ).

As RESPA only licenses "customers" to sue, the Sixth Circuit was tasked with identifying whether the other half was a "borrower" - a term not defined under the statute, and which the court should give its common meaning. 12 U.S.C. 2605(f); Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 (2012 ).

The Sixth Circuit initially restated the difference in between a loan and a mortgage: "under a loan, the lending institution offers you money now, and you assure to pay it back later. A mortgage is a different document that provides additional assurance to the loan provider that you will pay them back-if you do not, the loan provider can take your home."

Noting that simultaneous dictionaries are useful to interpret the words of a statute, the Sixth Circuit cited definitions of the term from editions of basic English and legal dictionaries released around the pertinent times RESPA and area 2605 were enacted (1974 and 1990, respectively), all of which showed 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 consistently describe a relationship with a lender under regards to a loan, supplying additional proof that a "borrower" must be personally bound on a loan, despite whether they signed a mortgage or own a home, and only a "debtor" can sue under RESPA.

The Sixth Circuit discovered the wife's arguments unconvincing.

First, the wife counted on the liberal building and construction canon to argue that a "remedial statute" like RESPA should be "construed broadly to effectuate its function." While keeping in mind that the liberal building canon had actually been conjured up in previous RESPA cases, here, the spouse's dependence upon it was predicated on 2 mistaken concepts: (1) that statutes have a particular function and (2) that Congress desires 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 negotiating and crafting statutory text, and courts need to not expand the text on the concept that "Congress 'should have meant 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 pointed out useful and legitimate tools of interpretation to define "debtor" and expanding the term to consist of the better half would not be "broadly construing" RESPA, however rewriting it. As such, the wife's efforts to use the liberal construction canon were declined.

Next, the better half proffered that current policies from the Consumer Financial Protection Bureau specify "debtor" in § 2605(f) to consist of "successors in interest"-i.e., "a person to whom an ownership interest in a residential or commercial property securing a mortgage ... is transferred from a customer." 12 C.F.R. § 1024.30. Although the better half seems to satisfy this meaning due to the fact that her (former) hubby moved his interest in the residential or commercial property to her after their divorce, she acknowledges that these guidelines do not use to her directly since they ended up being reliable in April 2018, after the occasions that led to her claim. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.

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