Fifth Circuit

The Fifth Circuit Bakes a Riddle to Favor Banks Against Homeowner Rights

The opinion is a good news for lenders and bad news for homeowners as there is now some precedent that lenders cannot be held vicariously liable for their servicers’ violations of the Mortgage Servicing Rules. At least in the Pro-Bank Fifth Circuit, lenders are now further shielded from liability.

In a case of first impression, the Fifth Circuit has held that the CFPB’s Mortgage Servicing Rules only apply to servicers and do not impute liability to the lender.

In Christiana Trust v. Riddle, the consumer alleged that the prior and current servicers of her mortgage violated the Mortgage Servicing Rules by failing to evaluate her loss mitigation application as required by 12 C.F.R. 1024.41(c)(1).

Riddle contended that the original lender, Bank of America, was vicariously liable for its servicer’s violation.

The Fifth Circuit affirmed the dismissal of the claims against Bank of America in part because it held that “Bank of America, as a matter of law, is not vicariously liable for the alleged RESPA violations of its servicers.” Christiana Trust v. Riddle, 2018 U.S. App. LEXIS 36217, *7 (5th Cir. Dec. 21, 2018).

ELROD, JENNIFER W.

HAYNES, CATHARINA

KING, CARLOYN DINEEN, (MRS. REAVLEY)

In reaching its conclusion, the Fifth Circuit looked at the express language of both the Mortgage Servicing Rules and the source statute, RESPA.

The Court noted that the regulation only imposes duties on servicers. See 12 C.F.R. 1024.41(c)(1) (if a servicer receives a complete loss mitigation application… a servicer shall…”) (emphasis added).

Likewise, a servicer’s obligation to comply with the Mortgage Servicing Rules derives from RESPA which provides that only “a servicer of a federally related mortgage shall not… fail to comply with another 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) (emphasis added).

The Court was further persuaded by the fact that 12 U.S.C. §2605 imposes liability on “whoever fails to comply with this section” rather than a more broad class of interested parties.

The Court concluded that “[b]ecause 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.” Id. at *8.

Panel consisted of: ELROD, HAYNES & KING

Fifth Circuit Disses CFPB in Favor of Banks

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Laws In Texas is a blog about the Financial Crisis and how the banks and government are colluding against the citizens and homeowners of the State of Texas and relying on a system of #FakeDocs and post-crisis legal precedents, specially created by the Court of Appeals for the Fifth Circuit to foreclose on homeowners around this great State. We are not lawyers. We do not offer legal advice. We are citizens of the State of Texas who have spent a decade in the court system in Texas and have been party to during this period to the good, the bad and the very ugly.

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