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 homeowner's claims under the federal Real Estate Settlement Procedures Act (RESPA), where the house owner complainant just signed the home mortgage, however not the note evidencing the loan.

The Sixth Circuit's holding reinforced that a complainant who does not have personal commitments under the loan agreement is not a "debtor," and hence can not assert claims under RESPA, which extends reasons for action only to "borrowers."

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

Couple customers got a loan protected by a home mortgage on their new home. Both borrowers executed the mortgage, but only the other half executed the promissory note evidencing the loan. As is traditional, the mortgage expressly supplied that anybody "who co-signs this [home mortgage] however does not perform the [note]- i.e., the wife - "is not personally obliged to pay the sums protected by this [home mortgage]"

The debtors later divorced and the partner took title to your house. The spouse died soon afterwards. Although she was not an obligor on the note, the other half continued to pay 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 stopped working, the home was foreclosed upon and sold to a third-party buyer.

The better half filed suit versus the servicer and third-party purchaser, 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 executing guideline ("Regulation X"), 12 C.F.R. § 1024, et seq., for purportedly stopping working to effectively review her demands for home mortgage help before it foreclosed on her home.

The trial court dismissed the wife's RESPA claims against the servicer, concluding that she was not a "customer" due to the fact that she was never ever personally obligated under the loan, and therefore can not state a cause of action under RESPA. 12 U.S.C. § 2605(f) ("Whoever stops working to abide by any arrangement of this section shall be accountable to the borrower ..."). The immediate appeal followed.

On appeal, the sole concern presented to the Sixth Circuit was whether the wife had a cause of action under RESPA, having just co-signed the home loan, and not also 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 concern of statutory interpretation." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014 ).

As RESPA just licenses "debtors" to take legal action against, the Sixth Circuit was charged with figuring out whether the partner was a "debtor" - a term not defined under the statute, and which the court must provide its regular meaning. 12 U.S.C. 2605(f); Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 (2012 ).

The Sixth Circuit initially repeated the difference between a loan and a mortgage: "under a loan, the lending institution gives you cash now, and you promise to pay it back later. A home mortgage is a different file that supplies extra assurance to the lending institution that you will pay them back-if you do not, the lender can take your house."

Noting that contemporaneous dictionaries are helpful to interpret the words of a statute, the Sixth Circuit cited meanings of the term from editions of basic English and legal dictionaries published around the appropriate times RESPA and section 2605 were enacted (1974 and 1990, respectively), all of which highlighted that a "borrower" is personally obliged on a loan.

Using the context of the term's use in the statute as another tool of analysis likewise showed "customer" to repeatedly refer to a relationship with a lender under regards to a loan, providing additional evidence that a "borrower" should be personally obligated on a loan, no matter 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 better half's arguments unconvincing.

First, the better half counted on the liberal building canon to argue that a "remedial statute" like RESPA ought to be "construed broadly to effectuate its purpose." While noting that the liberal building and construction canon had actually been conjured up in previous RESPA cases, here, the wife's dependence upon it was premised on 2 incorrect ideas: (1) that statutes have a singular purpose 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 completing functions, which Congress balances by working out and crafting statutory text, and courts ought to not broaden the text on the idea that "Congress 'must have planned 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 helpful and legitimate tools of analysis to define "borrower" and expanding the term to include the better half would not be "broadly construing" RESPA, but rewording it. As such, the wife's attempts to apply the liberal construction canon were rejected.

Next, the better half proffered that recent policies from the Consumer Financial Protection Bureau specify "customer" in § 2605(f) to include "successors in interest"-i.e., "a person to whom an ownership interest in a residential or commercial property securing a home loan ... is transferred from a customer." 12 C.F.R. § 1024.30. Although the spouse appears to satisfy this definition due to the fact that her (previous) hubby moved his interest in the residential or commercial property to her after their divorce, she acknowledges that these policies do not apply to her straight due to the fact that they ended up being reliable in April 2018, after the events that resulted in her claim. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.

Because the text of the statute is clear and the spouse's argument relied exclusively upon these ancillary CFPB regulations (Regulation X and 12 C.F.R. 1026, Regulation Z), the Sixth Circuit rejected this argument too. Cf. Pereira v. Sessions, 138 S.