On May 23, 2013, the Eleventh Circuit upheld an Alabama federal court’s dismissal of a proposed class action brought by a mortgage holder who claimed the servicer violated the Truth in Lending Act (“TILA”) by failing to notify her of a transfer in ownership of her mortgage loan, as required by Section 1641(g).  In an unpublished per curium opinion, a three-judge panel in Giles v. Wells Fargo Bank, N.A. (No. 12-15567)  agreed with the lower court that, under TILA’s “administrative convenience” exception,  the servicer, who was assigned an ownership interest in the mortgage loan prior to foreclosing on the loan, was not obligated to provide notice of the assignment.

Section 1641(g) of TILA provides that a creditor who is the new owner or assignee of an existing mortgage loan must provide written notice to the borrower within thirty days of the date on which the new creditor acquired the loan.  See 15 U.S.C. § 1641(g).   The 11th Circuit explained, “[b]ased on its plain language, section 1641(g)’s disclosure obligation is triggered only when ownership of the ‘mortgage loan’ or ‘debt’ itself is transferred, not when the instrument securing the debt (that is, the mortgage) is transferred.”  The Giles case involved an assignment of the security deed to the servicer prior to foreclosure that was not disclosed to the borrower.  The borrower argued that under Alabama law,  the transfer of the security deed also transfers an interest in the note secured thereby implicating the disclosure requirements of Section 1641(g).

The 11th Circuit dismissed the argument and held that, even if that was the case, the Section 1641(g) disclosure requirement does not apply to servicers who acquire title to effectuate a foreclosure.   Section 1641(f) of TILA creates an exception where, a servicer of a mortgage loan who is assigned title to the loan shall not be treated as the owner if title was assigned to the servicer solely for “the administrative convenience” of the servicer in servicing the obligation.  See 15 U.S.C. § 1641(f); 12 C.F.R. § 226.39.   The Court held that when a beneficiary of a promissory note transfers its interest to the servicer for purposes of foreclosure, the assignment falls under the “administrative convenience” exception and the servicer is not required to disclose the transfer to the borrower.  In support of its opinion, the Court pointed out that the holder of the note, Freddie Mac, makes clear in its servicing guidelines “that such an assignment [is] temporary and made solely for the purpose of completing the foreclosure proceeding.”

The question of whether the servicer “administrative convenience” exception applies to mortgage loan transfers that have occurred to effectuate a foreclosure is currently heavily litigated in several states (e.g., Alabama, California, Florida, and Hawaii).  In issuing its opinion in Giles, the 11th Circuit has provided much needed guidance for the federal courts in Alabama, Georgia, and Florida to follow.  A copy of the Giles opinion is attached.