Banking and Finance Law Daily Homeowner was not a “borrower” under RESPA
Friday, July 19, 2019

Homeowner was not a “borrower” under RESPA

By Nicole D. Prysby, J.D.

A homeowner was not a "borrower" with standing to sue under RESPA because she signed only the mortgage for the house, not the loan.

A wife who signed a mortgage but not a loan when she and her former husband bought a house had no standing to sue the loan servicer under the Real Estate Settlement Procedures Act, held the Sixth Circuit Court of Appeals. Because she did not sign the loan, she was not a "borrower" as required to have standing to sue under RESPA. "Borrowers" as used in RESPA must be individuals who are personally obligated on a loan, regardless of whether they signed a mortgage or own a home (Keen v. Helson, July 18, 2019, Thapar, A.).

RESPA allegations. Spouses took out a loan and got a mortgage when they purchased their home. Both parties signed the mortgage but only the husband signed the loan. The pair divorced, the husband gave the wife full title to the house, and then the husband died. Although she was not legally obligated to do so, the wife continued to make payments on the loan in order to keep the house. But she fell behind on her payments and the house was foreclosed upon. The wife sued the loan servicer, alleging that the servicer failed to properly review her requests for relief before foreclosing on the house, in violation of RESPA.

The district court dismissed the RESPA claims, concluding that the wife was not entitled to relief as a "borrower" under RESPA because she was never personally obligated under the loan agreement and therefore, had no standing. The wife appealed.

Homeowner was not a "borrower" under RESPA. The Sixth Circuit agreed with the district court that the wife had no cause of action under RESPA. RESPA only authorizes "borrower[s]" to sue. 12 U.S.C. § 2605(f). The court noted that the key issue is the difference between a loan and a mortgage. A borrower borrows money from a lender and promises to pay it back. A mortgage is a separate document that provides extra assurance to the lender that the loan will be paid back—if not, the lender can take the house. Because only the husband signed the loan, he was the only borrower; signing the mortgage did not make the wife a borrower.

RESPA does not define the term "borrower" but the ordinary meaning of the word is one who is personally obligated under a loan. The text of RESPA refers to federally related mortgage loans, not federally related mortgages, and where the term borrower is used throughout RESPA, each time it is in reference to a relationship with a lender under the terms of a loan. Therefore "borrowers" as used in RESPA must be individuals who are personally obligated on a loan, regardless of whether they signed a mortgage or own a home. The court rejected the wife’s argument that RESPA should be construed more broadly, holding that such a construction would be re-writing RESPA, not merely construing it. The wife also pointed to recent regulations from the Consumer Financial Protection Bureau that define "borrower" in § 2605(f) to include "successors in interest." Since the husband transferred his interest in the house to the wife as part of their divorce, she seems to meet this definition. But, the regulations do not apply to her directly because they became effective in April 2018, after the events that led to her lawsuit. The court also rejected the wife’s argument that no one in a "non-recourse" state would be able to sue under RESPA, stating that its interpretation of "borrower" turns on whether the would-be plaintiff is personally obligated to repay the loan, not whether lenders can go after her personal assets to recover on that obligation. If someone is personally obligated to repay a loan, she is a borrower, whether or not state law permits the lender to recover her personal assets. The personal legal obligation is all that matters.

The case is No. 18-6035.

Attorneys: Kerry Dietz (Legal Aid of Middle Tennessee and the Cumberlands) for Tara L. Keen. Edmund Scott Sauer (Bradley Arant Boult Cummings LLP) for Robert C. Helson and Ocwen Loan Servicing, LLC.

Companies: Ocwen Loan Servicing, LLC

MainStory: TopStory Loans KentuckyNews MichiganNews Mortgages OhioNews RESPA TennesseeNews

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