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Home" Mortgage Banking Foreclosure Law" RESPA" sixth Cir. Holds Non-Borrower Mortgagor Could Not Sue Under RESPA

The U.S. Court of Appeals for the Sixth Circuit just recently affirmed dismissal of a house owner's claims under the federal Real Estate Settlement Procedures Act (RESPA), where the property owner plaintiff only signed the home loan, however not the note evidencing the loan.

The Sixth Circuit's holding reinforced that a plaintiff who does not have individual responsibilities under the loan agreement is not a "debtor," and hence can not assert claims under RESPA, which extends causes of action only to "borrowers."

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

Husband and better half borrowers took out a loan protected by a home loan on their new home. Both borrowers executed the mortgage, however only the husband carried out the promissory note evidencing the loan. As is traditional, the home loan expressly offered that anybody "who co-signs this [home mortgage] but does not execute the [note]- i.e., the partner - "is not personally bound to pay the amounts protected by this [home loan]"

The debtors later separated and the spouse took title to your home. The husband died quickly afterwards. Although she was not an obligor on the note, the wife continued to make payments in an effort to keep the home, however ultimately fell behind in her payments. After her loss mitigation efforts with the home loan's loan servicer stopped working, the home was foreclosed upon and offered to a third-party buyer.

The spouse filed suit against the servicer and purchaser, raising claims under various federal and state laws, consisting of a claim against the servicer under RESPA, 12 U.S.C. § 2601, et seq., and its executing policy ("Regulation X"), 12 C.F.R. § 1024, et seq., for supposedly failing to properly evaluate her ask for mortgage help before it foreclosed on her home.

The trial court dismissed the better half's RESPA claims against the servicer, concluding that she was not a "borrower" because she was never ever personally bound under the loan, and thus can not specify a reason for action under RESPA. 12 U.S.C. § 2605(f) ("Whoever fails to abide by any provision of this section shall be accountable to the borrower ..."). The instantaneous appeal followed.
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On appeal, the sole concern presented to the Sixth Circuit was whether the other 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 noted that determination of whether a complainant has a cause of action is a "straightforward question of statutory analysis." Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-129 (2014 ).

As RESPA only licenses "debtors" to take legal action against, the Sixth Circuit was tasked with determining whether the partner was a "borrower" - a term not specified under the statute, and which the court needs to 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 at first repeated the difference in between a loan and a home mortgage: "under a loan, the lender provides you cash now, and you promise to pay it back later. A home loan is a separate file that supplies extra guarantee to the loan provider that you will pay them back-if you do not, the lender can take your house."

Noting that synchronous dictionaries are beneficial to interpret the words of a statute, the Sixth Circuit mentioned meanings of the term from editions of basic English and legal dictionaries published around the pertinent times RESPA and area 2605 were enacted (1974 and 1990, respectively), all of which illustrated that a "borrower" is personally bound on a loan.

Using the context of the term's usage in the statute as another tool of interpretation likewise revealed "customer" to consistently refer to a relationship with a lender under terms of a loan, providing extra proof that a "customer" must be personally obliged on a loan, regardless of whether they signed a home loan or own a home, and just a "customer" can sue under RESPA.

The Sixth Circuit found the spouse's arguments unconvincing.

First, the other half counted on the liberal building and construction canon to argue that a "restorative statute" like RESPA need to be "construed broadly to effectuate its function." While keeping in mind that the liberal construction canon had actually been conjured up in prior RESPA cases, here, the partner's dependence upon it was premised on two mistaken ideas: (1) that statutes have a singular purpose and (2) that Congress wants statutes to extend as far as possible in service of that function.

Instead, the Court acknowledged that statutes have many competing purposes, which Congress balances by working out and crafting statutory text, and courts should not broaden the text on the notion that "Congress 'must have meant something more comprehensive.'" 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 useful and legitimate tools of interpretation to define "borrower" and expanding the term to include the other half would not be "broadly interpreting" RESPA, but rewording it. As such, the better half's efforts to use the liberal building canon were turned down.

Next, the spouse proffered that recent policies from the Consumer Financial Protection Bureau define "customer" in § 2605(f) to consist of "followers in interest"-i.e., "an individual to whom an ownership interest in a residential or commercial property protecting a home loan ... is transferred from a customer." 12 C.F.R. § 1024.30. Although the partner seems to fulfill this meaning due to the fact that her (previous) partner transferred his interest in the residential or commercial property to her after their divorce, she acknowledges that these regulations do not use to her straight because they ended up being effective in April 2018, after the events that caused her suit. 12 C.F.R. § 1024.30; 81 Fed. Reg. 72,160-01.

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