WILL THE REAL ASSIGNEE OF THE LOAN PLEASE STEP FORWARD AND ACCEPT YOUR LIABILITY UNER TILA?
Problem: 60% of loans are said to have been securitized. Meaning, the loan was transferred into a loan pool with 1,000's of other loans and sold to investors on Wall Street.
Legal Issue: When someone wants to rescind their loan (and get their money back from the lender or loan assigneee, who do you go after?). Who do you name in the lawsuit.
Answer: Generally speaking, the Trustee of the trust should be named in the TILA rescission lawsuit, as should any interim assignee of the loan, and even the loan servicer if the loan servicer was also once the holder of the loan.
Let's take an example from a TILA lawsuit we are working on. The alleged “investor” (following a QWR) was Wells Fargo and the loan Servicer was OneWest bank. After we sued these companies, they informed us that HSBC was the “trustee” of the securitized loan trust that allegedly contained our clients loan, and they urged us to dismiss Wells and OneWest and to pursue only HSBC. The problem with that approach is, we have no clue who owns the loan or holds the note and this is usually a mystery even these so-called “lenders” cannot figure out. So we dismiss noone and add HSBC to the lawsuit seeking to rescind the loan.
Let's look at some case law dealing with this interesting situation involving rescinding a securitized loan.
(1) Myers v. Citicorp Mortg. Inc., 878 F.Supp. 1553, (1995). EVEN SHORT TERM INTERIM ASSIGNMENTS LEADS TO TILA LIABILITY.
In this case Citicorp contended that it was not an assignee of Plaitniff's loan, and should not be held liable under the Truth in Lending Act. They based their argument on the fact that when it contracted to buy the rights to service the Resource mortgages, including the mortgage at issue here, Freddie Mac already owned the notes and mortgages themselves, pursuant to the sale and the unrecorded assignment. Citicorp therefore argued that Resource did not have any ownership rights in the notes and mortgages that it could have transferred to Citicorp. With no ownership interest, the notes and mortgages were at all times after Resource's assignment to Freddie Mac the property of Freddie Mac. Citicorp contended that all Resource owned was the servicing rights and, therefore, that is all that it could assign.
The Court addressed this argument:
“However, upon careful review of the documents and briefs of the parties, it appears uncontested that at some point following the sale of servicing rights to Citicorp, Resource retrieved the unrecorded assignment from Freddie Mac, in compliance with Freddie Mac's procedure. At this time, Resource was already the record owner of the note and mortgage. When it retrieved the assignment, however, it also became the actual owner of the mortgage and the debt it secured.”
The Court continued:
“Pursuant to the contracts involved, Resource promptly assigned the mortgages to Citicorp. The language in the document memorializing this transaction is plain. Titled an “Assignment of Mortgage,” it states that “For value received, the undersigned, Resource Bancshares Mortgage Group, Inc. ... does hereby grant, bargain, sell, convey and assign unto Citicorp Mortgage, Inc. ... that certain mortgage executed by the Myers together with the debt thereby secured, the note therein described and all Interest of the undersigned in and to the lands and property conveyed by said mortgage.” Citicorp recorded this assignment, and promptly reassigned the mortgage to Freddie Mac, using the same language in that document. The assignment from Citicorp to Freddie Mac was, as noted above, not recorded. Based on the documents before the court, it is clear that Citicorp was at one time, if only for an instant, an assignee of a creditor. To hold otherwise would be contrary to the purpose of the Truth in Lending Act. Designed to protect consumers, the Act requires entities that receive assignments of mortgages to be sure that there are no TILA violations on the face of the document. To be sure, assignees are not liable to the same extent as creditors, however, clear violations, those “on the face” of the disclosure statements, will create liability in the assignee. See Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511, 515 (5th Cir.1976); FN2 cert. den. 431 U.S. 929, 97 S.Ct. 2633, 53 L.Ed.2d 245 (1977).
“Additionally, to hold that Citicorp was not an assignee would mean that the documents that moved from Freddie Mac to Resource, and from Resource to Citicorp, and finally from Citicorp to Freddie Mac, were never intended to have the legal consequences that their language clearly carries. To so hold would essentially label these exchanges as some sort of legal smoke screen without design or purpose. Obviously this is not the case, nor is this argument advanced by either side. The court will therefore presume the documents to have the plain legal ramifications that their language purports to give them.”
“Citicorp argues that it only received the assignment from Resource because it was required by a quirk in Freddie Mac's operating procedure. It further contends that it never had any intention of owning the loan itself, since it planned to, and did, immediately re-assign the mortgages to Freddie Mac. Citicorp has contended that the reason for this procedure is so that Citicorp appears as record owner of the mortgage and therefore receives notice of subsequent activity, such as liens. A full explanation as to why Freddie Mac requires this circuitous pattern of assignments when there is a sale of servicing rights is not before the court. It seems entirely possible, however, that the reasons might include forcing a servicing agent to come within the provisions for assignee liability under § 1641, thereby requiring a servicing agent in this circumstance to be sure that no violations of the TILA are apparent on the face of the instrument. As stated, that matter is not before the court and the court therefore does not rest its decision on speculation as to Freddie Mac's purposes.”
The Court wrapped up its analysis with this:
“It is not necessary to speculate, however, as to Citicorp's status as an assignee. The documentary evidence clearly establishes that Citicorp received an assignment of the Myers' mortgage, note, and debt from Resource. It therefore is, under the terms of the TILA, an assignee of a creditor. As such, should it be determined that there is a violation of the TILA that appears on the face of the document, Citicorp would be properly held jointly and severally liable for that violation.”
“See Greenlee v. The Sterling Wheel, Inc., 693 F.Supp. 1396, 1398 (D.Ct.1988), which held that liability of assignee for disclosure violation apparent on the face of the instrument is joint and several.”
In re Jackson, 245 B.R. 23, Bkrtcy.E.D.Pa. (2000). CHAPTER 13 TILA LOAN RESCISSION CASE. PLAINTIFF SOUGHT TO RESCIND LOAN IN BANKRUPTCY. ASSIGNEES ARGUED THEY WERE NOT LIABLE. COURT HOLDS USB LIABLE FOR HOEPA VIOLATION.
The Court discussed:
- “The Complaint attacks Wilshire's proof of claim, alleging that the Complaint itself effects a demand for, inter alia, rescission under HOEPA and the TILA, of the underlying loan transaction of March 18, 1997, between the Debtor and MLM, which was initially assigned to Cityscape and ultimately to USB, whose servicing agent is Wilshire. USB does not deny that it knew that the mortgage which it holds arising out of the instant transaction was a HOEPA loan. In such a loan that is the only defense available to an assignee. As we further held in Murray, however, §§ 1641(d)(2) and (3) do limit an assignee's liability to essentially the greater of (1) the applicable TILA damages or (2) elimination of the loan and recovery of all payments made. Therefore, USB, as the assignee of the loan, can and will be held liable for all of the damages that flow from the statute and for the ignored valid rescission in this HOEPA loan, but no total of damages greater than these set forth in §§ 1641(d)(2) and (3).”
The Court also discussed whether the loan servicer (Wilshire) could be held liable under TILA:
“One issue distinct from any presented in Murray is whether Wilshire, as the servicing agent for USB, has any liability to the Debtor. We find that Wilshire cannot be held liable because the TILA has no provision for liability for servicing agents, as the statute has for original lenders and their assigns. No specific facts or statutory bases for rendering Wilshire liable appears, since there is no evidence that its duties as a servicing agent have anything to do with the facts which render USB and MLM liable to the Debtor.”
This is consistent with 15 U.S.C Section 1641(f) which reads:
http://law.onecle.com/uscode/15/1641.html (See link here)
(f) Treatment of servicer
(1) In general
A servicer of a consumer obligation arising from a consumer
credit transaction shall not be treated as an assignee of such
obligation for purposes of this section unless the servicer is or
was the owner of the obligation.
(2) Servicer not treated as owner on basis of assignment for
A servicer of a consumer obligation arising from a consumer
credit transaction shall not be treated as the owner of the
obligation for purposes of this section on the basis of an
assignment of the obligation from the creditor or another
assignee to the servicer solely for the administrative
convenience of the servicer in servicing the obligation. Upon
written request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with the name,
address, and telephone number of the owner of the obligation or
the master servicer of the obligation.
(3) "Servicer" defined
For purposes of this subsection, the term "servicer" has the
same meaning as in section 2605(i)(2) of title 12.
Conclusion: So, it appears you need to list everyone who may have been assigned the loan on a TILA rescission lawsuit. This is not legal advice and may not be accurate or up-to-date. For specific legal advice contact a real estate, foreclosure, or truth in lending lawyer in your area
If you want to have your options reviewed, fill out our loss mitigation form at http://www.AttorneySteve.net (Sorry, California and Arizona properties only). We are once again taking Wachovia and World Savings Pick-a-Pay and Option Arm loans (negative amortization loans) on a CONTINGENCY FEE BASIS. You can check out our profile on ContingencyCase.com.