National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Standing/Real Party in Interest

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Bank Cannot Be Liable for RESPA Violation under Vicarious Liability Theory

In a case of first impression, the Fifth Circuit held that a RESPA action under section 2605 against a servicer for failure to comply with its obligation to provide loss-mitigation options to the homeowner, could not extend to the mortgagee Bank under a theory of respondeat superior. Christiana Trust v. Riddle, 911 F.3d 799 (5th Cir. Dec. 21, 2018).

Here, the homeowner, Mary Sue Riddle, took out a loan with Bank of America and the Bank engaged Ocwen Loan Servicing to service the loan. After the current loan owner, Christiana Trust, initiated foreclosure proceedings against Ms. Riddle, she counterclaimed and filed a third-party complaint against the Bank and Ocwen, alleging that the servicer failed to comply with RESPA’s mandate that it respond to Ms. Riddle’s timely application for loss-mitigation options. Specifically, Ms. Riddle invoked 12 U.S.C. § 2605(k)(1)(E), which 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.” The district court granted the Bank’s motion to dismiss on the dual basis that Ms. Riddle failed to support her claim that the Bank was vicariously liable for Ocwen’s actions, and, in the alternative, because, under section 2605(k)(1)(E), the Bank could not be held liable for the actions of its servicer even if an agency relationship were established. [Read more…] about Bank Cannot Be Liable for RESPA Violation under Vicarious Liability Theory

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Debtor Not a Borrower under Reverse Mortgage

The debtor, who had only a remainder interest in her mother’s property and was not a signatory to her mother’s reverse mortgage, was not a “borrower” entitled to remain in the residence after her mother’s death without paying the underlying debt. Reverse Mortgage Solutions v. Nunez, No. 18-22204 (S.D. Fla. March 21, 2019).

Aleida Nunez’s mother borrowed $531,000 secured by a reverse mortgage on her residence. The loan was memorialized in a Home Equity Conversion Note (Note) and a Home Equity Conversion Loan Agreement (Loan Agreement). The Note stated that the loan was secured by property described in a Security Instrument. While Ms. Nunez’s mother was the only signatory to the Note and Loan Agreement, Ms. Nunez was listed on the Security Instrument as having a “remainderman interest,” and she signed the document as “remainderman.” After her mother died, Ms. Nunez filed for chapter 13 bankruptcy and proposed a plan under which she would be treated as a borrower under the reverse mortgage, allowing her to cure tax and insurance defaults on the residence while continuing to live in the house without paying off the underlying loan. RMS objected to the plan, arguing that Ms. Nunez was not a borrower and that her mother’s death rendered the debt due.

The bankruptcy court reviewed the many documents surrounding the reverse mortgage but ultimately relied on the Security Instrument to find that Ms. Nunez was a borrower along with her mother on the loan. It confirmed her plan. On RMS’s motion for reconsideration, the court found the Security Instrument to be unambiguous and reached the same conclusion.

On RMS’s appeal, the district court found that in order to determine the intent of the parties to a transaction, Florida applies a “doctrine of mutual construction” requiring that when there are multiple documents executed at the time of the transaction, they should all be taken into consideration. The district court found guidance in a recent case out of Florida, Onewest Bank, FSB v. Palmero, 2018 W L 1832326 (FIa. 3d DCA 2018), where the mortgage and many other documents executed contemporaneously with the subject transaction were signed by the husband as “borrower.” The wife signed only the mortgage as a borrower, and on that document she was described as having an interest in the property as one of three remaindermen. The Palmero court found that, taking all the documents into consideration, only the husband was the “borrower.”

In this case, the court noted that Ms. Nunez’s mother was the sole signatory on eight documents relating to the reverse mortgage, including the Note, the Loan Agreement, the Residential Loan Application for Reverse Mortgages, a Borrower’s Certificate, and the Settlement Statement for the Reverse Mortgage. Significantly, the Note listed only Ms. Nunez’s mother as the borrower on the reverse mortgage. The court reasoned that treating Ms. Nunez as a borrower on the reverse mortgage based on the Security Instrument would nullify the terms of the Note, whereas the reverse was not true. The district court therefore found that the bankruptcy court erred in relying solely on the Security Instrument when it concluded that Ms. Nunez qualified as a borrower under the reverse mortgage.

Holding that Ms. Nunez was not a borrower, the court reversed and remanded.

Nunez SD Fla March 2019

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Bankruptcy Court Rejects Ditech’s Standing to file Mortgage Claim

A bankruptcy court recently expunged a claim of Ditech Financial LLC (Ditech) asserting that it was the creditor and the servicer of a note secured by an investment property (the “Property”) owned by the Debtors. Ditech filed a petition for bankruptcy in Case No. 19-10414 (Bankr. S.D.NY February 11, 2019). The order was entered in another proceeding before a different judge after Ditech’s bankruptcy was filed.

In this case, the Debtors filed a Chapter 11 and sought to sell the Property free and clear of all liens under 11 U.S.C. § 363. Ditech filed its claim. The Debtors successfully objected to Ditech’s claim because Ditech had not demonstrated it had standing. Ditech then filed a motion to reconsider which was granted. Meanwhile, the court granted the motion to sell the Property but kept the proceeds in escrow pending the new hearing on the standing issue.

Ominously, the court’s opinion began with “Throughout this case, Ditech Financial LLC (“Ditech”) has shown disdain for this Court and [the] debtors…”

To read more and get the opinion click here.