February 7, 2019
Authored by: Jim Goldberg
In a first, a federal circuit court rules a lender cannot be held liable for a servicer’s RESPA violation.
A borrower who took out a home equity loan from Bank of America alleged the Bank is vicariously liable for the failure of its loan servicer to comply with the Real Estate Settlement Procedures Act (RESPA), particularly 12 C. F. R. § 1024.41(c)(1). That regulation imposes duties on servicers who receive a complete loss mitigation application more than 37 days before a foreclosure sale to–within 30 days of receipt–evaluate the borrower for all loss mitigation options available to the borrower and provide the borrower with a notice stating which options, if any, it will offer the borrower.
The Fifth Circuit, which is apparently the first circuit to address the issue, held banks cannot be held vicariously liable for the alleged RESPA violations of servicers. Christiana Trust v. Riddle, — F. 3d — (2018) (2018 WL 6715882, 12/21/18). The Court had three related reasons.
First, “[b]y its plain terms the regulation at issue here imposes duties only on servicers” as it states a “servicer shall.” 12 C. F. R. § 1024.41(c)(1)
Second, RESPA itself “also confines this obligation to servicers alone.” RESPA provides that “a servicer of a federally related mortgage shall not … fail to comply with any other obligation found by the Bureau of Consumer Financial Protection, by regulation, to be appropriate to carry out the consumer protection purposes of this chapter.” 12 U. S. C. § 2605(k)(1)(E).
Third, because only servicers can fail to comply with 12 U. S. C. § 2605(k)(1)(E), only servicers can be liable to the borrower for those failures.
The Fifth Circuit concluded: “The text of this statute plainly and unambiguously shields Bank of America from any liability created by the alleged RESPA violation of its loan servicer.”